Our Tax System - Explained with Beer

[Gavin Allan]

Our Tax System - Explained with Beer



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 beer in the bar every day and seemed quite happy

with the arrangement, until one day, the bar 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 just cost

$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 everbody'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 $50 instead of $59 (15% savings).



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," declared the sixth man. He

pointed to the tenth man, "but he got $9!"



"Yeah, that's right," exclaimed the fifth man. "I only saved a dollar,

too. It's unfair that he got nine times more than I!"



"That's true!!" shouted the seventh man. "Why should he get $9 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. 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.



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."

 

[Richard L]

That is a very applicable scenario and was very well thought out....and sadly too true.



....Rich

 

[Phill R]

The real problem is that it's the seventh an eighth that pay the most. The ninth and tenth end up paying less and half of the first four really do get paid to drink!



:haveabeer: :throwup:

 

[Robert Thomas]

Where is the bar. I would like to get in the group. I think I could bump number 5 up.

 

[Bill V]

That's a well-written scenario--but it does leave out a couple important facts:



1) The beer doesn't actually cost $100. It costs $150. The drinkers are paying $100, and borrowing $50.



2) When the cost of the beer went down $20, it didn't really go down to $80. Through spending cuts, the total price of the beer went down from $150 to $140. But rather than reducing the amount that they're borrowing, the drinkers have instead decided to reduce the amount they're paying. In fact, they've decided to reduce the amount they're paying by an amount greater than the amount that the overall cost dropped--resulting in the amount that they're borrowing actually increasing. They're now paying $80, and borrowing $60.



The problem isn't how they're divvying up the tax cuts. The problem is that anyone is getting tax cuts while the debt still exists.

 

[H D]

The problem is that only one of them can obviously afford to drink beer yet the other nine feel entitled to drink what its they neither need our deserve.

 

[Gavin Allan]

Bill V makes some excellent points.

 

[Kevin Lang]

The beer doesn't actually cost $100. It costs $150. The drinkers are paying $100, and borrowing $50.

From whom are they borrowing the 50 bucks? Why are they borrowing money when they have enough money to pay the bill already? What are they doing with the borrowed 50 bucks, since it doesn't seem that they're paying it to the bar?

David R. Kamerschen, Ph.D.

Professor of Economics

University of Georgia

To think that this man teaches in the state represented by Hank Johnson. Amazing.

 

[Richard L]

KL,

The beer doesn't actually cost $100. It costs $150. The drinkers are paying $100, and borrowing $50.



From whom are they borrowing the 50 bucks? Why are they borrowing money when they have enough money to pay the bill already? What are they doing with the borrowed 50 bucks, since it doesn't seem that they're paying it to the bar?

Actually, I suspect the Tavern owner is being subsidized for the $50 in beer by the government who borrowed the money from the Chinese. At least that's seems to be the way everything else works in this country...:sad:



....Rich

 

[Bill V]

From whom are they borrowing the 50 bucks? Why are they borrowing money when they have enough money to pay the bill already? What are they doing with the borrowed 50 bucks, since it doesn't seem that they're paying it to the bar?

Well, since the bar patrons in this analogy are the public, the bartender is the politician, and the bar itself is the government, then the continuation of the analogy to answer your questions is that the bartender has taken out a line of credit for the bar patrons, funded by a bank. Anyone can invest in the bank--but those who do so are expecting their money back at some point, and when the tab gets high enough, they're going to stop inventing more and start demanding to be paid back.



The bartender is indeed paying the $150 to the bar--he's getting $100 from the patrons and $50 from the bank to do so. But he's doing so in a way that the patrons mostly never see, hear, or care about the $50--they're only interested in the $100 they're paying. And since the bar patrons determine whether the bartender stays employed, he also spends most of his time trying to reduce the amount the patrons pay, rather than worrying about the rising debt.

 

[Kevin Lang]

Sounds to me that you're trying to break the analogy by stretching its scope further than it was designed for.



Perhaps the bar in this tale is just a bar, and not a stand-in for the government. Like the apocryphal Freud quote, "sometimes a cigar is just a cigar".



To back that up: "The ten men drank beer in the bar every day and seemed quite happy

with the arrangement, until one day, the bar 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.""



To my knowledge, the US government doesn't give discounts to "frequent customers". I've been obeying the law and paying taxes to the US government my whole life and they haven't cut me a break like this solely for it. To be the government, the 20 dollar credit that the bartender is given would have to be first taken by threat of force from the 10 men* and then given back to them, minus the government's "cut". Borrowing from a bank doesn't fit that. How does that fit into your "the bar is more than a bar in this analogy" scheme?



*Technically the barkeep would have to extort more than 20 bucks from the group to give them a "refund" of 20 bucks while still retaining something so that the extortion results in direct monetary gain. I also think that the first 5 guys shouldn't be paying to make the analogy more accurate as 50% of Americans don't pay income taxes...



Which reminds me of my state's egregious effort to give illegal immigrants (err, "undocumented" immigrants) heavily discounted college tuition in-state (even though they can't legally get jobs) if they file their taxes in state for X number of years. Problem is, the measure doesn't require them to actually PAY taxes, which works out well for them as many of them are reported to NOT pay taxes and actually reap in federal and state money. EIC and its ilk.



Getting on a tangent here, but how is it ethical for the people who vote to be beholden to whom they vote for? I thought that was bribery and implied extortion. Sorry, I just paid my phone bill and realized that I'm paying for that leech in the viral video to continue to "holla at" her associates on her "'Bama Fone". :angry::banghead::banghead:

 

[Richard L]

KL,

You are over-analyzing it. It's just a humorous analogy to how our tax system works (or does not work) depending upon your point of view and if you are getting the beer free or paying....:grin:



As for the Bribery, it has been part of politics since politics and elections began. In ancient Rome, it was expected that Senators and other politicians would do special favors or pay money to businessmen and other citizens in exchange for their vote....If they didn't they would not get elected. Not too different from Illinois or Chicago politics...:grin:



...Rich