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In this tax season, here is a story that summarizes well our tax system:

Suppose that everyday, ten men go out for dinner. The total bill comes to $100 and they decide to pay it as they pay their taxes. The first four men – the poorest – pay nothing; the fifth pays $1; the sixth $3; the seventh $7; the eighth $12; the ninth $18. The tenth man – the richest – pays $59. The ten men eat dinner in the restaurant every day and seem quite happy with the arrangement – until one day, the owner threw them a curve. “Since you are all such good customers,” he said, “I’m going to reduce your bill by $20.” So now dinner costs only $80. The group still wanted to pay their bill the way we pay our taxes. So the first four men were unaffected and still eat for free. The six other men realized that $20 divided by six is $3.33. But if they subtracted that from everybody’s share, then the fifth man and the sixth man would end up being “paid” to eat their meal. So the restaurant owner suggested the following: the fifth man would pay nothing, the sixth would pitch in $2, the seventh $5, the eighth $9, the ninth $12, leaving the tenth man with a bill of $52 instead of $59. Each of the six was better off than before. And the first four continued to eat for free. But once outside the restaurant, the men began to compare their savings. “I only got a dollar out of the $20,” declared the sixth man. He pointed to the tenth. “But he got $7!” “Yeah, that’s right,” exclaimed the fifth man. “I only saved a dollar, too. It’s unfair!” “That’s true!” shouted the seventh man. “Why should he get $7 back when I got only $2? The wealthy get all of 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 is how our tax system works. The people who pay the highest taxes receive the most benefit from a tax deduction. Tax them too much, attack them for being wealthy, and they just may not show up at the table anymore.


  • Claret
    Claret Asset Management specializes in offering portfolio management services to high net worth clients. We are completely independent and free of conflicts of interest. Claret was founded in 1996 with the objective of answering the growing needs of private investors.

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