Explaining Our U.S. Tax System with 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 beers 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 very 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

Comments

[rhetprof]

Interesting. Amusing. And not even close to how taxes work in the U.S. What about (and certainly not limited to):

1. sales taxes
2. use taxes
3. vice taxes
4. business taxes
5. estate taxes
6. property taxes

There is not one person in the U.S. (except for, perhaps, a homeless man in Delaware--no sales tax) who pays no taxes at all.

The lesson here should be that amusing little models are fun as entertainment (or dangerous as disinformation) but tell us little about how things actually work.

[PCR]

Actually that is the way it works. The point is about income taxes only. I know, I work with taxes every day. Poor people do nt pay taxes. They get credits and Earned Income Tax Credit which is money paid in by others to re-distribute to the poor. You don't know what you are talking about rhetprof so just go back to the Daily Kos and be happy being miserable.

[PeachPit]

But the bigger question PCR is this, are you still chasing the stand up comedy career and if a train is leaving spokane at 67 miles per hour. and another train leaves Scottsdale at 34 miles an hour, will the rich get richer? YES. What is everyone going to do with their slap in the face stimulus package?

[PCR]

Peach, what are you talking about?

[Full Disclosure]

Let them go overseas....

[raf the man]

i have to disagree.... IM ON THE DATZ TRAIN!!!!!!!!!!!!!!!

[James Bowers MSgt USAF (Ret)]

The point is if you have more you pay more so the politicians should stop touting "tax breaks for the rich" as a charge to get re-elected.
Here is a thought. If you paid no taxes (Income tax only) you can't vote. If you don't pay you can't play.
"Any government that robs Peter to pay Paul will ALWAYS have the support of Paul"