Thread: Bar Stool Economics

Saw this on another board:

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

stQuote( In fact, they might start drinking overseas where the atmosphere is somewhat friendlier.Quote

I catch the drift and agree to a point however the rub comes when wealthy people have no morals or standards and sell out our country to make huge profits, then what. Where is the built in control to stop this, certainly not our government who is owned and operated by wealthy corporations.

Capitalism in itself is a great thing however if abused by greedy immoral people it can be destroyed like all things. It is great to make a profit and become rich however profit at any cost to country, family is simply wrong and this is the direction we are heading, we have tons of economist who worship at the foot of free trade but the current policies and agreements are killing our middle class and the future of young people in this country so one must consider quality of life when discussing economics. Just my opinion, certainly won't change world greed.

The author seems to be making an argument for a flat tax ('fixed' % tax on income)

However, we all know... that although the wealthiest people in our country have the highest nominal tax rate (%), the amount actually paid is nearly always far less due to the 'working the tax/accounting' laws.
(translation: many end up paying a far less % due to clever accounting)

Most average or poor folks never fall into the high nominal tax rate brackets, and thus, are taxed at a far lower rate (%). Of course, some or even many of these folks do take advantage of various breaks for housing mortgage deduction, small business operating expenses, etc. but they are of a nature and scope that are far more limited and of fewer dollars than what applies above (^previous paragraph).

My other problem with the above ignores the fact that when people/companies seek to 'go overseas' tax policy is rarely the first consideration. Usually, the decision centers around production cost ('cheap' or 'slave' labor, not tax structure... well, not as much anyway). In fact, many of the companies that do offshore/outsource end up exploiting Federal tax subsidies provided by US taxpayers to do so!

There is a book out called "Offshoring" which details how Americans are forced to reward companies who move jobs out of the country. Outside of Plutonium Files, it's the scariest book I've read.