Bar Stool Economics ;-)
 

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

For those who understand, no explanation is needed.
For those who do not understand, no explanation is possible.

:2 cents:

Let them take thier money over seas, and invite them to move it ALL over seas Like thier headquarters, their homes, their wives everything. They will soon find out that it would have been a little better to pay a little more where they BUilt it all int he first place.

This illustration never gets old. However, it all boils down to a clash of two ideologies that answer this fundamental question: Who owns the wealth in a society? Those who answer "Society" will not have a problem with "progressive" tax systems. Those who answer "The individuals who created the money" will have a problem. The economic history of the US and Europe all revolve around the electoral success of the two differing answers above.

Yeah, that story's been told to death, the only problem is that the 10th man wouldn't be paying $59 because he'd have everything running through his corporation with accounts over seas and a team of accountants to "massage the numbers" enough for him that ultimately after the beers are paid for he really only paid $2. And when the beer ran out, the government would step in and bail him out with millions of dollars so he could keep on paying $2 for the beers rather than the $59 he should have been paying.

So why "should" he pay $59 instead of $2 like his friends? Because he works harder?

Because a set % taken from 100,000 tends to be more than then same % taken from 10,000?

The "socialist" response would be this: He was able to make enough to pay $59 unlike $2 like his friends because social apparatus like the court systems and systems of law enabled him to. Since this is a result of these social devices, he should return the favor by paying more to keep the system going.

The other argument (yours and mine) is that the creator of the wealth is primarily the individual and he should be allowed to keep the fruits of his labor. By allowing individuals to profit from their efforts, they create jobs and the system incentivizes others who likewise want to work or invest to reap similar benefits. This creates even more jobs and taxes and society as a whole benefits.

I thought we were talking about beer here :winkwink:

ANYONE can have his accounts running overseas, no matter if you make a fortune or hardly make a living - that's just NOT an argument!

And it's a very basic economical knowledge that once you raise the tax level above a certain number you will just NOT see more money flowing in for the government..