Is our tax system like this?

  Bingalau 19:49 18 Oct 2008
Locked

This is an excellent explanation of how our tax system works. It comes from an Economics professor at the University of Georgia. I encourage you to take the two minutes to read through this brilliant explanation, it is well worth the read.

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 t en 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, 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.

  newman35 20:04 18 Oct 2008

This financial crisis has started governments thinking about the whole 'tax exile' business.
Particularly across the pond they are talking of ultra-tight rules to prevent just this type of avoiding taxation, by 'drinking overseas'.

  Noldi 20:39 18 Oct 2008

"In fact, they might start
drinking overseas where the atmosphere is somewhat friendlier."

and they pay only for the beer they drink,

But its not only the Rich its also the guys who pay more for their beer than they need to for pride and self respect of paying their way.

Noldi

  bluto1 22:30 18 Oct 2008

Nice post Bingalau, and extremely thought provoking.

I'm one of the thousands who have stopped drinking in pubs. (To a great extent, but I still look in if I'm flush)

  Forum Editor 23:10 18 Oct 2008

It's been circulating for many years, and was originally put out under an entirely different name.

It was written to make a political point, and no professor of economics would want to have it associated with his or her name - it's riddled with errors and muddle-headed thinking.

This thread is now locked and can not be replied to.

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