Economics of Taxes: The Bar Stool Explaination

[CadetProgramGuy]

Our Tax System Explained: Bar Stool Economics!

Suppose that every day, ten (10) men go out for beer and the bill for all ten (10)comes to $100.00*.......

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 ball.....

'Since you are all such good customers,' he said, 'I'm going to reduce the cost of your daily beer by $20.00' ~ Drinks for the ten now cost just $80.00*

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 $20.00 windfall so that everyone......would get his 'fair share?'

They realized that $20.00 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 $20.00 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, ladies and gentlemen, 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

[RiverAux]

And what does this have to do with CAP?

[stillamarine]

And what does this have to do with CAP?

It's in the lobby so who cares? I still found it amusing and a great way to explain it!

[mikeylikey]

Good Post!

The Tax system is unfair.  One flat percentage rate for everyone would work fine.  You make more money you pay more taxey!

I am also a firm believer in taxing Welfare payments, because you know those on welfare, most likely don't have a job to begin with and never will. 

I would also like to tax businesses that keep corporate offices stateside but move manufacturing to places like Mexico or China.  The Corporate Cats reap all the benefits while they exploit other countries workers and put American Workers out of a job.

Speaking of taxing, It is ridiculous that the tax laws are written so bad that you need an Accountant or lawyer to help you figure through them.  Was that intentional?  I think so

[jimmydeanno]

A flat tax removes the ability of the government to influence the economy and reward behavior that will help the country to succeed.

Tax credits, etc give an incentive for people to do thing like reproduce, or buy a home.  I'm not an economist so I don't know what kind of real impact it would have moving to a flat tax...

I also think it is funny that more money was spent last year on tax preparation than was refunded...

[lordmonar]

I think it is intresting how we determine what is "fair".  Sure the rich pay "more" in taxes...but if you are making $100K/year your $23.7K in taxes is not going to hurt you as much compared to the people in the 10% bracket only making $7.8/year.  $780 is a lot of money....I pay more than that on my month house payment.

If we instituded a flat tax...those people who currently do not pay taxes will be hit with a new expense that they cannot afford to pay...

I have not paid taxes in years do to my income and all the credits I can claim....If I had to pay a flat (say 10%) based on my "taxable income" I would have to shell out $2600.  If I were paying on my adjusted income I would be paying $5900...If I were paying on my true gross income (adding military housing allowances, TDY perdiem, BAS, clothing allowances, etc) I would have to pay over $7000!  I can tell you right now that there are a lot of people out there in the lower brackets that just can't afford this.

Where would that get us?  Not only will the federal government not be making as much money as before...they would be loosing money because they would have to spend money to recoup the losses from those like me who can't pay their taxes.

Or we would be taking even more money from the lowest earners.

The consumers who buy all those things that help the top 10% make all that money.

I am not saying that the system is "fair" in way shape or form...but the system was not set up to be fair.  It was set up to pay for our government in a way that does not shove the poorest deeper into poverty and gives that burden to those who can most afford it.

[CadetProgramGuy]

And what does this have to do with CAP?

Not a darm thing.....Thats the beauty of this.  No uniforms, no policy, no wing talk, no nothing......

(hopefully no lock either....)

[cnitas]

I would imagine the rich guy was wearing a flight suit when he got beat up... 

[jeders]

I would imagine the rich guy was wearing a flight suit when he got beat up... 

With an orange shirt underneath and a beret.

[Bear Walling]

*Bangs head against the desk...*

"If only the south had won..."

*Continues to bang head against the desk*

[CadetProgramGuy]

*Bangs head against the desk...*

"If only the south had won..."

*Continues to bang head against the desk*

What?!?!   Would it have been an orange beret?

[SJFedor]

*Bangs head against the desk...*

"If only the south had won..."

*Continues to bang head against the desk*

And CAP would be the Confederate Air Patrol.....

[ColonelJack]

Not meaning to plug another guy's book or anything, but ...

Have you read The Fair Tax by Neal Boortz and John Linder?  It proposes replacing the entire income tax system with a 23% national sales tax.

Everybody who buys anything pays taxes that way.  And there's a return each month for the taxes on the things we have to have -- for the necessities of life, spending up to the poverty level gets all of the sales tax refunded monthly.

Check it out.

Jack

[mikeylikey]

^ I would go for that!  I would then just buy everything on the Internet before they start taxing those sales too.  Then, I would buy everything on the INTERNET shipped from overseas, until they tax that.  Then I will stop buying EVERYTHING altogether!

[Walkman]

Taxes make me grumpy