Filed under: Uncategorized
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 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!’
‘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, boys and girls, 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.
10 Comments so far
Leave a comment
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.
The ten men drank in the bar every day and seemed quite happy with the
arrangement, until one day in 2002, the bar owner, a devout republican,
believing in trickle down economics, tried to spur business more by reducing
the price of the beers. ‘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 only problem was that the cost to run the
bar remained the same, the bar owner was now in deficit spending.
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 paid $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!’
‘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.
(Wow! ask yourself if we experienced any riots or a revolution during
2002-2007 when the tax cuts took effect)
The bar owner, did entice some additional business in his bar, but not nearly
enough to stop his swimming in debt. So he decided to raise rates on his
customers. But how would he do this?? He pondered the question.
He entertained the idea of a flat rate for all of the beers. Everyone could pay $9.
This would recover 10% of the lost revenue from the pre 2002 prices and he
could more readily operate the bar without the losses. He did after all attract
some more business due to the lower rates. He performed some more
examination and determined that certainly six of the men would not be able to
pay for the beers. The seventh man who was paying $5 might be able to pay
nearly double for the beer. The remaining three men would certainly come back
since they were paying much less for their beers. But even counting up
to four men attending, he would only get $36 at the $9 flat rate. He would
have less expenses for the beer consumed, but it still would not make up for his
fixed expenses in running the bar.
The bar owner still liked the idea of flat rates, he was after all a devout republican.
He cranked the numbers. A $10 beer would not help much, he might be able
to increase the revenue to $40, but that last man who was paying nearly
double may drop out and his revenue be reduced to $30. What about a $20
beer, now he could only sell to the top two men — one with a hefty increase
from $14 to $20. The flat price for beers would not work in any manner.
So the bar owner went back to the progressive pricing system that had seemed
to work well in the past. He decided to keep the prices the same for the lowest
paying customers, but to recover his expenses from the highest paying
customers, still at a lower rate than the pre 2002 pricing.
The first five men (the poorest) still paid nothing.
The sixth would still pay $2 (33% savings from the pre 2002 prices).
The seventh would still pay $5 (28% savings from the pre 2002 prices).
The eighth would still pay $9 (25% savings from the pre 2002 prices).
The ninth would now pay $16. More than he had but still an 11% savings from 2002.
The tenth man (the richest) would now pay $58, about the same as
the original $59, but still lower.
The bar owner was amazed at the amount of complaining from the two richest
men. He had heard all of the complaining from the poorer men about unfairness
of the system when the prices were reduced. But these complaints paled in
comparison to the complaints and threats received from the two richest men.
The two richest men complained about the cost increases (when in actuality
they were still cost decreases from the pre 2002 levels). They complained
even louder about their costs in comparison to the poorer men. The bar owner
tried to explain that he just could not operate at the lower price levels, but
to no avail. The two richest men even threatened to not come back to the bar.
You see, they had become accustomed to paying less for their beers and spending
money elsewhere.
For a time they even left the bar and went to less expensive bars
(some of them even in Bermuda). But they soon realized that the original
bar was located in a safe area of town, had good roads to get to the bar, the
beer was clear and pure (there were scares of melamine tainting at other bars),
the utilities were constantly on and running, and the air was not polluted.
The two rich men came back to the bar for these reasons and decided that you
have to actually pay for a quality bar.
And that, boys and girls, journalists and college professors, is how anyone
Comment by Jak October 25, 2008 @ 4:17 amcan spin a story rather than discuss the facts about a policy. 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. But then they find out that the other bars are not as good. All bars
have their problems but this is still the best one around.
This sounds more like SD than Rootie (but I’ve been wrong before)! What do you think of everyone paying 10% of their adjusted gross income?
Comment by jerseechik October 25, 2008 @ 3:47 pmOh! I’m wounded! Just what do you mean by this comment?
Comment by Sweet Daddio October 25, 2008 @ 6:43 pmIn fact, they might start drinking overseas where the atmosphere is somewhat friendlier.
You mean they’ll renounce their citizenship over MONEY ALONE? I’d say we’re better off without them. I don’t call that too patriotic.
Maybe some new people will get a chance to generate wealth, with the old guard gone. Adios, dudes!
Comment by daisydeadhead October 25, 2008 @ 11:37 pm“Maybe some new people will get a chance to generate wealth, with the old guard gone. Adios, dudes!”
They have that chance now- but why would they want to in the upcoming socialist regime? So they can be raped by the government to support underachievers?
You could take all the wealth in the nation, confiscate it and distribute equally among the citizens, and in 10 years 98% of the “poor” will be poor again and 98% of the wealthy will be wealthy again.
Comment by Sweet Daddio October 26, 2008 @ 12:41 amSD, You are so right about “in 10 years 98% of the poor will be poor again and 98% of the wealthy will be wealthy again”. Athens, Russia, China and France have proven that at various points of history. (Too bad we don’t learn what we should from history!)
Please forgive me if I offended you- it certainly wasn’t my intent! I’m just more used to hearing Rootie blog about certain topics, although I know you two share a ton of common interests and expertises. Again, please know you are my favorite big brother and I didn’t mean to wound!!!
Comment by jerseechik October 26, 2008 @ 9:45 amOh Little Sis- I was picking at you!!!!
Comment by Sweet Daddio October 26, 2008 @ 12:05 pmJak-
The point was to illustrate the absurdity of the “Bush’s tax breaks for the rich” line that all those who have drunken the Obama Kool-aid keep spouting. It is nothing more than promoting class jealousy. If you want what I have get off your dead ass and go earn it.
The amounts in the original story reflect tax rates for various percentages of the population. After years of “Drinking for free” I am now oneof the ones who pays $9 (formerly $12). Go to http://www.irs.gov and looka t the facts. The fact is that the highest brackest pay a higher percentage of the total tax revenue now than before.
But then again, maybe you shouldn’t let facts cloud your opinion……
Comment by Sweet Daddio October 26, 2008 @ 10:50 pm“The only problem was that the cost to run the
bar remained the same, the bar owner was now in deficit spending.”
The assumption being the bartender had not been making a profit when he decided to give some of it back to his patrons…
Comment by Gabriel October 27, 2008 @ 6:08 am[...] heart of what is wrong with the “we need to tax the rich more” mentality. She calls it “Barstool Economics.” Suppose that every day, ten men go out for beer and the bill for all ten comes to [...]
Pingback by Barstool Economics | Jake's Corner October 27, 2008 @ 1:01 pm