The Progressive Income Tax: A Tale of Three Brothers

"The Progressive Income Tax" is one of those economic terms that gets bandied about, but few actually know what it means or how it works. This tale of three similar brothers with three different incomes (but one shared expense) helps explain the tax system under which we live. Adapted from an article by noted investor and economist, Kip Hagopian, and narrated by actress Carolyn Hennesy of "General Hospital" and "True Blood" fame, this animated story will change the way you think about how you pay your taxes. 

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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 $25 per hour.

While they were very similar in all these
respects, they had different priorities.

For example, Tom, chose to work
20 hours per week, while his brother,

Dick worked 40 hours and Harry 60.

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 10 hours
a week and made $25,000 per year.

Tom's wife did not work.

Tom and Dick spent all of their family 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 private 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've 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'rr 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 percent of that amount.

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 U.S. government,"
Tom responded, as he pulled out a gray booklet.

"It's all right here in the IRS tax tables.
This is the progressive income tax system

all U.S. 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
two to one, the cost of the street improvements

was divided as Tom had proposed, even though
they benefited 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.