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Last Edited July 17, 2004

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Restaurant Economics 

 

This article appeared in the February 23, 2002 issue of the Lakeshore News -

Salmon Arm, B.C. It was written by Ron Adams, a local financial advisor who

writes a regular column in the paper. Ron is sometimes a little irreverent and

ruffles many conservative feathers in town but he is often entertaining and

usually gets straight to the heart of the issue.

 

As written by Ron:

 

I was having lunch at PJ's with one of my favourite clients last week

and the conversation turned to the Campbell government's recent round

of tax cuts.  "I'm opposed to those tax cuts," the retired college

instructor declared, "because they benefit the rich.  The rich get much

more money back than ordinary taxpayers like you and I and that's not fair."

 

"But the rich pay more in the first place," I argued, "so it stands to reason

that they'd get more money back."  I could tell that my friend was

unimpressed by this meager argument. Even college instructors are a

prisoner of the myth that the "rich" somehow get a free ride in Canada.

Nothing could be further from the truth.

 

Let's put tax cuts in terms everyone can understand.  Suppose that

everyday 10 men go to PJ's for dinner, The bill for all ten comes to $100.

If it was paid the way we pay our taxes, the first four men would pay

nothing; the fifth would pay $1; the sixth would pay $3; the seventh $7;

the eighth $12; the ninth $18. The tenth man (the richest) would pay $59.

 

The 10 men ate dinner in the restaurant every day and seemed quite

happy with the arrangement until the owner threw them a curve. Since

you are all such good customers, he said, I'm going to reduce the cost

of your daily meal by $20. Now dinner for the 10 only costs $80.

 

The first four are unaffected. They still eat for free.  Can you figure out

how to divvy up the $20 savings among the remaining six so that

everyone gets his fair share? The men realize that $20 divided by 6 is

$3.33, but if they subtract that from everybody's share, then the fifth

man and the sixth man would end up being paid to eat their meal.

The restaurant owner suggested that it would be fair to reduce each

man's bill by roughly the same amount and he proceeded to work out

the amounts each should pay.

 

And so the fifth man paid nothing, the sixth pitched in $2, the seventh

paid $5, the eighth paid $9, the ninth paid $12, leaving the tenth man

with a bill of $52 instead of $59. Outside the restaurant, the men began

to compare their savings.

 

"I only got a dollar out the $20," declared the sixth man pointing to the

tenth, "and he got $7!"

 

"Yeah, that's right," exclaimed the fifth man. I only saved a dollar, too.

It's unfair that he got seven times more than me!

 

"That's true," shouted the seventh man. "Why should he get $7 back

when I got only $2?  The wealthy get all the breaks."

 

"Wait a minute," yelled the first four men in unison. "We didn't get anything

at all. The system exploits the poor."

 

The nine men surrounded the tenth and beat him up. The next night he

didn't show up for dinner, so the nine sat down and ate without him.

But when it came time to pay the bill, they discovered something important.

They were $52 short!

 

And that, boys and girls and college instructors, is how Canada's tax

system works. The people who pay the highest taxes get the most benefit

from a tax reduction. Tax them too much, attack them for being wealthy,

and they just may not show up at the table anymore. There are lots of

good restaurants in Switzerland and the Caribbean.


 




 

 

 

 

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