Wednesday, November 07, 2007

Death and Taxes

A Good Analogy of the Tax System


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:

  1. The first four men (the poorest) would pay nothing.
  2. The fifth would pay $1.
  3. The sixth would pay $3.
  4. The seventh would pay $7.
  5. The eighth would pay $12.
  6. The ninth would pay $18.
  7. 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:
  1. The fifth man, like the first four, now paid nothing (100% savings).
  2. The sixth now paid $2 instead of $3 (33%savings).
  3. The seventh now pay $5 instead of $7 (28%savings).
  4. The eighth now paid $9 instead of $12 (25% savings).
  5. The ninth now paid $14 instead of $18 (22% savings).
  6. 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 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

For those who understand, no explanation is needed. For those who do not understand, no explanation is possible.

Cuzzin Ricky


Steve said...

No problemo....#9 now becomes "rich" and picks up the tab. The Dimwits go after BIG BEER and everybody goes home drunk and happy!!

Anonymous said...

I do a large portion of my drinking in Nevis. Now I dutifully report all income earned offshore as my bank there reports nothing to the IRS. After all it's my obligation as an American. I spoke just today to my broker in Nevis and this very thing came up as we discussed some real estate investing on the island(a new marina and a slip for my boat) and he was surprised that I do this. I told him if HRC is elected, I'll come and live with my money there.

Yuck yuck

Anonymous said...

I dont know if he was first or not, but Neal Boortz ran the same example over two years ago. He is a jerk, but I enjoy his show and he deserves credit.

Anonymous said...

This story sounds like the plot of Atlas Shrugged. One of the best books ever written. The hard working intelligent people just go on strike and don't show up to run the factories and businesses anymore because there's too much tax and regulation. And society collapses.

Anonymous said...

It's got to be fake. Nobody affiliated with UGA could write something that logical.

Buzz Goldstein

Kristopher said...


If the Hildabeast cannot grab your ass or assets, you are safe from her.

Anonymous said...

Dear Ninny-Moose, of course we must verify that what the cop says happened happened. The story is about those people who, when they hear this story, automatically assume that the cop is the villain. Yes, it happens sometimes but it is rare.

This sounds like an open and shut case of suicide by cop. The cop identified himself, told the guy to put his gun down. He didn't. Boom! He's dead. It doesn't matter who shot first. The criminal doesn't get a free shot.

I suspect that this line from a couple of days ago will become the most useful quote I have ever gotten from C&S; "For those who understand, no explanation is needed. For those who do not understand, no explanation is possible." Liberals are just brain-damaged and there is no point in even talking to them.

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