Since tax day is right around the corner, I thought I'd break down the American tax system for you in this wonderful analogy...
Bar Stool Economics
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 1st four men (the poorest) would pay nothing. The 5th would pay $1.
The 6th would pay $3.
The 7th would pay $7.
The 8th would pay $12.
The 9th would pay $18.
The 10th 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 5th man, like the first four, now paid nothing (100% savings). The 6th now paid $2 instead of $3 (33% savings).
The 7th now paid $5 instead of $7 (28% savings).
The 8th now paid $9 instead of $12 (25% savings).
The 9th now paid $14 instead of $18 (22% savings).
The 10th now paid $49 instead of $59 (16% savings).
Each of these 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!'
‘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, 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, 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 friendlier.
For those who understand, no explanation is needed. For those who do not understand, no explanation is possible.
Tax more that which you would discourage, subsidize or tax less what you would encourage. We tax wealth and work, savings and profit. We subsidize sloth, unemployment, ignoring teachers and skipping school and having children out of wedlock.
Happy April 15th.
This was sent to me via email. Thought I'd share for discussion sake.
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Thanks for sharing. great analogy.
I feel that I need to mention this again:
For those who do not understand, no explanation is possible.