# Out tax system explained in Beer



## rshuey (Jan 26, 2011)

The Tax system explained in BEERS

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 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 we pay our taxes. So the first four men were unaffected. They would still drink for free. But what about the other six men ? 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 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, journalists and government ministers, 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, 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.


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## fatboy (Jan 26, 2011)

I've read this before.....really gets you thinking.......


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## rshuey (Jan 26, 2011)

I laughed, then I cried. haha


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## FM William Burns (Jan 26, 2011)

That is fantastic.


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## ccbuilding (Jan 26, 2011)

Perfect, Thanks rshuey


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## Coug Dad (Jan 26, 2011)

"Being paid to drink beer".....sounds like the Earned Income Tax Credit.  The EITC is giving tax refund checks to people who pay zero in income taxes.


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## Jobsaver (Jan 26, 2011)

Great parable.

I personally know some exceptions, but many prefer, on a daily basis, to drink with those of thier own standing, having similar woes.

It is unlikely the rich man ever agreed to the first arrangement. It is more likely that he just decided to drink with his rich buddies who would share the tab equally.

It is certain he started drinking overseas at the original proposition of paying the 59%.


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## FredK (Jan 26, 2011)

Wonder why I'm always number 7 in the system?


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## conarb (Jan 26, 2011)

Well why not, we pay welfare to poor people to do nothing, we pay  old and disabled people Social Security to do nothing, and we pay  government employees salaries and pensions to do nothing, why not pay  men to drink beer?


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## steveray (Jan 26, 2011)

And we pay athletes and CEO's millions to do about a weeks worth of work a year....let them spend it overseas...they won't leave the protection of this country...


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## mtlogcabin (Jan 26, 2011)

> And we pay


We don't pay them. Their bosses pay them.


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## jpranch (Jan 26, 2011)

I'll pay my own way or go dry!


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## Yikes (Jan 26, 2011)

In 1974, economist Artur Laffer came up with the Laffer Curve on a napkin sketch to explain it to Rumsfeld, Cheney and a writer for the WSJ, while arguing against Ford's tax increase.  It was originally attributed to 14th centry muslim named Ibn Khaldun - a true polymath (before you could use the term "reniassance man").

The concept is "self-evident":

* If I have a 0% income tax rate, the government collects no money on the worker's wages.

* If I have a 100% income tax rate, there is no incentive to work, so no work gets done, so the government again collects no money on the worker's wages.

*  Somewhere in-between 0% and 100% is the optimum tax rate for maximum collection purposes, for each individual wage earner.  This creates a sort of "curve" of tax revenue vs. taxation rate.

Due to human psychology it will never be a perfect curve, but probably be more like a stairstep, where the tax rate creates a tipping point, the wage earner can't stand the pain anymore, and just quits / sells the business / whatever.

Note that we didn't even begin to talk about how the taxes are used, about trickle-down, class envy, or about anything other than the simple psychology of how much % you can tax a person's wages before they are disincentivized to try and earn more money.

Current guesses put the revenue-maximizing tax rate at 35% average for Americans.  In Sweden, it's about 70%.


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## beach (Jan 27, 2011)

> In Sweden, it's about 70%


That's true, but they have socialized medicine, etc. My first wife was Swedish and I was married in Sweden, her father was a doctor.... not like the doctors here, where they make a lot of money, doctors in Sweden get paid a decent, but not too over-average wage, so the desire to become a doctor in Sweden is not quite so monetarily based...


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## jim baird (Jan 27, 2011)

A friend of mine's mom was in college in GA when the revolution hit Cuber.

Her sister is an orthopedist there now and makes something like $40 a month, but Hey she's got a job she likes.


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## brudgers (Jan 27, 2011)

Jobsaver said:
			
		

> It is unlikely the rich man ever agreed to the first arrangement. It is more likely that he just decided to drink with his rich buddies who would share the tab equally.


Then wrote it off as a business expense.

But he's got a lobbyist working on turning it into a tax credit.


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## AegisFPE (Jan 27, 2011)

And the next time they all went to the bar, the tab went up to $110, and their second round of pints all come with umbrellas!  The guys asked what changed, and the bar tender explained...

"Legislation is enforced by the state liquor board, which is published by the Interfering Global Gang (IGG), which is comprised of consumers like you, glassware manufacturers, brewers, distillers, grocers, bar tenders and wait staff, though only those employed by a bar or restaurant that serves alcohol can actually vote on the IGG legislation.  Now IGG legislation requires that every drink poured from a new keg be served with an umbrella.  They say this way we can prevent 100% of the drownings that would have otherwise occurred."

"That's ridiculous," said one of the customers. "I've not ever heard of the IGG, nor did I get to vote on this legislation.  Now I'm paying more for my beer and it comes with an umbrella that I don't think I need.  Who can I vote out of office so we don't get more extreme legislation like this?"

His buddy reasoned, "Well, I understand the need to protect people from drowning, but instead of an umbrella, can I just have a couple straws?  I think that would accomplish nearly the same thing."

"Sorry to both of you," said the bar tender.  "There are no exceptions or alternatives to the umbrella rule.  And as far as voting out the people who enacted the legislation, the members who voted on the IGG legislation are not elected officials."


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## TimNY (Jan 27, 2011)

AegisFPE said:
			
		

> And the next time they all went to the bar, the tab went up to $110, and their second round of pints all come with umbrellas!  The guys asked what changed, and the bar tender explained...


If you made that up on the fly... I tip my hat to you, sir.


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## pwood (Jan 28, 2011)

gives new legitimacy to the tinkle down theory!


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## Yikes (Jan 28, 2011)

According to my Facebook friends from the other side of the political spectrum, the backstory is that the 10th guy owns the factory where the other 9 guys work, holds the mortgages on their homes and the bar where they drink, and owns the beer company.


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## texas transplant (Jan 31, 2011)

A sign posted at Luckenbach, Texas:

"If you think you need a beer, but need credit to buy it, you don't need credit, you need a job"


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