FT130: “Tax dollars pay the bills. Not tax rates.” -Old Pithy

Posted by PITHOCRATES - August 10th, 2012

Fundamental Truth

Even though we have a Progressive Tax System we don’t have a Progressive Movie Ticket Price System

The average price for a movie ticket is about $8.  A flat price.  In dollars.  Whatever you earn.  If you earn $50 in gross daily earnings you pay $8.  If you earn $100 in gross daily earnings you pay $8.  If you earn $200 in gross daily earnings you pay $8.  Is that fair?  Based on the amount people could pay, no.  Because $8 is a different percentage of each earner’s daily gross pay.  It’s only 4% for those who earn $200 daily.  It’s 8% for those who earn $100 daily.  And a whopping 16% for those who only earn $50 daily.  Is that fair?  Well, if we measure fairness by the way we pay income taxes, no.  This is not fair.

Look, we live in a fair country.  We have a progressive tax system.  So we should have a progressive movie ticket price system.  And someone who only earns $50 a day shouldn’t be paying 16% of their earnings for a movie ticket.  Not when someone who can more easily afford to pay more only pays 4% for a ticket.  These numbers are upside down.  The lower income people should only pay 4%.  The middle income people should pay 8% because they can more easily afford it.  And the high income earner should pay 16% because if they don’t they’re not paying their fair share.  So let’s say the government makes it so.

Once we make going to the movies fair this is what we can expect at the box office.  Those with daily earnings of $50 pay only $2 for a ticket.  Those with daily gross earnings of $100 pay $8.  And those with gross daily earnings of $200 pay $32 for their movie ticket.  The low-income earners will be very happy with this new fairness.  Those middle-income earners will have mixed feelings but won’t complain because they don’t have to pay any more.  The high-income earners, though, will not be happy with the new ticket pricing policy.  Because sitting in a theater is not worth $32 a ticket.  Especially if they’re taking their spouse and 3 kids.  Making a night at the movies cost $160.  Or 80% of their daily gross earnings.  And that doesn’t include any concession snacks.

The Problem with Fairness is that you can have the Best Intentions and end up with the Worst Results

You know who would love this?  Theater owners.  (As well as movie studios and the actors who share in box office sales.)  They would all be for fairness.  Because they would see greater earnings.  The typical theater seats about 225.  At $8 a ticket that comes to $1,800 in revenue per show.  When they implement the fairness policy, though, they could do better.  Say 40% of theater goers are low-income, 40% are middle-income and 20% are high-income.  Based on the fair ticket price policy the theater owner will increase earnings to $2,340.  That’s a revenue increase of $540.  Or an increase of 30%.  So, sure, the theater owners would all be for fairness when it comes to ticket prices.  (As well as the movie studies and actors.)

Until, that is, when the high-income people stop going to the theater.  If their seats remain empty the theater will not collect their $1, 440 in revenue per show.  Their seats will remain empty.  And half the people watching the movie will be paying only $2 for their ticket.  This will reduce revenue by $900.  Or a decrease of 50%.  Which will change the way theater owners think about fairness.  As they struggle to stay in business.  And if they can’t change the government fair pricing system their costs will exceed their revenue.  They will have to make cuts everywhere they can to get their costs under their revenue.  Lowering the quality of the movie going experience.  To the point people just stay home and watch something they download online while eating microwave popcorn.  Eventually shuttering the theater.  And putting more people out of a job.  (Not to mention making it impossible for a movie studio to make a profit on all but the biggest blockbusters and the cheapest to films to make.  And the big movie stars would all see a hug pay cut.  Which would ripple through the movie industry putting an even greater number of people out of a job.)

This is the problem with fairness.  You can have the best intentions.  And end up with the worst results.  That’s because the ‘fairness people’ think everything in the economy is static.  That a change ‘here’ won’t effect change ‘there’.  But the economy isn’t static.  It’s dynamic.  And a change ‘here’ does effect change ‘there’.  Because people are thinking, rational beings.  While state planners think they know what’s fair the people living their policies often think otherwise.  And change their behavior.  To minimize their costs under their fairness policies.  Because that is human nature.  Just like it is for people every day who shop around to find the lowest price and best value before spending their hard-earned money.

The Rich are more Generous in their Tax Dollar Contributions than the Poor and the Middle Class

The Left wants to raise the tax rates on the high-income earners.  To make them pay their ‘fair’ share.  Foolishly thinking that doing this will bring in more tax revenue.  It won’t.  Because people are thinking, rational beings.  These ‘rich’ people can either invest their money into businesses and create jobs.  Or they can put their money into treasury bonds and create no jobs.  One is high risk (creating jobs).  One is low risk (not creating jobs).  And when you increase the taxes on the high-risk investment you reduce the return on that investment.  And reduce the incentive to create jobs.  So instead of investing in jobs they park their money safely in bonds.  Reducing the income (business owner and employees) the government can tax.  As well as reducing a host of other taxes (sales tax, property tax, Social Security tax, Medicare tax, etc.).  All in the name of fairness.

So why do they do it?  Why are they always imposing fairness on us?  Because when it comes to class warfare tax rates are much more useful in defining fairness.  For they misdirect the people into thinking rich people don’t pay enough in taxes.  Let’s look at a married couple filing jointly who earn a combined income of $125,000.  Based on the 2012 federal income tax rates they will pay approximately $19,470 in federal taxes with a top marginal tax rate of 25%.  Now compare that to a rich person not paying their ‘fair share’ in taxes.  Someone who earns a million dollars in capital gains on investments.  One of those the ‘fairness people’ really dislike.  At a capital gains tax rate of 15% he or she pays $150,000 in taxes.  Now 15% is less than 25%.  And those on the Left will scream, “Unfair!”  Even though that capital gains tax rate will generate $130,530 more in tax dollars.  Or 670% more than the married couple paying a top marginal tax rate of 25%.

So is the ‘rich’ investor paying his or her fair share in taxes?  Well, he or she is sure paying a whole lot more in taxes than that married couple filing jointly.  Even if it’s at a lower tax rate.  Is that fair?  Is that enough?  It depends on how you measure fair.  If you measure by tax rates the rich are tax cheapskates.  If you measure by tax dollars then the rich are very generous in their tax contributions.  More generous than the poor and the middle class.  And that’s what really counts.  Tax dollars.  Because tax dollars pay the bills.  Not tax rates.

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