Bar stool economics

LeVeL

Forum Addict
Joined
Jun 16, 2007
Messages
13,246
friend sent this to me just now:


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 on 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!'

'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, boys and girls, 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
 
Excellent point. I wish more people could get a concept like that through their thick skulls.
 
Now how many of the people on the side being criticized will realize that they are the ones supporting the flawed policy.
 
Isn't the tax spread in the US between 10-35%? I guess it goes by absolute taxes paid then, so assuming person one pays 35% tax, his income is roughly 18 times before and 12 times after taxes the income of person 5 paying 10%, poor guy.

There's also state income taxes, which my state doesn't have, but 45 or so others do. There's also sales tax, and chances are if they're so successful that they actually pay 30+% income tax, they're businessmen, who pay taxes on that business, and licensing, and so on...

What offends me about the modern tax code is that it's hardly modern, and it taxes activity/productivity rather than consumption.
 
What offends me about the modern tax code is that it's hardly modern, and it taxes activity/productivity rather than consumption.

exactly my thoughts. Cars are even the best example. You earn money on which you pay tax, you buy something/car you pay VAT (tax), to put the thing on the road you pay road tax, and to fill it up with fuel you pay another tax and all paid from a taxed income!

I say, tax only consumption, why should someone be punished for working 16 hours a day to earn enough for a decent living?

BTW, thanks for sharing, excellent article.
 
But wait! I thought if you lowered taxes, that increases revenues? According to this story, if you lower them, the poor people will beat up the rich people, and then tax revenues will drop dramatically, so the moral of the story is that you should never lower taxes. :tease:
 
If you tax the rich to give money to those that don't deserve it, aren't you just killing any incentive for people to get out of poverty? If the rich no longer can afford to buy the cars that the regular people make, or the houses, or create businesses that the regular people work in, isn't that bad? Maybe I'm taking nonsense, after all, there are eminent scholars and politicians (most of whom are lawyers) who have stated that my views are fundamentally wrong. That 'From each according to his ability, to each according to his need' actually works. Reminds me of the homeless man's story about the 20th Century Motor Company in Atlas Shrugged.
 
Well it would be OK if the split was like that but. ...

Instead of paying 59 USD the rich bloke would pay an Accountant and Lawyer 10 USD to get him off paying anything at all.

An example:
The Maxwell brothers got Legal Aid that is millions of pounds worth of free lawyers paid for by Joe Smoe (i.e. Me and others of the same income) to defend themselves when their dad fell overboard from his multimillion pound yacht and he was found to have embezzelled millions out of the Mirror Group Newspapers Pension fund.

Free legal aid is supposed to be for the poor, er no the very poor.

http://findarticles.com/p/articles/mi_qn4158/is_/ai_n13965725
 
What a wonderful post !! Man....the amount of time I have spent rambling on about the same thing to people who are jealous and bitter for not being as wealthy as some people. It is literally a crime to be rich in Finland, you are automatically a social outcast. I am soooo going to post this on a musicians discussion forum.....oh man.....just the thought of it makes me giggle.....it will be a full on flame war.....YOU CAPITALIST PIG YOU SON OF A ?/"(#?(?#"=`? !!!!! :mrgreen:
 
Unfortunately for Mr. Kamerschen, he seems to have conveniently forgotten the part about the tenth beer drinker receiving tax-exempt income from various investments that more than offset his portion of the bill while the other nine get jackshit, or all the other countless "loopholes" in the 20,000+ page incomprehensible tax code. Other than that, the analogy is spot on.
 
Ooh! Ooh! Or how about how drinker #10 is an addicted gambler who just lost a bunch of money, and then got the bartender to take $800 billion from the other 9 drinkers to cover #10's gambling debts?
 
Well bankers aren't the richest men you know ;). But going with your analogy you easily be able to most recover the money from those you caused this in the first place i.e. the first 5 guys or so. Leaving your other private wealth untouched after a mortgage default is US specific and really calls for unethical behaviour. :p
 
Bar stool economics? Thats exactly what it sounds like.
What offends me about the modern tax code is that it's hardly modern, and it taxes activity/productivity rather than consumption.
Now that I do agree with.

Unfortunately for Mr. Kamerschen, he seems to have conveniently forgotten the part about the tenth beer drinker receiving tax-exempt income from various investments that more than offset his portion of the bill while the other nine get jackshit, or all the other countless "loopholes" in the 20,000+ page incomprehensible tax code. Other than that, the analogy is spot on.
:lmao: +rep for you, good sir.
 
Top