Suppose that every day, ten men go out for beer and the bill for all ten comes to $100. If they paid their bill the way we pay our taxes, it would go something like this…

The first four men (the poorest) would pay nothing
The fifth would pay $1
The sixth would pay $3
The seventh would pay $7
The eighth would pay $12
The ninth would pay $18
The tenth man (the richest) would pay $59

So, that’s what they decided to do.

The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve ball.

“Since you are all such good customers,” he said, “I’m going to reduce the cost of your daily beer by $20″. Drinks for the ten men would now cost just $80.

The group still wanted to pay their bill the way we pay our taxes. So the first four men were unaffected. They would still drink for free. But what about the other six men ? How could they divide the $20 windfall so that everyone would get his fair share?

The bar owner suggested that it would be fair to reduce each man’s bill by a higher percentage the poorer he was, to follow the principle of the tax system they had been using, and he proceeded to work out the amounts he suggested that each should now pay.

And so the fifth man, like the first four, now paid nothing (100% saving).
The sixth now paid $2 instead of $3 (33% saving).
The seventh now paid $5 instead of $7 (28% saving).
The eighth now paid $9 instead of $12 (25% saving).
The ninth now paid $14 instead of $18 (22% saving).
The tenth now paid $49 instead of $59 (16% saving).

Each of the six was better off than before. And the first four continued to drink for free. But, once outside the bar, the men began to compare their savings.

“I only got a dollar out of the $20 saving,” declared the sixth man. He pointed to the tenth man,”but he got $10!”

“Yeah, that’s right,” exclaimed the fifth man. “I only saved a dollar too. It’s unfair that he got ten times more benefit than me!”

“That’s true!” shouted the seventh man. “Why should he get $10 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. This new tax system exploits the poor!”

The nine men surrounded the tenth and beat him up.

The next night the tenth man didn’t show up for drinks so the nine sat down and had their beers without him. But when it came time to pay the bill, they discovered something important. They didn’t have enough money between all of them for even half of the bill!

And what about the 11th man? The rich man who owned the pub. I’m sure he had to come up with some devilish plan to keep the 9 men coming for their few pints. Maybe he had to lower his profit expectations to keep them coming. I’m sure they got over it.

Nice little story. Are you very wealthy? Or are you just hoping some day you will be? I think what most people mean when they talk of a fairer tax system they mean the super wealthy. Btw I see you posted it again down below and your alter ego, the cute little strawberry, did too.

I posted it the second time and requested this one be removed because it was in the wrong place.

I have no idea what Peter is doing.

I’m probably the 7th or 8th man.

Stepehn Donnelly talks a lot of sense. I hope he keeps beating this particular drum. One caveat though, tax deductible dis-proportionally favors those on higher incomes. I say we should strive for universal free childcare provided by the state.

We must have close to the highest cost of child care in the EU. €1,000 per child per month is shocking money.

Tax deductibility of childcare would put paid to that, Conor, since crèche clients would need their payments to be official in order to avail of the tax break.

Your absolutely correct. Most people outside the child care industry don’t realise the overheads can be quite off putting. Not to mention the expense of all the courses needed to fulfill the HSE/ECCE criteria. It is now more regulated than ever before .

And how much was your health insurance? You can’t just cherry pick benefits from country to country. nIt is a combined system. No decision should be made without analysis. That is what the did with medical cards to oaps. nIf the did this wrong somebody could be earning less than it costs to pay the childminder. n

I am not cherry picking just bringing my experience about a system that worked and was fare to all using childcare !!

*fair*

Mary paying a flat amount to everybody regardless of circumstances and number of children seems like the opposite of a fair system! we need to work smarter in the current economic situation but alas we are missing intelligent politicians to try and bring this about!

Yes it was fair…everyone got the same tax break……it is a personal choice to have more children and why should the tax payer pay if one decides to have more…..that is what is wrong with this country everyone expects the taxpayer to subsides their personal choices!!!

Children are the future of any country. You could ask why someone struggling on one wage should be excluded from tax breaks just because their children aren’t in a creche. Is the work of a person in the home not considered to be of any benefit to the economy?

Yes Maria, in the US you do get tax credits for each family members and here you get Child benefit.

@Mary, Can you provide clarity on tax credits in the States. My question is do people get tax credits and no child benefit as provided in Ireland. If that is the case then would it not make people worse off in Ireland at the moment if people are unemployed as you can only use tax credits if you have a PAYE income?

Eugene, tax credits are for all… employed or not …each person is entitled to a tax credit. Parents claim credit for their children or any dependent relative. This is an example…a married couple with 2 children are entitled to 4 tax credits…..if one parent works he can claim all the credits if both work they can split it or have one just claim the credits. When we lived there we just claimed credits for ourselves(2 credits) during the year so paid more tax….at the end of the tax year when everyone files taxes we claimed the the reminder 2 credits for our children and got a reimbursement….we looked on as a form of saving that we got at the end of the year, it is a great tax system as everyone gets a credit working or not so there is no argument that working mothers get all the tax credits over non working mothers.

@Mary. I understand that the credits are for all the same way as we are entitled to tax credits in Ireland (Self, PAYE etc) and the States has a different tax system. My understanding is that they are a credit and that a credit (as with Ireland) can only benefit you if you are earning an income as it reduced your tax liability. If you are unemployed then you are not earning an income (in the tax system as it is a benefit in Ireland). I do not see how a credit would help people as if like the States there is no Child Benefit or annual tax returns (unless self employed etc). In that system people would be worse of in Ireland as I think CB is around €140 a month (cash). If people got the tax credit in our system to replace CB it would push people into more poverty as they would get money back from Revenue at year end (once they had paid tax) but with 2 kids they would lose around €280 a month in CB which I think most need at the moment monthly. Am I correct in thinking this?

I agree Sarah….I am now at the other end of the scale and even with a change in lifestyle find it difficult to understand that free childcare places are been handed out now at the expense of the college fees going up. All I can say is that the children currently getting free places will probably be in debt on leaving college to cover their fees……the free childcare will fade into insignificance in 2024!!

I agree, Sarah- any allowance that only favoured parents working outside the home wouldn’t be very well received.

@Sarah –

Taxing specific choices and giving tax breaks for others is one of the main tools of governments to steer the behaviour of the people.

In some cases this behaviour results in more overall tax intake in the case of tax breaks; other times, tax increases result in lower tax intake. That is because tax policy changes the way people behave. The idea behind this proposal was to encourage people who would like to go back to work (and pay tax) by reducing the cost of childcare to them.

One cannot incentivise one choice and at the same time its opposite!

While parents should have the flexibility to stay at home if they’d like to, I really hope you’re not suggesting that families with two working parents are somehow shirking responsibility for their children? A lot of parents have no choice but to work (as draining as childcare costs are) and others enjoy their jobs. Let’s not turn this into the mommy wars.

it’s called sarcasm nick !

Yep. Sarcasm which seemed to imply that parents should just stay at home.

no nick just one of them, either can do it or take turns mummy on mornings daddy on evenings and both on nights. its a fairly flexible arrangement.

Ah. So you weren’t actually being sarcastic, you’re implying that childcare costs should not be a priority. I’m assuming that you (1) know where we can all find incredibly flexible positions and (2) are planning to be a stay at home parent yourself, as you think that’s the solution.

The reason is that providing it is expensive.

I have a child in childcare and it’s fine although by no means luxurious. They need to have at least one minder per 4 to 7 children (depending on age), then there’s rent, insurance, bills, they serve a fully cooked meal, and in the end they charge less than €250 per week.

I have lived in third-world countries and availed of child care for my children, which (for us) was very cheap. Of course the standards were not the same. There was a teacher per, oh, 20 toddlers; they played with whatever broken toys they had; the teachers had no specific qualifications; safety measures were rather haphazard (“Did you notice that piece of wood covered with rusty nails in the backyard?” said I; “Oh is there one? Can you please fetch it and throw it behind that fence?”); the meals consisted in a bowl of cereal.

Sorry Giovanni Giusti my question was in relation to simple academic economics as the author regards himself as having expertise in this area and it exposes some of the false assumptions he uses it this piece.

Assuming 21 children in a crèche and costings done per 7 children
7 children @ €250 = €1750 gross. Wages for child minder €450, Meals €50, insurance (very generous allowance) €50 (€2600 per year for 7 kids!) Light heat incidentals €50, Rent €200.
net profit €950 per week. Note very generous allowances to cover other incidentals like paper, crayons etc.

Giovanni you appear to use the fallacious assumption that price equals quality which suggest to me that you are more in support of the supplier side of the equation than the consumer side!

Only up to a point Ben – price is regulated by demand but also by the cost of supply.

You would think that without tax breaks the cost of childcare would have gone down with the recession, and probably it has somewhat, but even with minimum wages and lower rent there are still fixed costs associated with running a childcare facility properly. So there is still a section of the working population that can’t afford to pay for childcare, and childcare can’t price the service low enough for it to become affordable. This is where tax breaks could make a difference.

I’m surprised at the number of thumbs down for your comment as tax individualisation has really had a major effect on the single income family. I’m not into the idea of making childcare tax deductible as I think it would just result in higher costs for childcare. Lots of double income families need help in managing the high cost of actually going out to work, but the stress and strain plus the added cost of a lost income is a major issue for one income families.

“It also frees up jobs and would effectively end the unemployment problem.”

Wrong wrong wrong. Suggest you google ‘lump of labour fallacy’…

Rob I can’t agree with any of this. Are you saying anyone earning above €80,000 doesn’t pay their fair share? This top 1% pay little or no taxes, also has me slightly perplexed, could you please provide some evidence of this.

Rob, anyone who earns €80,000 does not fall into the rich category and certainly not into the top 1%. This whole notion of the super rich needs to be clarified. These are people like Denis O’Brien, Dermot Desmond , Bono and their ilk, not the people who work their asses off and happen to earn €80,000. Get your facts right.

And also, people who earn €80,000 are paying a horrendous amount of tax already.

Rob, I think you’ll find that the majority of the taxes paid in this country are paid by those earning around that amount, Ireland’s mildly infamous for its narrow tax base

Under the Radar…I think you are missing the point. The parable is about the destructive impact of the politics envy.

Ian Woods:

The rich refuse to answer any questions about their Mormon beliefs. They sent Irish jobs to China, and their greedy profits to toxic banks.

Nice trollin’ Rob :-)

Giovanni,

The Fine Gael vision for Ireland is one where big corporations and the wealthy pay no taxes at all, and what is left of the middle class and the working poor pay for everything (including childcare). Have you heard Fine Gael’s tax plan?

The Fine Gael vision for Ireland is one of endless tax rises and nation building where Ireland is the posterboy child of the world, no matter the cost in lives or money. And they never raise a single tax to pay for their cuts to childcare. They just charge them and then complain about the deficit.

The Fine Gael vision for Ireland is to send all manufacturing jobs to Asia, regardless of the damage to this country, and just so they can destroy the unions. They have been doing it for 1 year.

The Fine Gael vision for Ireland is to end all public education and discourage going to college. Did you hear Quinn’s comments about it being elitist to want to send more people to college?

Send them all home in 2012.

‘ ….no other option for working mothers….’

Children have two parents, both of whom should be responsible for childcare and decisions made about it. Before you accuse others of making silly accusations, perhaps examine some of your own( silly) assumptions about childcare responsibilities.

Quangos and retiree public servants on golden handshakes should be heavily taxed.

A.P. I don’t want to offend or seem facetious, but are you trying to say that abortion and same gender unions are to be equated with marriage? They are two separate issues.

Peoples civil rights have nothing to do with economic analysis, or maybe you think they have.

I think it’s pretty distasteful to bring up abortion when the topic is childcare costs.