Our Tax system explained in 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 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 t he 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, this 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, thy 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.
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 t he 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, this 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, thy 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.
