Shared Private Road–A Tax Analogy

I started using this example a few months ago to explain shared assets and how they are financed. It is pretty interesting, to me.

Scenario: There is a county road that comes close to two homes. The two homes are exactly the same distance from the road. A private road needs to be built. The road will run directly between their homes and connect to their driveways. The owners use the road exactly the same, and both use small passenger vehicles. Neither use trucks, heavy equipment, or anything that would stress the road. Below is a rough drawing.

The road will cost $1,000 dollars.

image

The question: How much should each person pay?

The expected answer: When I ask this question, almost everyone says it should be 50/50. Some people say that the guy that makes the most should volunteer to pay more of the bill, but nobody has every told me that the guy that makes the most should pay for it all.

The math: There are a few options:

  1. 50/50: So each of them pay $500.
  2. They pay based upon income: 30000/180000*1000=$16.67 for the guy that makes $30,000, which leaves $983.33 for the other guy. Fair? Some people will say that it is fair, but I don’t see it since they both get the same benefit and the one person is basically paying for it all, but gets a small token amount back.
  3. They pay based upon the way we do income tax collection in the US. Basically, the person making $30,000 doesn’t pay federal income taxes in most cases, so the other guy ends up paying for all of the road.

The reality: The guy making the most ends up paying for all of it, and the other guy gets a free road. It works that way because our Government forces it to work that way. If the guy that is better off refuses to pay his taxes, they will take him at gun point and lock him up.

A few facts:

Just a couple of simple facts, about 45-47% of the US households do not pay Federal income taxes. The top 20% pay over 90% of the Federal income taxes collected, while making no where near 90% of the income. So, the top 20% pay for almost everything for everyone else, and half get a free ride.

No, these facts aren’t from some ultra conservative web site, they come right from the CBO.

Source: http://www.cbo.gov/sites/default/files/cbofiles/attachments/44604-AverageTaxRates.pdf

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