[Beef]

Bar Stool Economics

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 on 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.

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.

[Panther Thunder]

Wow, that's nice.:rockon:

[The Guru]

I understand the concept of the thinking process on this, but it is very vague and leaves people a false sense of understanding. Unless he thinks that 50% of the workforce is not paying taxes.

[Beef]

I think the whole point is to show that when tax cuts happen, even if a person saves $50,000 to someone's $500, they are still paying a larger majority of their income and a larger % of the overall taxes. And most tax cuts give the high classes less of a break...ie, here he only saved 16%, the lowest % of any person.

[More Cowbell]

Great post Beef.

[The Guru]

I think the whole point is to show that when tax cuts happen, even if a person saves $50,000 to someone's $500, they are still paying a larger majority of their income and a larger % of the overall taxes. And most tax cuts give the high classes less of a break...ie, here he only saved 16%, the lowest % of any person.

I understand that, But lets say that all of these men lived in the same neiborhood in similar houses and had roughly the same costs of living. Four made 30K a year, 1 made 40K, another made 60K, one took down 90K, another 120K, yet another ringing in at 200K and one lucky hardworker made 500K a year.

For poops and giggles lets say that these numbers were after taxes.
Then the tax breaks come.
The wealthiest was paying aprox. 250K a year in taxes and got a 16% break, to me that looks about 40K.
Then let's look at the 40K bloke, paying around 10 K a year. gets a whopping 33% tax break and is able to stick another $3,300 in his pocket a year!
WOW, now he might be able to take a vacation, or buy his kids some books for college.
See what I am trying to get at? The less fortunate need the bigger breaks. If for no other reason than to survive!

[thecavemaster]

When the price of gas goes up, then milk and bread and eggs, does even an idiot dispute that the less money one makes the more one's wallet gets whopped? Of course, when taxes get cut, most often, services furnished by the government do as well. Those with more money, the ones who feel it less when gas prices go up, simply purchase those services for themselves in the private sector.