06 May 2008

Our Tax System Explained: Bar Stool Economics

DISCLAIMER: This post is borrowed from a viral e-mail I received from a good friend today. And by borrowed, I mean plagiarized. Enjoy.

Ten men went out for beer and the bill for all ten came to $100. They agreed to pay their bill in the following way:
  • The first four men (the poorest) paid nothing.
  • The fifth paid $1.
  • The sixth paid $3.
  • The seventh paid $7.
  • The eighth paid $12.
  • The ninth paid $18.
  • The tenth man (the richest) paid $59.
The ten men drank in the same bar every day and seemed quite happy with the arrangement. Then, one day, they were approached by the owner of the bar.

"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 of you will now cost just $80."

Since it was such a wonderful arrangement, the men still wanted to pay their bill in the same manner they always had. So how could they divide the $20 windfall so that everyone would get his fair share? They realized that $20 divided by ten is $2. But if they subtracted that from everybody's share, then the first four men, the fifth man, and the sixth man would all 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. It worked out like this:
  • The first four men were unaffected. They would still drink for free.
  • 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 as 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. This 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 doing business 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.

1 comment:

Tuffie said...

seeing as i'm current economics bitchboy it was fun reading this the other day also from a mutual friend

sad but true that the truth is sad