Re: The Classic Example of Barstool Economics
Phoenix32890 wrote:Saw this in the paper yesterday. Simplistic, of course. But like all good parables, it illustrates an important point.
Quote:
Suppose that every day, 10 men go out for beer and the bill for all 10 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 10 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 percent savings).
The sixth now paid $2 instead of $3 (33 percent savings).
The seventh now pay $5 instead of $7 (28 percent savings).
The eighth now paid $9 instead of $12 (25 percent savings).
The ninth now paid $14 instead of $18 (22 percent savings).
The tenth now paid $49 instead of $59 (16 percent 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 10 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.
For those who understand, no explanation is needed. For those who do not understand, no explanation is possible.
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It's a very poor comparison for several reasons Pheonix.
1. Taxes are not collected by an owner.
2. The schedule laid out for beer purchases doesn't come close to relating to the tax system in the US. Even after the Bush tax cuts the bottom 20% pay 1% of the total Federal taxes. The bottom 40% pay 6% of the taxes. Your example has the top 20% paying 77% of the taxes which they do not.
3. A reduction in taxes doesn't reduce the cost of the services being provided. If we run a deficit. That deficit will still have to be paid unlike a reduction in prices at a bar.
4. Unlike your bar scenario, the people in this country get a benefit other than just drinking from paying their taxes. The poor buy goods and services provided by the rich so the rich get money from the poor not included in this simplistic analogy. Perhaps your scenario should have included a $5 cover charge that 100 people pay to get in the bar that the top 2 guys split 80/20. Suddenly it seems they aren't getting screwed if we just make that single adjustment.
5. The way that reductions are figured in taxes are not based on this simple process.
6. The rich have not been beaten up by the poor (yet.)
7. The rich can't "not show up" in the country just because they don't like the tax system.
