Bar Stool Economics

[kirbinster]

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!"
"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, 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.

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

[sk66]

you left out two considerations...
The 8th guy is self employed and makes what the 5th guy does. And the guy with the most wealth is actually the 6th guy in the scenario; since most of his money is in tax shelters or was gifted to his dog.

[OsmosisStudios]

In an ideal world, yes. In reality? notsomuch.

[scootermcq]

So, when are you buying me a beer?

[theosus]

How about this... throw the tax tables out, and tax every purchase 20%. The first four stop coming to the bar - they can't afford to drink after Chase revokes their credit card privledges and starts charging them 39% on their bar tab. That leaves more bar stools for paying customers, and everyone pays at the same rate. The rich that drink more, or drink more expensive booze, pay more in taxes. Thrifty people, who drink less, or drink well drinks, they pay less taxes.
Therefore - you decide what to pay in taxes yourself - by making wise buying decisions.

[RLucas]

Originally Posted by kirbinster

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.

....Or put up fruit and vegetables stands in their front yard to get farm tax credit?

[mad editor]

Originally Posted by theosus

How about this... throw the tax tables out, and tax every purchase 20%. The first four stop coming to the bar - they can't afford to drink after Chase revokes their credit card privledges and starts charging them 39% on their bar tab. That leaves more bar stools for paying customers, and everyone pays at the same rate. The rich that drink more, or drink more expensive booze, pay more in taxes. Thrifty people, who drink less, or drink well drinks, they pay less taxes.
Therefore - you decide what to pay in taxes yourself - by making wise buying decisions.

sales tax is the harshest tax of all on the poor.

[kirbinster]

Originally Posted by mad editor

sales tax is the harshest tax of all on the poor.

Hardly, sales tax (or VAT - but that is an entirely evil animal) taxes all purchases equally. Since the poor purchase much less they will therefore pay far less in taxes that the rich that consume more.

Our government is so screwed up that it taxes income and wealth creation and rewards consumption. It should be doing the exact oposite. There should be no tax on income, only a tax on consumption. That will motivate savings and capital formation, rather than debt.

[curelightwounds]

Originally Posted by kirbinster

Hardly, sales tax (or VAT - but that is an entirely evil animal) taxes all purchases equally. Since the poor purchase much less they will therefore pay far less in taxes that the rich that consume more.

Our government is so screwed up that it taxes income and wealth creation and rewards consumption. It should be doing the exact oposite. There should be no tax on income, only a tax on consumption. That will motivate savings and capital formation, rather than debt.

Wait. So you think savings and not spending is good for an economy...

[RLucas]

I am just curious as to what he is pissed off about? The rich duping the tax system by finding loopholes, or the poor that pay little or no income taxes. Not trying to knock you Kirbinster, but I am confused.