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(2 cents to Wolfpack for introducing this story to the forum a while back)



The Tax System Explained in Beer

March 18, 2012 by Dan Mitchell


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?

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.

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"The most difficult subjects can be explained to the most slow-witted man if he has not formed any idea of them already; but the simplest thing cannot be made clear to the most intelligent man if he is firmly persuaded that he knows already, without a shadow of doubt, what is laid before him."
Leo Tolstoy, 1897

JackBauer

Might be one of the dumbest things you've ever written.

patsfan13

Coming from you that is a compliment.

Thanks Jack!

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"Some guys play in all-star games, some guys don't. I don't know who picks all those all-star teams. In all honesty, I don't know who picks the combine, for that matter," Belichick said. "How does (Miami-Ohio offensive lineman Brandon) Brooks not get invited to the combine? How did Vollmer not get invited to the combine? I don't know. We can't really worry about that. We just have to try to evaluate them the best we can."

sdaniels7114

75% is too much. Why can't we strike a balance between when times were good during the Regan years and when times were good during the Clinton years? Somewhere around there ought to be the sweet spot for tax rates.

Oh, forget it. I know why we can't. Its because the batschit crazy republicans of today somehow hate what Regan stood for even though they still worship his name anyway.

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Give a man a gun and he can rob a bank, give a man a bank and he can rob everyone.

Patters

I think you have to hope their experiment fails. Yes, there are risks to what France is doing, but let's not forget that the US had a 90% top rate during Eisenhower and 70% under Kennedy. Those were good economic years.

It's especially important for you to hope this fails, given the fact that the British austerity approach has returned them to recession, and conservatives on both sides of the Atlantic are busy rationalizing that fact.

At any rate, we'll witness an interesting experiment played out between Britain and France: left vs. right. It will be interesting to see what happens. It's anyone's guess.

Wolfpack

The especially pathetic thing is that there are people in this forum that will look at the 10th man, the one who paid $59 of the $100 tab and then $49 of the $80 tab and say that he is the one not paying his fair share.

PatsFanInVa

No, the stupid part is that the beer would not, in fact, cost those amounts, and we don't all spend all our money in beer.

Up to $X, you pay 0% - it's exempt. It's exempt for the first guy, and it's exempt for the 10th guy.

Between $X and $Y, you pay the 10% rate. And so on.

That amount went way down, by the way, when we went from a 15% bottom rate to a 10% bottom rate. In other words, you get taxed on your first buck way earlier now.

That's an aside. The operative mechanism you want is as follows:

In 2012, the 10% rate applies for $8,700 (or, you get your beer free.)

If you make $8,701 dollars, you'd pay 10% on one dollar. Your tax liability would be a dime, not $870.10, as the idiotic analogy implies.

Furthermore, the guy supposedly paying 59 bucks for a beer would end up with a gazillion more dollars for jetskis, hookers, complex equity investments, cocaine, or a new monacle or tophat, depending on the rich fu(ker in question.

The guy getting the free beer doesn't have a pot to puke it in at the end of the night.

I know, details, details.

PFnV

Ilikehappyppl

How's that same song and dance working for you? Your little story has so many things wrong with it, I'm not even going to go into it.

Ignorance is bliss! Have fun!

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Wolfpack

Class envy is so unbecoming, Mr.PF.

Just because you don't have anything and have never accomplished anything doesn't mean you have to hate those of us who have. All that hatred and anger is only going to hurt yourself in the long run, my friend.

PatsFanInVa

looks more to me like you're envious of what I do have, based on your behavior of late -- as to your knowledge of what I don't have, have you decided that based on telepathy or speculation?

Try to stick to the topic, if you're capable of doing so. Were I actually destitute, but (as shown here) had the correct information, and explained it clearly, it would be a valid contribution.

Since that is not the case, your personal attack is that much more toothless - but helps demonstrate the pattern. So thanks for that.

More love,

PFnV

Oh wait I forgot


I win!