Posted on 11/05/2008 7:22:16 AM PST by rla7137
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 dayk, 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 ‘fare 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.
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 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 Ga
Yep. Thats a keeper!
Had seen this before here but I didn’t know who had written it. Thanks for re-posting it
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.
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And don’t expect half of America to even begin to understand the principle here....they obviously voted for Obama.
ping
Here in NY we know that the professor's story rings true. Wealthy NYers leave for better climes, but that's not going to happen nationally. There will be some who succeed in avoiding the coming tax hike but they will be in the minority.
Today’s USA Today states that, according to their exit poll, 63% of votes said that the economy is their most important issue. 54% of them voted for Obama. If they care about the economy, why did they vote for the candidate who wants to increase tax rates? Increasing tax rates never improves the economy. Tax increases usually harm the economy.
Thanks for reposting. This is the best explanation of the tax code I’ve ever read.
Old one, but still way too appropriate
Stock market is down. Wadda ya know.
This is the crowd that proposed additional surcharges on top of Obama's increases, doubling the capital gains and dividends tax rate, removing tax breaks for 401(k)s, etc.
If they care about the economy, why did they vote for the candidate who wants to increase tax rates? Increasing tax rates never improves the economy. Tax increases usually harm the economy.
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Because they have no clue as to how the economy works. How taxes work. What excessive taxation does to our economy. None of those “confusing facts” that are not included in the voter’s information brochure at election time....(/sarcasm)
Love this explanation! I just wish more people understood it.
This will probably have to be updated, because those first 4 customers (paying nothing) will walk in and demand that not only do they want their drinks, but they want the richest man to pay for them AND the bar owner to cut them individual checks as well!!
Rich man #10 takes his money and moves to a nice Caribbean island somewhere, leaving all those in the ‘middle class’ to cover the bills. Oy.
You didn’t finish the story! Allow me:
“Well, despite the fact that the tenth man didn’t show up, the rest of the men insisted that their ‘Beer Entitlement’ could not be curtailed, so the first five men insisted that men 6 through 9 pick up #10’s slack. Since the first five men were a ‘majority’ they won the vote.
In an effort to retain progressivity in the ‘Beer Entitlement’ payment program, they spread the $49 among the remaining 4 with the 9th paying the lion’s share.
Naturally, the next night the 9th man didn’t show up. So the 5 men again redistributed the bill among the 6th, 7th, and 8th men. This was a crushing blow to the actual bill payers, and they decided they could no longer go out for beer anymore at all.
The next night the five men showed up for their beer. The bartender was no fool and asked them who would pay for the beer before he served them. Indignant, the men took over the bar (nationalized) and went their every night to drink for free until the kegs were nearly dry.
When they were down to their last keg, the men realized that they’d better implement ‘beer lines’ in order to ration the remaining supply. A couple of the men decided to go home and try brewing their own beer. They were arrested.
Finally, when there was no beer to be had, and no money to pay for it anyway, the 10th man burst on to the scene touting principles called Beer’astrokia and ‘Glass’nost.
It took a while, but the beer finally began to flow again.”
Sir, you are so right.
Maybe because 54% that voted for Obama don’t pay taxes anyways and are like the first 4 drinkers in the bar. Have you seen the Howard Stern youtube about voters in Harlem? Not too bright.
The problem is that the first 4 drinkers are members of the National Civil Security Forces and want to see your papers.
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