This came to me today by way of our Secondary EVP. Enjoy.
Something to think about (especially if you are either very poor or very rich)…
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 then would just cost $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 -
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 what if they
subtracted that from everybody’s share, and 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.
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 paid $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 of 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.
David R. Kamerschen, Ph.D
Professor of Economics, University of Georgia