Barstool Economics (Taxes Explained)

Frag x 3

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Location
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sers
Posted: 2/1/2008 5:03 PM 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!" "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
 
T

thebwit

Guest
I read that recently and then couldn't find it to post again. Kind of amazing when you think about it.
 

Krazikarl

Cthulhu fhtagn
Joined
Aug 28, 2008
BTW, this wasnt written by any economics professor:

http://www.snopes.com/business/taxes/howtaxes.asp

Likewise, Dr. David R. Kamerschen, a professor of economics at the University of Georgia, has been erroneously attributed as the author of the essay. He posted a denial of authorship on his personal webpage.
The argument has a few problems. First of all, under many tax plans (including McCain's), the wealthy get the largest percentage tax cut also, not just the largest absolute tax cut. That negates the point of the article, where the rich guy is getting a small percentage tax cut but its large absolutely because he paid more.

Secondly, paying for drinks and paying taxes arent the same thing and our sense of what is fair in both cases is different because of this. Its perhaps not wise to determine tax policies based on how you would act in a bar.
 

Noob

www.myspace.com/mmaspot
Joined
Aug 23, 2008
Its perhaps not wise to determine tax policies based on how you would act in a bar.

I base most serious life decisions on how I would act in a bar.



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.
I'm assuming he meant this to be humorous. I don't think the wealthy in America have much of an option of just not showing up to pay their bill. Well, aside from generally evading taxes and cooking the books to avoid paying more than they have/want to.
 

Frag x 3

everybody's friend
Joined
Aug 26, 2008
Location
Philadelphia
The argument has a few problems. First of all, under many tax plans (including McCain's), the wealthy get the largest percentage tax cut also, not just the largest absolute tax cut. That negates the point of the article, where the rich guy is getting a small percentage tax cut but its large absolutely because he paid more.

Secondly, paying for drinks and paying taxes arent the same thing and our sense of what is fair in both cases is different because of this. Its perhaps not wise to determine tax policies based on how you would act in a bar.
But you DO agree that this is how people would react to this specific situation, right?
 

sabreclaww

jui jitsoooos
Joined
Aug 27, 2008
Location
New York
I like it. It is definitely eye opening. What cracks me up the most is:

If you are actually HONEST with yourself for just one second...you would agree:

We ALL are striving to be in a position of comfort for our families. It may be appealing now to hear that we're gonna tax the "rich" etc...

but we're all trying to climb the ladder aren't we? How Rich is Rich? I don't believe that my family falls into the wealthy category...but I'm hoping to someday! And when success comes my way, I hope that the government wont swoop in and take from me because my hard work paid off!! That doesn't sound like the 'american dream' to me.
 

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