Bar Stool Economics
Electric_Delta
Posts: 977
Bar Stool Economics
Suppose that every day, ten men go out for beer and
the bill for all ten comes to $100 and 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." so 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
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.
Suppose that every day, ten men go out for beer and
the bill for all ten comes to $100 and 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." so 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
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.
Bristow, VA (5/13/10)
Post edited by Unknown User on
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Comments
Godfather.
that would be grand if the system worked like that but it doesn't
remember my comment on your "sky is falling" thread ... just cuz you read it somewhere and it sort of fits your belief system doesn't make it fact ...
http://www.snopes.com/business/taxes/howtaxes.asp
Wow! The only problem i see with this equasion is there's 10 guys not 3 or 6,
1)Poor
2)Middle Class
3) Rich
or
1)Poor
2)Lower Middle Class
3)Middle Class
4)Upper Middle Class
5)Rich
6)Fuckin Rich!
How does it not?
you aren't seriously asking are you?
i mean ... c'mon ... in your example - everyone gets the same benefit from the "tax" being paid ... that is clearly not the case ... there are issues of subsidies and where the money for those tax dollars go ... etc ... this is nothing more than some propaganda piece aimed at satisfying the belief that the rich are the saviours of society ...
i am of the thought process that is what is good for the whole is good for the individual ... outside of that i'm not sure what you are asking or implying ...
What really bothers you is not that the story isn't a fairly accurate portrayal (which it is), but that you believe that there are almost never any circumstances that the "rich" should get a tax break, regardless of the math. I use "rich" loosely here b/c a family making a combined income of 250k in any major US city, particularly on the coasts, is anything but "rich". I mention that only because these tax conversations tend to go from talking about the top ~3% (the 250k mark) to billionaires in their yachts, which frankly gives us a pretty interesting view into the mindset on that side of the debate.
ok ... i would love to hear how you came to this conclusion ...
thanks for trying to tell me what bothers me ... unfortunately, you are incorrect ...
what bothers is me is that a simple example like this will be the foundation of many people's arguments when the reality of the taxation system and the services related to taxation is much more complex ... do you think the billionaires like gates and buffet view the tax system like this email chain?
It is terrifying when you are too stupid to know who is dumb
- Joe Rogan
Good call.
Who exactly determines what is good for the "whole?" Sounds a lot like socialism to me.
it is socialism!! ... and the decision is made through consensus ... it has its pitfalls but in general - it works ...
Somehow... I think it a bit more complex that that. But, that's just me.
Hail, Hail!!!
Glenn Beck and Hannity will use the same scenarios. They really know their audience.
For those who do not understand, no explanation is possible, right?
"With our thoughts we make the world"
No, it doesn't.
First of all, real world analogy, they certainly don't drink the same beer. In fact, I'd doubt they'd all drink beer at all.
Secondly, beer (or any one thing really) isn't all anyone needs.
Thirdly, who is the bartender? In the real world, it's all a cycle, so noone ends up sitting on the money anyway.
Fourth, the richest guys are thus the ones getting the proceeds of the drinking. Poor guy 1-4 are probably the ones driving the beer truck etc, and the beer is their reward.
Point is, no matter what they tell you, rich guys arent the ones shouldering society, they are in fact the guys placed at the premium spot in the system and they reap massive benefits. No matter what theoretical taxation % they can be shown to have. Just as those at the bottom get the worst spots in society, no matter how little tax they pay.
Furthermore, the bulk of taxes is from the middle class anyway, although America is continuosly eroding theirs. Remember, if the system ends up with clear cut winners and losers and no inbetweens, society have a tendency to collapse, or revert into violent citizen infighting (Key concept here: "Nothing to lose"). So a big chunk of inbetween and social mobility is what we need. Not gawking at some fortunate people's wealth who we ask ever so kindly if we can be given something to sustain ourselves with.
Way oversimplified and grossly misleading is my verdict.
Peace
Dan
"Every judgment teeters on the brink of error. To claim absolute knowledge is to become monstrous. Knowledge is an unending adventure at the edge of uncertainty." - Frank Herbert, Dune, 1965
Peace
Dan
"Every judgment teeters on the brink of error. To claim absolute knowledge is to become monstrous. Knowledge is an unending adventure at the edge of uncertainty." - Frank Herbert, Dune, 1965
http://en.wikipedia.org/wiki/Human_Development_Index
although the US is actually fourth this year in the UN index - it's primarily because it scores so high in economic opportunity ... when you look at the individual components such as education - it actually scores quite low and when you adjust for inequality ... the US drops down to 12th ...
1.) Socialistic principles are mutually exclusive with free market principles, namely
- Competition, which is the only general, feasible mechanism for increasing quality and reducing real prices over the long term.
- Profit-loss mechanism, which is the only effective mechanism, on the whole, for distributing finite capital and savings in a manner that leads towards consumer satisfaction
- Most individual motivation, which is the backbone of entrepreneurship, and thus progress of society.
2.) Inevitably leads to tragedy of the commons
3.) In todays day and age, inevitably leads to expansion of central government, authoritarianism, and increasing waste due to increasing layers of bureacracy.
4.) The goal of "helping people who really need it" is far, far, far, far, far, far, far, far, far, far, far, far better met by a decentralized, bottom up society based on individual liberty + free markets.
Reasons for this include:
- Far less waste inherent in large bureaucracy
- Far less waste that is a typical secondary consequence of government bureaucratic inefficiency.
- bottom-up = far easier for people-employee (government) accountability
- bottom-up = resources are far better allocated, i.e a local organization in my town knows a hell of a lot better what my town needs than some bureaucrat in DC
- People as a whole are generous, and its ironic that this is used in an argument for government programs, i.e "capitalism is cruel (no it isnt -- it is a-emotional), and without government programs, people wouldnt get any help whatsoever).
The obvious confounded is that in any sort of democratic-type system, these government programs would not be voted in, unless a majority of the votees believed in helping people in some way. Thus making the original, and very common, proposition here meaningless.
- The "golden age of capitalism", which most poeple ignorantly point to as its "failure", was nothing of the sort -- its was also one of the most generous times -- the richest men were some of the biggest philanthropists.
Furthermore, the best service you can do to society is not to just donate your money -- it is to be an entrepreneur, and make millions by making a common product better & cheaper.
I vote Dan for AMT President.
A slim minority, if any, of our tax money goes towards funding the services we expect from government. It goes towards interest payments on the debt that actually DOES finance government.
I wish taxes would become completely VOLUNTARY tomorrow. How about a more free-enterprise approach to government? If you think that government-run education is important, and should be controlled by the Dept of Ed-- cut them a check. Defense? Cut them a check. Don't think they're getting enough? Campaign on their behalf, and fundraise for them. Let them work with what they have, and make it truly the choice of the people which agencies stay and which ones go-- or maybe they all end up staying with budgets that the people are actually WILLING to shell out for.