Skip to comments.A Beer Story Explains US Taxes... In A Way Even A Democrat Should Understand
Posted on 07/24/2012 10:26:10 AM PDT by Impala64ssa
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, thats 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, Im 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 everybodys 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 mans bill by roughly the same amount, and he proceeded to work out the amounts each should pay.
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, thats right, exclaimed the fifth man. I only saved a dollar, too. Its unfair that he got ten times more than I!
Thats 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 didnt 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 didnt 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 didnt 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.
Sounds like a plan. Free beer, who is not going to like it?
“The next night the tenth man didnt show up for drinks, so the nine sat down and had beers without him.”
So the 9 remaining drinkers hired the local bounty hunter to go out and drag the 10th man back at the point of a gun!
Good analogy, but under our current system with the earned income tax credit and welfare. Not only would the the first four men pay nothing toward their beer, they would actually be paid a couple dollars just for showing up to drink.
Figure out a better way to raise taxes and leave personal incomes alone, or, at worst, tax individuals on their profits just like you tax corporations.
Actually, you are wrong. They would get about twenty-five cents!
You really need to point out that this analogy pertains to Federal income taxes only. Other Federal, State and Local taxes are not levied this way.
The company I work for has always offered a “buy-out” program for employees who have their own health insurance and don’t use the one provided by the company. Originally the amount was $150 per month. A couple of years ago, in response to increasing premiums, they were forced to raise the employee contributions for those in the company plan. In so doing they actually REDUCED the amount of the buy-out for the non-participants, saying that they were trying to make sure that the pain was spread evenly. In vain did I point out that by not using the company plan I was actually SAVING the company money following the premium increases. They ought to have increased the amount of the buy-out, not reduced it. But that’s the way things work in this Kum-ba-ya society.
There's another story here - the difference between the barkeeper's cost, and what he charges the ten men. In order for the the barkeeper to look like he's running a fine establishment, he must always uphold the illusion of being a popular place for people to wet their whistle.
Over time, the cost of beer goes up 42% higher then he takes in from his customers. In other words, at the end of every day, he has to borrow money and pay it back with interest on top. Since he's already unable to pay for the beer he serves to his customers, he has to borrow to pay back borrowed money that's come due.
This trap of trying to stay popular, borrowing to do so, rising costs, paying off debts on time is bad enough. But now the customers who have been drinking for free have started to drink a lot more because they are unemployed, kind of sad, and have unlimited time on their hands. On top of that, they invited some friends from another neighborhood to join them for "free beer". Now, the barkeeper, in order to maintain his popularity wouldn't dare risk offending a customer, even if they're not paying, because their presence helps to create the illusion of popularity and this will attract even more nonpaying customers and the place will be filled to the rafters!
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.Nice try but David R. Kamerschen, Ph.D. Professor of Economics is tax/costs illiterate.
When taxes (or prices) are reduced it is NOT a "windfall". The COST was reduced 20%. There is no $20.00 to divide since it was never paid.
The only way it can work is to reduce every payers cost by 20%.
I did a quick search on the internet to see if there are different versions out there.
Found this LIBERAL RESPONSE:
This is VERY interesting, thank you for sending it to me. I think the major fallacy in this argument is that what we’re spending our money on is beer (i.e. recreation). This is not true. Actually, we are spending it on military, the police, roads, veterans, children, the elderly, wildlife, infrastructure, and, as you mentioned, parks and recreation.
Quintessentially, the guy at the bar benefits far more from these expenditures as anyone else. Without our government, the rulers of the means of production would have no workers, no stability no roads, no government regulation to prevent fraud, no safeguards or welfare as was recently passed on wall street.
My father-in-law worked for a company owned by AIG. Consequently, all his stocks from his 401(k) were in AIG. So literally, while my in-laws have seen their retirement, reduced to nothing, AIG execs, nevertheless went and spent more than you and I could imagine in our lifetime, on spas, and food, and drink.
Basically, you need to rewrite the story to where the guy who is paying the most owns the bar, owns the beer distributor, and all the laws are created to his liking. Then tell all the dudes on the bottom who happen to have beer (yipee), that they can’t afford healthcare, a retirement, let alone a vacation. But they better keep drinking that beer, or number 1% is going to move overseas and sell the beer to kids who will be more than happy to produce it, ship it, drink it, and trade all their worldly possessions at the opportunity.
How pro-america is that?
MY QUESTION IS, How can I spice this up to send it to every other conservative graduating class member he sent these out to? Cause as easy as this response was, i think that I could make it better, and nothing would cheer me up more than sending out a mass reply to the young conservative I graduated with to accomplish two goals; a) to convince them they’re voting for the wrong guy, and b) to rub it in their faces that we’re gonna win this election? (yes, I’m dubious, and over confident, sorry).
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This story may be valuable, but it was not written by that professor, and has been circulating on the Internet for years.
What is the leftist obsession with roads these days? You’d think they were just invented.
It ain’t about the beer..its all about the power to make you and I do what they want.
If he does not own the bar, yet all the laws are created to his liking, then why is he paying for 59% of the tab ?
If it is true that this man - simply because he is wealthy - can have all of the laws created to his liking - then he is not the problem. A corupt congress is the problem. Obviously we need term limits so this wealty man can't control the laws that are written.
Why can't the folks getting the free beer afford health care? Do they have 2 cars, an iPone, iPad etc?
Maybe we should make some market changes to affect health care costs - like tort reform or interstate purchasing of insurance. Both of these market solutions would have a major impact on the cost of health care. And, neither would cost anyone a dime. Yet, neither of these solutions is included in the Affordable Care Act.
Gee, I wonder why. I think that takes us back to a corrupt congress and the need for congressional term limits.
Also, no one is denied health care. Just show up at the emergency room and you will be treated. Even if you are not a citizen of this country.
Are any of the folks recieving the free beer illegal aliens?
EITC - Exactly my thought.
They don’t need to hire a bounty hunter. They elect a liberal, and the liberals pass a law mandating the purchase of beer. If the rich guy doesn’t buy the beer the goverment wants, they are forced to pay a tax, which is used to pay the bill for the poor people’s beer.
“My father-in-law worked for a company owned by AIG. Consequently, all his stocks from his 401(k) were in AIG. So literally, while my in-laws have seen their retirement, reduced to nothing,”
Investing stupidly ought to hurt. If his FIL still was invested 100% in his employer company, he clearly paid no attention to what happened to the same folks that were employed by Enron. Everyone should diversify their investments to ensure that their nest egg is not destroyed in one fell swoop!
Of course, I’m also one of those evil people that don’t consider scam victims, generally, to really be victims. Madoff’s investors knew that their paper returns were to good to be true, yet they kept sending him more money. They just wanted “something for nothing” and they got bit!
Ha! Good one. I stand corrected....
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