>> Thursday, November 1, 2012
A friend, Josh, shared the following on Facebook, and I thought it worth passing along. I would have written it a bit differently were I the author, but I'm not so I didn't, and the analogy is still very good.
BAR STOOL ECONOMICS
Suppose that every day, ten men go out for a 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
The first four men (the poorest) would pay nothing.
The fifth would pay $1.00
The sixth would pay $3.00
The seventh would pay $7.00
The eighth would pay $12.00
The ninth would pay $18.00
The tenth man (the richest) would pay $59.00
So that's what they decided to do. The men drank in the bar every day and
seemed quite happy with arraignment, until one day, the owner threw them a
"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 men 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 windfall so that everyone would get there "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!
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
"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, 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 union. " We didn't I 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, journalist 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.
For those who understand, no explanation is needed.
For those who do not understand, no explanation is possible
David R. Kamerschen, PH. D
Professor of Economics, University of Georgia
Posted by Mark Hutchins at 7:07 AM