Every day, ten guys met up at a local sports bar to grab a few beers and talk. The total bar tab for the night always came out to exactly $100.
They decided to split the bill the same way we pay our income taxes—based on a progressive income bracket.
So, their nightly payment looked like this:
The 1st, 2nd, 3rd, and 4th guys (the poorest) paid $0.
The 5th guy paid $1.
The 6th guy paid $3.
The 7th guy paid $7.
The 8th guy paid $12.
The 9th guy paid $18.
The 10th guy (the wealthiest) paid $59.
Everyone was perfectly happy with this arrangement, and they drank together happily for quite a while. But one day, the bar owner threw them a curveball.
"You guys are great, loyal customers," he said. "So I'm going to knock $20 off your daily tab. From now on, your drinks will only cost $80."
The guys still wanted to split the bill based on the same progressive proportions.
The first four guys would still drink for free, of course—the discount didn't change anything for them. But what about the other six guys, the ones actually footing the bill? How could they divide a $20 discount so that everyone got their "fair share"?
If they just divided the $20 evenly by six, it would be about $3.33 each. But if they did that, the 5th and 6th guys would actually be getting paid to drink beer, since their original bills were only $1 and $3.
So, the bartender suggested keeping the same progressive percentages. He crunched the numbers, and the new daily tab looked like this:
The 5th guy now paid $0 (a 100% savings).
The 6th guy paid $2 instead of $3 (a 33% savings).
The 7th guy paid $5 instead of $7 (a 28% savings).
The 8th guy paid $9 instead of $12 (a 25% savings).
The 9th guy paid $14 instead of $18 (a 22% savings).
The 10th guy paid $50 instead of $59 (a 15% savings).
(Total: $0 + $2 + $5 + $9 + $14 + $50 = $80)
Every single guy who paid was now paying less than before. The first four guys still drank for free, and now the fifth guy did, too.
But once they walked out of the bar, the men started comparing their savings.
"I only got $1 out of that $20 discount," the 6th guy pointed out. He glared at the 10th guy. "But he got $9!"
"Yeah, you're right!" agreed the 5th guy. "I only saved a dollar, too. It is completely unfair that he got nine times the tax break we did!"
"Exactly!" yelled the 7th guy. "Why does the rich guy get $9 handed back to him, when I only get $2? The wealthy always get all the breaks!"
"Wait a minute!" shouted the first four guys in unison. "We didn't get a single dime out of this! The system is rigged against the poor!"
Enraged by the "injustice" of it all, the nine guys surrounded the tenth guy and beat him up.
The next night, the tenth guy didn't show up to the bar.
The remaining nine guys sat down, drank their beers, and had a great time without him. But when the bartender dropped the check on the table, they suddenly realized a terrifying truth: Combined, they didn't even have enough money to cover half of the bill.
And that, in a nutshell, is how the tax system works. The people who already pay the vast majority of the taxes will naturally see the largest dollar-amount benefit from a tax cut. If a society taxes them too heavily and constantly vilifies them for their wealth, there is a very real risk that they will simply pack up and leave. They will start "drinking their beer" in another jurisdiction with a much more business-friendly atmosphere.
The moral of this story is famously summarized by former British Prime Minister Margaret Thatcher: "The problem with socialism is that you eventually run out of other people's money."
For those who understand economics, no further explanation is needed.