THE TAX SYSTEM EXPLAINED IN BEER
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 they pay their 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 ball. "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 men would now cost just $80.The group still wanted to pay their bill the way
they pay 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 beer.So, the bar owner
suggested that it would be fair to reduce each man's bill by a higher percentage the poorer he was,
to follow the principle of the tax system they had been using, and he proceeded to work out the
amounts he suggested that each should now pay.
And so the fifth man, like the first four, now paid nothing (100% saving).
The sixth now paid $2 instead of $3 (33% saving).
The seventh now paid $5 instead of $7 (28% saving).
The eighth now paid $9 instead of $12 (25% saving).
The ninth now paid $14 instead of $18 (22% saving).
The tenth now paid $49 instead of $59 (16% saving).
Each of the six was better off than before. And the first four continued to drink for free. But, once
outside the bar, the men began to compare their savings."I only got a dollar out of the $20 saving,"
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 benefit than me!"
"That's true!" shouted the seventh man. "Why should he get $10 back, when I got only $2? The wealthy
get all the breaks!" "Wait a minute," yelled the first four men in unison, "we didn't get anything at all.
This new tax 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 their 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, is how our tax system works. The people who already pay the highest taxes will
naturally get the most benefit from a tax reduction. Tax them too much, and they just may not show up anymore.
In fact, they might start drinking overseas, where the atmosphere is somewhat friendlier and their beer is cheaper.
David R. Kamerschen, Ph.D.
Professor of Economics.
For those who understand, no explanation is needed.
For those who do not understand, no explanation is possible.
|
Logged
