Our Tax System Explained: Bar Stool Economics Political Crap / Back Home
Thanks to Paul for sending this one!
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.
'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 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 - the paying
customers? How could they divide the $20 windfall so that
everyone would get his 'fair share?'
They realized that $20 divided by six is $3.33. But if
they subtracted that from everybody's share, then the fifth
man and the sixth man would each end up being paid to drink
his beer. So, the bar owner suggested that it would be fair
to reduce each man's bill by roughly the same amount, and he
proceeded to work out the amounts each should pay.
And so:
The fifth man, like the first four, now paid nothing
(100%avings).
The sixth now paid $2 instead of $3 (33%savings).
The seventh now pay $5 instead of $7 (28%savings).
The eighth now paid $9 instead of $12 (25% savings).
The ninth now paid $14 instead of $18 (22% savings).
The tenth now paid $49 instead of $59 (16% savings).
Each of the six was better off than before. And the
first four continued to drink for free. But once outside the
restaurant, the men began to compare their savings.
'I only got a dollar out of the $20,'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
than I got'
'That's true!!' shouted the seventh man. 'Why should he
get $10 back when I got only two? The wealthy get all the
breaks!'
'Wait a minute,' yelled the first four men in unison.
'We didn't get anything at all. The 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 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 that, ladies and gentlemen, journalists and college
professors, is how our tax system works. The people who pay
the highest taxes get the most benefit from a tax reduction.
Tax them too much, attack them for being wealthy, and they
just may not show up anymore. In fact, they might start
drinking overseas where the atmosphere is somewhat
friendlier.
David R. Kamerschen, Ph.D.
Professor of Economics
University of Georgia