Barstool economics

Our Tax System Explained: Bar Stool Economics
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% savings).
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 no w 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

For those who understand, no explanation is needed.

For those who do not understand, no explanation is possible.

[Gooseneck]

Great post !! Finally it is put in "layman's" terms for those that cant seem to comprehend it.

[MAURER]

yeah i like that explanation a lot. i don't see why we punish smart/responsible/successful people like they are somehow to blame for the poor. if some kid works his butt off during school, goes to an ivy league school and graduate school, and find a great job and works hard, why is he paying for all the people who can't/won't find work? i'm sorry but theres a lot of lazy/stupid people out there who aren't worth much to anybody, but thats not some rich guy's fault.

[westside24]

that was good pierini...

but to maurer..... Some of us as kids, have worked our butts off in school and couldnt get nothing much more than a community college scholarship..... <----not me in particular, but people I know lol.. no seriously gettin a associates degree, what does that get you? other than an oppurtunity to finally get into BGSU or UT for a higher degree?

[MAURER]

yeah i agree that sucks if you work your ass off and don't get anywhere. but i still don't think its the responsability of the person who did succeed to pay for everyone else.

[Dan C]

Originally Posted by westside24

that was good pierini...

but to maurer..... Some of us as kids, have worked our butts off in school and couldnt get nothing much more than a community college scholarship..... <----not me in particular, but people I know lol.. no seriously gettin a associates degree, what does that get you? other than an oppurtunity to finally get into BGSU or UT for a higher degree?

What do you mean by this?

[westside24]

you know to tell you the truth... I have no idea why I wrote that...after reading what everyone wrote, what I wrote had nothing to do with what maurer said actually... I think that was the day I was trippin about getting confused and gettin stirred in so many directions with working out... my head is just really boggled right now.

1000 apologies maurer. I already did agree with you, but I felt I had to throw that inthere to clear something up, but now I dont even see what I was tryin to prove. I definately agree someone "shouldnt" be punished for working hard.

[CF-OC_gal]

I think that it is a joke since the guys who delivered the beating had an "attitude of entitlement". That sounds like liberal, BS, socialist crap to me. You've got the freedom to choose what ever kind of work and income level that makes you happy. Stop looking to government to for a hand out.

[Firehawk]

I choose 1,000,000 dollars a year in net income...

[MAURER]

as opposed to what

[arbit]

1)
http://www.washingtonpost.com/wp-dyn...062700097.html
http://www.commondreams.org/headlines04/0306-01.htm


2)Tax by inflation. How was the $20 reduction in tab possible ?
By reducing the purchasing power of everyones money & savings. This means higher food,insurance,gas prices.
Tax breaks for the rich have a place, but not in times of war, and a massive federal deficit.
http://www.dailykos.com/storyonly/2007/4/4/1380/54674
(Or who actually pays for war/federal deficit when govt gets money from inflation)

3)
http://www.snopes.com/business/taxes/howtaxes.asp
http://davidk.myweb.uga.edu/

Contrary to Internet folklore, Dr. Kamerschen is NOT the author of "Tax Cuts: A Simple Lesson in Economics." Additionally, he does NOT know who wrote it.

4)
http://www.shadowstats.com/
CPI is the govts measure for inflation.
Inflation tax: In 2005 you had saved $100, and you could buy 100 loaves of bread.
In 2008, that $100 you saved only buys you 80 loaves of bread.
This means the govt has taken spending power away from your savings, equivalent to imposing an additional 20 bread loaves tax.