- This topic has 36 replies, 1 voice, and was last updated March 6, 2008 at 3:15 pm by .
- March 6, 2008 at 3:15 pm #256319
This came across my desk the other day. I’m obviously not rolling in
it, or I might not be here, but I do recognize the relevance of the
snippet. I think a flat tax would be great, because then nobody can
whine about it, and everyone knows just what to expect. Whining, in
any area of life, generates NOTHING positive… Have a great day!
Bar Room Economics
Suppose that every day, ten men go out for beer and the bill for all
comes to $100. If they paid their bill the way we pay our taxes, it
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
such good customers,’ he said, ‘I’m going to reduce the cost of your
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
first four men were unaffected. They would still drink for free. But
about the other six men – the paying customers? How could they divide
$20 windfall so that everyone would get his ‘fair share?’ They
$20 divided by six is $3.33. But if they subtracted that from
share, then the fifth man and the sixth man would each end up being
drink his beer. So, the bar owner suggested that it would be fair to
each man’s bill by roughly the same amount, and he proceeded to work
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
drink for free. But once outside the restaurant, the men began to
‘I only got a dollar out of the $20,’declared the sixth man. He
the tenth man,’ but he got $10!’ ‘Yeah, that’s right,’ exclaimed the
man. ‘I only saved a dollar, too. It’s unfair that he got ten times
than I!’ ‘That’s true!!’ shouted the seventh man.
‘Why should he get
back when I got only two? The wealthy get all the breaks!’ ‘Wait a
yelled the first four men in unison. ‘We didn’t get anything at all.
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
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
them for even half of the bill!
And that, ladies and gentlemen, journalists and college professors,
our tax system works. The people who pay the highest taxes get the
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
drinking overseas where the atmosphere is somewhat friendlier.
David R. Kamerschen, Ph.D.
Professor of Economics
University of Georgia
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