Bar stool economics

[kageisuke]

If you've seen this story before, oh well. You're ahead of my curve. If you haven't, get a laugh at it. XD Accurate or not, it amused the hell out of me. Sorry. No cut for you all.

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 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% 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 got"

"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.

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.

Comments

[acdragonmaster.livejournal.com]

But the problem with that example is, will the rich man buy 10 beers? Just because someone is making all that money doesn't mean they're guaranteed to spend it at a rate equal to someone of a different income level.

[sannask.livejournal.com]

never, ever doubt the ability of people with money to spend it. : p.

if you can only afford a $10grand car, you might pay $2k in Fairtax on it. If you splurge and buy one of those $50grand car, you're paying $10k in Fairtax. same rate, more Fairtax from the rich. If you buy a $200 sofa, how much Fairtax are you paying? Vs remodeling and outfitting your entire basement... who's paying more raw dollars in Fairtax?

turn this around and instead of saying, "the poor are paying at the same rate as the rich," say, "the rich are paying more raw dollars than the poor." If you buy a $10grand car and your neighbor buys a $40grand car, $12k in Fairtax will be paid, but you will only have paid 1/6th of that ($2k/$12k). if 5 people buy $10grand cars and 1 person buys a $40grand car, 5/6th of the people have paid %50 of the tax between them (or 10% each) and 1/6th of the people will have paid the other 50% of the tax.

the rich are still paying more. going back to the beer analogy, either the rich man is going to buy more beers at a cheaper price, or he's going to buy more expensive beer. Either way, he's paying more raw dollars in Fairtax... even though it's at the same rate.

If you woke up tomorrow and you had a million dollars in your bank account, untaxed.... how much of it would you save? how much of it would you spend?

let's say you put half a million into a bank account somewhere. what does the bank do with that money? they could loan it to someone starting a business (current economic woes aside). let's say someone gets a loan to start a mcdonalds. your half-million -- that you personally haven't spent -- is going to pay someone to do work and get a paycheck. they're going to take that money that they didn't have before and go buy shoes at target (on which they pay Fairtax).

You take some of that other half-million and buy a house (and have some left over that's still in the bank). You'll pay a certain amount of Fairtax on the house and no more. as time goes on, you might start running a bit low on the half-million that's not in the savings, so you take a bit out of your savings and go spend it.... and pay Fairtax on it only then.

Your money isn't taxed until you spend it. that's the basis of the Fairtax. No matter how much you make, earn, save... your money should not be taxed until you spend it at the retail level, consuming a good or a service.