There’s this video making the rounds today purporting to describe how the Progressive Income Tax works. You can watch the video here. but the script goes like this:
Once upon a time, there were three brothers; triplets named Tom, Dick, and Harry Class. They were raised in the same home with the same parents, had the same IQ, same skills, and same opportunities. Each was married, and had two children. They were all carpenters making twenty-five dollars per hour.
While they were very similar in all these respects, they had different priorities. For example, Tom worked twenty hours per week, while his brother Dick worked forty hours, and Harry, sixty. It should also be noted that Harry’s wife worked full time as an office manager for a salary of $50,000. Dick’s wife sold real estate part time for 10 hours a week, and made $25,000 per year. Tom’s wife did not work. Tom and Dick spent all of their families’ income. Since they paid into Social Security, they figured they didn’t need to save for retirement. Harry and his wife, on the other hand, had over many years, put away money each month and invested it in stocks and bonds.
Here’s how it worked out: Tom made $25,000 a year, Dick and his wife made $75,000, and Harry and his wife: $150,000.
When a new housing development opened up in their community, the brothers decided to buy equally priced homes on the same street. One day, the brothers decided to pool their funds for the purpose of improving their street. Concerned about crime and safety, and wanting a more attractive setting for their homes, the three families decided to install a security gate at the street’s entrance, repave the street’s surface, and enhance the lighting and landscaping. The work was done for a total cost of $30,000.
Harry assumed they would divide the bill three ways, each brother paying $10,000. But Tom and Dick objected. “Why should we pay the same as you?” they said. “You make much more money than we do.”
Harry was puzzled. “What does that have to do with anything?” he asked. “My family makes more money because my wife and I work long hours, and because we have saved some of the money we earned to make additional money from investments. Why should we be penalized for that?”
“Harry, you can work and save all you like,” Tom countered, “but my wife and I want to enjoy ourselves now. Not 25 years from now.”
“Fine, Tom. Do what you want; it’s a free country. But why should I have to pay for that?”
“I can’t believe you’re being so… unbrotherly!” Tom argued. “You have a lot of money, and I don’t. I thought you’d be more generous.”
At this point Dick, the peacemaker in the family, entered the conversation. “I’ve got an idea,” Dick said. “Our combined income is $250,000, and $30,000 is 12% of that. Why don’t we each pay that percentage of our income? Under that formula, Tom would pay $3,000, I would pay $9,000, and Harry would pay $18,000.”
“I have a much better idea,” said Tom. “And one that’s fairer than what you’re proposing.” Dick and Harry turned to Tom. “Harry should pay $23,450. Dick, you should pay $6,550, and I will pay nothing.”
To Dick this sounded completely arbitrary, and not really fair, but it did have one big plus: his share would be $2,450 less under Tom’s formula than under his own. So he decided to be silent.
Harry, however, was stunned. “You want me to pay almost 80% of the bill despite the fact that each of us is receiving the exact same benefits? Where did you get such a crazy idea?”
“From no less an authority than the US Government!” Tom responded as he pulled out a grey booklet. “It’s all right here in the IRS tax tables. This is the progressive tax system all US taxpayers live under, and I don’t see why we should be any different. In fact, I believe all future improvements should be paid in this way.”
“Works for me,” said Dick.
So, by a vote of 2 to 1, the cost of the street improvements was divided as Tom had proposed, even though they benefitted equally and even though the reason Harry had more money was that he and his wife had worked many more hours than his brothers and their wives, and had saved some of what they had earned instead of spending it all.
Tom and Dick lived happily ever after with their new arrangement. Harry grumbled a lot. But whenever he complained, his brothers called him greedy and selfish. The End.
Now, obviously, the brothers here are meant to represent socioeconomic classes – the makers even went so far as to give the brothers the last name “Class” just in case the metaphor seemed too subtle to the viewers. I’ve seen my more conservative-minded friends posting this video on Facebook, praising how it makes such a brilliant explanation of how the progressive tax system works, and generally getting pissed off about it as I’m sure the video creators intended. It pissed me off, too. But in my case, I’m pissed at the makers of the video, because they’re either out-and-out liars or deluded to the point of psychosis.
Firstly, I’ll say this much: they are correct that the progressive tax system requires higher income earners to pay a higher percentage of their income in taxes than the lower income earners. That much is true. The rest of it is pure fabrication, based on three myths: 1) everyone has the same access to opportunity; 2) poor people are poor because they are lazy, irresponsible and immoral, while rich people are rich because they are hard-working, responsible, and just; 3) the benefits of society are shared equally across all economic classes. These glaringly false talking-points are inserted into the narrative, and used to manipulate the audience into seeing the progressive tax structure as inherently unjust and the rich as benighted victims of the greed of the lower classes.
So, I thought I’d write a new script that bears a little more resemblance to the plights of the various classes involved in the story.
Once upon a time, there were three brothers named Tom, Dick, and Harry Class. Although they shared the same well-off parents, Harry was clearly the favorite. Harry was sent to an Ivy League college, where he was able to befriend the favored children of other rich parents – one of whom he married - while acquiring a degree that automatically opened doors in the business and academic communities. Dick was able to get into a lesser college through token support from his parents combined with taking on student loans. He graduated with an engineering degree and tens of thousands of dollars in debt. Their father denied that Tom was even his son, and refused to give him a cent in support. With no one to vouch for his credit-worthiness, Tom was unable to continue his education beyond high school, but at least he had a few basic skills to rely on and few debts. All three brothers were married, and had two children. As the favorite, Harry inherited the family construction business when their father retired and hired his two brothers as employees.
Although they came from the same family, their lives proceeded on very different tracks.
Tom started out working 40 hours per week, but because Harry cut corners on material quality and safety equipment in order to increase profits, Tom suffered serious injuries when a building project collapsed. Harry refused to pay for the medical bills, and Tom was unable to afford a lawyer to sue for compensation. By the time he had recovered as much as he would be able to without specialized and expensive medical care that he would never be able to afford, Tom was disabled and unable to work more than twenty hours a week. Tom’s wife took a job to try and make up for the income, but because she was now part-time caregiver to a disabled adult as well as their two children, she could only manage to get part-time jobs on grueling off-shift schedules. Tom and his family spent all of their money on food, shelter, and increasingly unmanageable medical bills.
Dick, likewise, also started out working forty hour weeks. But Harry laid off the two other engineers at the family business without hiring any replacements. And, while Dick managed to find ways to work more efficiently, he was still putting in 60-80 hours a week. But because his job was salaried, that extra work did not translate to extra pay for Dick; just extra profits for Harry. Dick’s wife sold real estate part time for 10 hours a week because working any more hours would have required them to put their children in daycare, which would have cost more than she could earn by working extra hours. Dick looked into striking out on his own, but because of his existing school debt he couldn’t qualify for a loan to start up his own business. Dick hasn’t had a meaningful raise (one that exceeded inflation) in almost a decade.
Harry paid himself a nominal salary as head of the company, and his wife earned a similar amount thanks to the management position she got straight out of college because of their rich friends who also owned businesses. He was also able to supplement their income by combining their household expenses with business expenses.
This is how it worked out: Tom and his family earned $25,000 per year, all of which was eaten up in food, shelter, and medical bills while debts steadily mounted on necessities they couldn’t pay for; Dick and his family earned $75,000 per year, much of which went to paying off debts and what little savings they could build up were routinely wiped out by minor emergencies like the car breaking down or plumbing repairs. Harry and his wife nominally earned $150,000 per year, but found ways to combine household and business expenses such that they were able to live as if earning $500,000.
The three brothers had bought similar houses on the same street. The houses weren’t identical in price or condition, though. Tom’s house was the smallest to begin with, but after his injury he wasn’t able to keep up on maintenance and couldn’t afford to pay anyone to help out. As a result, his house had a number of structural and plumbing problems. Dick had a slightly larger house, which he managed to keep up but couldn’t afford to make any improvements to. Harry’s house was the largest, was maintained in perfect condition, and was routinely upgraded.
One day, the brothers decided to pool their funds for the purpose of improving their street. Concerned about crime and safety, and wanting a more attractive setting for their homes, the three families decided to install a security gate at the street’s entrance, contract private security and ambulance services, repave the street’s surface, and enhance the lighting and landscaping. The work was done for a total cost of $30,000.
Harry assumed the cost would be divided three ways, with each brother paying $30,000. But Tom and Dick objected. “Why should we pay the same as you?” they said. “You make much more money than we do.”
Harry pretended to be puzzled. “What does that have to do with anything?” he asked. “My family makes more money because my wife and I work long hours,” he lied, “and because we have saved some of the money we earned to make additional money from investments. Why should we be penalized for that?”
“Actually,” Tom countered, “Dick works much harder than you do; you just pay him poorly. I can’t work any more than I do because of injuries I sustained for your profit, and I have no money because you refused to pay the medical bills for the accident you caused.”
Harry waved the objections aside. “That’s your bad luck. It could have happened to anyone; why should I have to pay for it?”
“Perhaps because you got to make all the decisions about what we’re buying in the first place. I only wanted my house repaired – which I’m not getting, by the way – and neither of us wanted landscaping or a gate. But you knew we couldn’t afford to get any of the things we did want without you and kept threatening to torpedo the deal altogether if it didn’t include everything you wanted.”
“Look,” said Harry, who had been watching Dick’s expression and was afraid he was going to lose the middle brother, “I’ve got another idea. Our combined income is $250,000, and $30,000 is 12% of that. Why don’t we each pay that percentage of our income? Under that formula, Tom would pay $3,000, Dick would pay $9,000, and I would pay $18,000.” Harry hoped that making this concession would get Dick on his side.
“I have a much better idea,” said Dick, finally stepping into the conversation. “And one that’s fairer than what you’re proposing.” Tom and Harry turned to Dick. “Harry should pay $23,450. I should pay $6,550, and Tom will pay nothing.”
Harry was stunned. “You want me to pay almost 80% of the bill despite the fact that each of us is receiving the exact same benefits?” Of course, even as he said it, all three brothers knew Harry was lying. Most of the benefits were the things Harry wanted and the other brothers didn’t, the security improvements benefitted him far more than the other two because his property was far more valuable, and the contracts with the security and ambulance companies were written to prioritize Harry and his property over the other two brothers. “Where did you get that idea?”
“Being in touch with reality,” replied Dick. “You were given every advantage from the start, and continued to take advantage at every opportunity since then. The fact is that Tom has no money to give no matter how you badger him, and it’s at least partly your fault that he’s in that position. I can afford to chip in something, and I will, but since you’re already profiting far more from my work than I am, you can at least pay some of it back in the form of picking up a larger share in this instance. You’re getting most of the benefits anyway.”
So, by a vote of 2 to 1, the cost of the street improvements was divided as Dick had proposed. The cost hardly made a dent in Harry’s finances, though he complained and moaned as if he’d been consigned to the poor house.
Tom and Dick lived marginally better with their new arrangement, though it still wasn’t easy. Harry hired a PR firm to make and distribute a dishonest video portraying his brothers as greedy, lazy leeches who took advantage of him. The End.