# Welfare for the Rich?Are Tax Deductions the Same as Welfare Payments?

Imagine three friends (let’s call them Rich, Poor, and Average) share an apartment and have a strange deal for paying the rent each month. Average pays all the rent, but he collects money from his friends Rich and Poor. However, since Rich makes so much money, they agree that he will pay most of the rent. Each month, rent costs \$1000. At first, Rich pays \$700, Poor pays \$100, and Average pays the remaining \$200. One day, Poor loses his job and can no longer pay the rent. Average asks Rich to chip in a larger amount to cover the missing \$100, but he also realizes that Poor won’t be able to buy food either. So he asks for \$200 extra and gives \$100 to Poor each month. Now the rental payments look like this: Average pays \$200, Poor pays -\$100, and Rich pays \$900. Rich isn’t too happy with the arrangement, but he agrees since the other friends will kick him out if he doesn’t.

One day, the three friends notice that they need to buy some new furniture. A couch costs \$300. Average tells Rich that if he buys the couch, he will deduct the \$300 for his rent payments for the month. So for the month, the payments now look like: Average pays \$500, Poor pays -\$100, Rich pays \$600 (plus \$300 for the couch).

But then Poor comes to Average and starts complaining. “Rich already makes the most money, and now you’re giving him even more. I only got \$100 from you this month and you gave him \$300. How is that fair? And look, now you have to pay \$500 rather than \$200. If you just hadn’t let him deduct the couch, you could have given me an extra \$100 and kept \$200 for yourself.”