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THE TAX SYSTEM EXPLAINED IN BEER

posted 1/4/2012 12:10:36 PM |
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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? 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 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.

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.

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

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Comments:

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Vegasbaby

Jan 4 @ 12:22PM  
ty for making me shake the cobwebs out of my head this morning
ILgal

Jan 4 @ 12:24PM  
now you know the only reason you even read that is because it said beer ..

\baby baby ... you crack me up
RunAround

Jan 4 @ 1:22PM  
Nothing like a good cold bud, looking for more relating to beer
sinkx

Jan 4 @ 6:19PM  
Everybody believes in someting...I believe I'll have another beer!
Ewe_Wish

Jan 5 @ 4:32AM  
Hell i started out thinking it wasn't so bad being poor I could drink for free........

It is true that the rich shouldn't have to get taxed to death just to make things even........why should they give up everything they worked for (or inherited) so that someone who wants to sit around in his bathrobe all day can get paid for doing it...........we could stop taxing people to death rich or poor if they did a few things like Tax the businesses owned by churches..........not the churches.....just the businesses. Stop giving our politicians all the benefits we give them, I am not saying that they should be driving to work in a 94 ford taurus, but some of the stuff they get is just pure bs.....if we are going to have wars..........instead of paying 400 dollars for a toilet seat.........the govt could cut a deal with a home store.........(ok maybe not that lame..........but come on they pay way to much for the dumb shit and our troops are given inadequate equipment to protect themselves, oh and if we are going to declare war on someone..........let them worry about the f-ing mess..........its sad when we blow something up and than pay to rebuild it..........there is a lot of things that our Govt could do to cut down spending, taxes places that are getting a free ride, and not have to raise taxes on anyone. JMHO
needsomenow789

Jan 5 @ 8:40AM  
I enjoyed this blog, time for a beer
punkybrewster12

Jan 5 @ 3:05PM  
I liked the blog, it's an interesting analogy......BUT as a fellow economist (my degree, not currently my profession) he is describing what is a classic 'static' system. They're no variables injected into the system. This is what is known as a static model, so for the model the outcome will always be the same. It's the job of an economist to inject these variables and gather information to analize the effects of the changes.

What it doesn't take ito account is the overall effect for each individual...minimal in this instance but no less a consideration.
Vegasbaby

Jan 5 @ 4:36PM  
^^^^^ now why didn't I think of that ..probably cause I'm not an economist

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THE TAX SYSTEM EXPLAINED IN BEER