Our Tax System Explained: Bar Stool Economics

[sammy the sage]

Our Tax System Explained: 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 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 got"



"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, ladies and gentlemen, 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.

[magwell]

Even horse players will understand this :rolleyes:

[dvlander]

Great Post!

I would suggest that our two democratic candidates read this but they would either not understand or would refuse to understand.

[jballscalls]

are rich people really going to leave because of higher taxes?? If America is your home, your going to leave because you pay a little extra money?? i dont think so.

unlike many liberals, i dont believe people should be penalized for being successful. but to say they are going to move is kind of absurd. My family owns a couple successful corporations, and being in the gaming business, we get the piss taxed out of us. but are we going to pack up, move away from our family and friends and go to hang with Angelina Jolie in Ghana?? NO. get real.

[Robert Goren]

:sleeping: :sleeping: :sleeping:

[Tom]

are rich people really going to leave because of higher taxes?? If America is your home, your going to leave because you pay a little extra money?? i dont think so.



That is just what has happened to many of our jobs. Most big corporations are not American - they are global. Which means anyonet hat expects to earn a decent living wage will never work for them as long as we permit them to go to China and use slave/child labor.

[The Judge]

I see that you felt it was nessasry to launch a premptive strike by accusing anyone who questions this nonsense as being unable to gasp simple concepts. This shows more about you then anything an honest and contrary opinion could say about a person. You have already insulted, before you even read a reply. I wonder what the good professor would have to say about that.

What happens in the real world? The professors example shows tax system that is fair at the "outset." Then when its time to give some money back the poor and the middle class gangup on the one rich guy in order to get bigger share of the refund which simple math shows is wrong. Why would so many people who voulantarily pay their taxes year after year all of a sudden go so crazy or become so stupid. They wouldn't and they don't.

The problem is that the bar tender is the rich guys uncle; and along with the beer they also buy food, play,pool,and the juke box. The uncle then gives the rich guy a refund on that too. The only thing is the rich guy didn't play any pool ,didn't play the juke box nor did he buy anything to eat. So in fact the poorer people were the ones keeping the lights on the beer flowing not the rich guy. The rich guy isn't being taken advantage of, he is rich has influence, he has and accountants and the bar tender is his uncle. He makes sure he doesn't ever get the short end of the stick he can take care of himself.

So in real life they didn't gang up bet up anyone the bar tender and his nephew ganged up on them. It was a special bar. The bar was suppose to keep the money in trust for all the patrons alike.

[JustRalph]

are rich people really going to leave because of higher taxes?? If America is your home, your going to leave because you pay a little extra money?? i dont think so.

unlike many liberals, i dont believe people should be penalized for being successful. but to say they are going to move is kind of absurd. My family owns a couple successful corporations, and being in the gaming business, we get the piss taxed out of us. but are we going to pack up, move away from our family and friends and go to hang with Angelina Jolie in Ghana?? NO. get real.

no you arent' going to leave. But you are going to go out of your way to pay less taxes and pay your employees less and not to mention hide and dodge all the taxes you can. then you are going to help support a system that might improve your tax burden (they're called Lobbyist) or maybe locally you are going to try and create a tax benefit etc. this creates a further divide between you and your employees ............you starting to get the point? Your employees get paid less, you are supporting a whole system that is trying to help you dodge taxes and it hurts everybody. Instead of a fair tax rate that would benefit everybody...........we put up with this shit.

[IBCNU]

I see that you felt it was nessasry to launch a premptive strike by accusing anyone who questions this nonsense as being unable to gasp simple concepts. This shows more about you then anything an honest and contrary opinion could say about a person. You have already insulted, before you even read a reply. I wonder what the good professor would have to say about that.

What happens in the real world? The professors example shows tax system that is fair at the "outset." Then when its time to give some money back the poor and the middle class gangup on the one rich guy in order to get bigger share of the refund which simple math shows is wrong. Why would so many people who voulantarily pay their taxes year after year all of a sudden go so crazy or become so stupid. They wouldn't and they don't.

The problem is that the bar tender is the rich guys uncle; and along with the beer they also buy food, play,pool,and the juke box. The uncle then gives the rich guy a refund on that too. The only thing is the rich guy didn't play any pool ,didn't play the juke box nor did he buy anything to eat. So in fact the poorer people were the ones keeping the lights on the beer flowing not the rich guy. The rich guy isn't being taken advantage of, he is rich has influence, he has and accountants and the bar tender is his uncle. He makes sure he doesn't ever get the short end of the stick he can take care of himself.

So in real life they didn't gang up bet up anyone the bar tender and his nephew ganged up on them. It was a special bar. The bar was suppose to keep the money in trust for all the patrons alike.

Ahhhhhh....you mean the first four that were getting their beer for free were keeping the beer flowing.

[Tom]

The first four should not have been in the bar - they should have been looking for jobs.

Fair at the outset?.....I think this only validates the orignal "pre-emptive"
comments! :lol:

[ddog]

beer goes up to 250.00 per night, REAL adj. incomes of all but the two guys at the top stay the same? run the nbrs now PROF.

How about the costs to get to the bar go up 20% across the board.
Real adj. incomes as above.



How soon are there only two guys left drinking?

Do the others then decide this game isn't worth it and burn down the bar with the two guys inside?

[The Judge]

They just don't have to pay on the beer because of low wages. They do pay the other things. They just don't pay for the beer but their money gets taken and re-distribute too.

Think of this, you go to football or baseball game you spend around 120 bucks, you take your son or daughter. You have a good time your team wins. You 're about to get up and leave but you see huge bucket being passed around the arena and you are told that everyone is putting money into the bucket to make donation to some of the fans that are there that night. You think it must be someone needy who has suffered some misfortune so contribute, only to fine out the money was given to the people in the luxury boxes and this is done at every game. They are there for business ( game just happens too be going on.) You on the other hand are there to see a game so you pay them.

They are not having a beer with you they don't want to even sit next to you nor walk out the same door as you.

[Tom]

Why should I buy their beer?
Who says they are entitled to a beer?
How do we know they do not a plasma TV at home and want me to buy their beer because they chose to spend thier money on TV?
They are drinking my milkshake!

[taxseason]

Between my wife and I we are in the top bracket. She and I both do a little consulting so that allows our marginal rate to be around 26%, down from 31% before Bush tax cuts.


Our neighborhood is one of the best kept you'll ever see. Our parks are pristine and well maintained. The school we sent our daughter to was good enough to get her a full scholorship to University of Vermont. On the rare occasion I call the town for something, someone is on the way before I hang up the phone.
Our street lights are in full working order, our streets are well kept.

On the other hand, just a few miles to the south I see filthy neighborhoods, poor city services, bad schools , unlit streets....


We don't feel we are getting a bad deal at all. We feel 25% of what we earn for our quality of life is a great deal. We proudly and gratefully pay our share.

Its inaccurate to spread the stereotype that rich people pay for poor people, and get the same thing. I get 10 times more for my tax dollar than my poor neighbors.

[JustRalph]

Between my wife and I we are in the top bracket. She and I both do a little consulting so that allows our marginal rate to be around 26%, down from 31% before Bush tax cuts.


Our neighborhood is one of the best kept you'll ever see. Our parks are pristine and well maintained. The school we sent our daughter to was good enough to get her a full scholorship to University of Vermont. On the rare occasion I call the town for something, someone is on the way before I hang up the phone.
Our street lights are in full working order, our streets are well kept.

On the other hand, just a few miles to the south I see filthy neighborhoods, poor city services, bad schools , unlit streets....


We don't feel we are getting a bad deal at all. We feel 25% of what we earn for our quality of life is a great deal. We proudly and gratefully pay our share.

Its inaccurate to spread the stereotype that rich people pay for poor people, and get the same thing. I get 10 times more for my tax dollar than my poor neighbors.

but you pay a ton more................what part of that don't you understand? How about your real estate taxes. In your neighborhood they are much higher, right? How about gas taxes? You probably drive a nicer car (and you may have paid an extra luxury tax or gas guzzler tax on it also) or an SUV that uses more gas. So you pay more in Gas taxes.

You can't look at it the way you look at it. Example:

I used to work for a city that had a median income of 37k. On one end of the city were 50 year old houses that sold for 75k. five to seven minutes away on the river were houses in the 1-5 million range. The guy in the cheaper home paid very little in taxes on his home. It was based on value. The guys in the million plus houses paid tens of thousands more in real estate taxes. Guess what, they shared a fire department, police department and all city facilities. The guy living in the 50 year old cheap home would play basketball with the millionaire at the rec center. It didn't happen often, but it happen. The millionaires played golf on the city course next to the duffer with the 35k income too. Who do you think paid more for that rec center? The millionaires paid more. The city income tax of 2% paid for it. You getting the picture here? The millionaire's paid for the swim club, tennis courts and the like. They rarely used them. They went to health clubs and private facilities. Who do you think used more of the Police Department and Fire Departments time? How about the rec center and the public golf course?

You can't use your example because of different jurisdictions and other factors. Federal Taxes aren't' the only taxes involved. It is often punitive at the local level.

The fact that you think that you get ten times more for your tax dollar is anecdotal at best. How often is your police and fire department called to assist the neighborhood "to the south of you" I am sure it happens. When those city services leave your city to "help out" they take away value from you. The same as when your police officers and such have to work on cases that result from your neighbors making that five mile trek north to pilfer and rob. That takes value away from you and your local tax paying brethren. And you are subsidizing those to the south of you by allowing your police and fire to assist them in fighting crime, fires, or meting out justice when they stray. You are paying for them. You just don't consider it appropriately. It is not a stereotype that the rich pay for the poor. They do. In many different ways. And btw, I don't consider myself rich. But I can see the writing on the wall. I consider my taxes punitive at the local and federal level.

I suggest you call your local police department and ask them what the average police officer costs for an hours duty. Then ask how many calls were taken assisting agencies to the south? Do the hours and math (and don't forget the dispatcher and the records department) and you might find out that "the poor" neighborhood to the south is sucking down some serious dollars from your jurisdiction. Find out the same for the Fire Department. Do you know how much it costs to run a fire truck 24 hours a day? Spending 4 hours in another jurisdiction might cost 2k-5k depending on your mandatory staffing levels. Think about it..............and don't forget those people living to the south garner a significant benefit from your tax dollars when you loan out your assistance. If you live in an area wherein your police and fire refuse to help out other agencies (very rare) then you are lucky. But I doubt those poor folks living to the south don't garner some value from your tax dollar. Even if comes from driving on the roads through your city.

[Snag]

are rich people really going to leave because of higher taxes?? If America is your home, your going to leave because you pay a little extra money?? i dont think so.

unlike many liberals, i dont believe people should be penalized for being successful. but to say they are going to move is kind of absurd. My family owns a couple successful corporations, and being in the gaming business, we get the piss taxed out of us. but are we going to pack up, move away from our family and friends and go to hang with Angelina Jolie in Ghana?? NO. get real.

The rich don't move. THEIR MONEY LEAVES!

The rich are not the problem. It's the TAX SYSTEM that is the problem.