Bar Stool Economics
Our Tax System Explained: 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 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.
Obama's spread the wealth plan will not work.|||that sad this was america 1776-2009 my God how did this happen
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|||Well, he wants CEO's to make less, and not give tax breaks to corporations. This is extremely the wroing decision. Heres why...corporations already pay 35 percent taxes, so taxing more would send them overseas. If you cut CEO's pay, there wont be none. WHen you are a CEO, you make so much because there is a chance you can lose everything . For example, if a company goes bankrupt, a CEO's assests are taken with the bankruptcy, therefore thats why they make so much. Hope this helps!!|||He want's to close the loopholes. He want's to stop letting overseas businesses who have moved out of the U.S. from doing business here again.
Obama is way out of line here. He is just flat wrong that he thinks this will help the economy. Businesses I know will have to lay off all their employees. Not so much because of the tax hike, but more because they can't afford to buy health insurance for all their employees. Many of the business owners I know can't even afford health insurance for themselves. How the heck are they going to provide health coverage at $500 a month PER EMPLOYEE if they can't even afford it for themselves. Obama is a total idiot. Our country is in real trouble if he gets elected. I wouldn't worry so much about moving your business out of the country. It's moving my FAMILY out of the country that i'm considering.|||Just like Biden said, if Obama gets elected there will be international crisis. Blind idiots are thinking Obama will change something, he won't. He will make it much worse. Worse than that, the media will cover it up, until it EXPLODES! Then I'm sure he will blame it on Bush..|||He can't.
Yes there are socialist type government programs that have been and are being used now. The thing is that this that taxes people have paid have always gone to government programs not as a direct handout to people that are apparently excited to get free money "from the government" (which will actually be from those who have worked hard). This has never been done so far as I know at the scale that Obama wants. Taxation should be a percentage that is equal across the board. The rich and high middle class should not be punished for their success because of jealousy on the part of those who do not have as much. The rich are rich for a reason, they have worked hard and were smart about their investments. They can choose to leave the country if they want. The rich don't have to put up with such taxation, all they have to do is move themselves and their companies out of the country. Which will mean more outsourced jobs that will disappear hear in America. That will mean that the these welfare "taxes" will be put on those in the hundred thousand dollar incomes (more than 200 thousand and less than 1 million). These are mainly people like doctors, lawyers, small business owners. Many of the small business owners will either have to cut jobs or close their businesses if they can't pay the taxes properly. If the super rich leave then the middle class disappears and become the "rich".
I hate to think what the founding fathers would say about Americans even considering this type of thing, they themselves didn't want to be taxed unfairly. Why then should we make those that are successful have to pay while those that do nothing get a free ride. Hard work has always been the way to do well and will always be the way, because someone will have to work hard to pay these "taxes" to give away to those who choose not to go further than where they are. Without the ''rich" to "tax" you won't have this free money.
In the past people in general would not have just taken something they did not work for. During the great depression people where given jobs by the government so the would feel they earned the money they got, instead of just being given it. People used to have a lot more pride.
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