The Tax System Explained in Beer.

[KarlS]

The Tax System Explained in Beer

 

April 2, 2012

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 ball. “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 men would 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 ? 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 a higher percentage the poorer he was, to follow the principle of the tax system they had been using, and he proceeded to work out the amounts he suggested that each should now pay.

And so the fifth man, like the first four, now paid nothing (100% saving). The sixth now paid $2 instead of $3 (33% saving). The seventh now paid $5 instead of $7 (28% saving). The eighth now paid $9 instead of $12 (25% saving). The ninth now paid $14 instead of $18 (22% saving). The tenth now paid $49 instead of $59 (16% saving).

Each of the six was better off than before. And the first four continued to drink for free. But, once outside the bar, the men began to compare their savings.

“I only got a dollar out of the $20 saving,” 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 benefit than me!” “That’s true!” shouted the seventh man. “Why should he get $10 back, when I got only $2? The wealthy get all the breaks!”

“Wait a minute,” yelled the first four men in unison, “we didn’t get anything at all. This new tax 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 their 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, boys and girls, journalists and government ministers, is how our tax system works. The people who already pay the highest taxes will naturally 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.

[09RSTD]

I really enjoyed this perspective on the current tax crisis. Think that this story explains clearly what is being proposed. Thanks! Did you listen to Dave Ramsey last night or something? He was talking about this very thing while I listened on the way home from work.

[SilvrT]

True... to a point based on simple math ... but missing a lot of reality.

[KarlS]

I really enjoyed this perspective on the current tax crisis. Think that this story explains clearly what is being proposed. Thanks! Did you listen to Dave Ramsey last night or something? He was talking about this very thing while I listened on the way home from work.

 

 

No, a person e-mailed me this and I just thought it was a interesting way of explaining this economics Professors point of view. (plus it said BEER) I didn't post it for any political reason at all. Hope I didn't make a mistake posting it.

[dacheedah]

can we test this out at maintenance day???

[Marcarl]

can we test this out at maintenance day???

So you're in and I'm in, that makes 2 of us,,, I wonder who's going to volunteer to be # 10?

[Kirby]

Well I'm not riding all the way to Ohio just to get beat up!!!!

[yamtom]

that figures dont lie, but liars can figure. What puts the lie into this little excercise, is the fact that ,,, income discrepancies are not mentioned, and taken into consideration in your game. Its all just more fauxnues.

[Eck]

[dacheedah]

all I know is yesterday I couldn't even spell xpert and today I R one

[greg_in_london]

I like the joke, I want to comment, but don't want to see the thread pulled. Ooh ooh decisions...

[Sailor]

To apply it to real live you would have to know the income of each person to judge what percentage of that income was being paid by each which lets you know how much they can afford to pay. EG a person with $10.00 who pays $1.00 is paying ten percent but a person with $1000.00 who pays ten times as much ($10.00) is only paying one percent.

[Yammer Dan]

Did somebody mention Free Beer??? Retired I don't make anything...

[RandyR]

free beer !!!!

[greg_in_london]

I'd have been the guy in the middle on this one, but I know when I've got a good deal and when to keep quiet.

 

You won't believe the political arguments over here (not political argument, just fact stranger than fiction) as our right wing (for us) government is limiting the amounts people give to charity because they think it could mean they avoid paying some tax ??? That's like the barman above refusing to allow the well off guy to buy drinks for other people because he might then drink less himself !

[Redneck]

that figures dont lie, but liars can figure. What puts the lie into this little excercise, is the fact that ,,, income discrepancies are not mentioned, and taken into consideration in your game. Its all just more fauxnues.

Income discrepancies are directly linked to output discrepancies.

[Rosie1965]

as our right wing (for us) government is limiting the amounts people give to charity because they think it could mean they avoid paying some tax ???

Don't feel bad, over here the government is trying to become the charity. I'd be the guy in the middle too, paying a higher percentage of my income for my beer than the rich guy and the poor guys.

[octoberboy]

I'm applying for an Economic Simulus package. We will then have money to spend on 'maintenance and improvements' supporting local communities. The government will increase the national deficit. Given they have no real plans to pay it off, they won't care. Because our maintenance and improvements, (contributions to maintenance day kitties included) won't be coming directly from our pockets, we will have more $$$ for beer and entertainment.

[dacheedah]

Randy, if we give you free beer I'm sure u will make water, right