Oct 30 2008
Bar Stool Economics and Taxes
So you believe that if someone has more they should be compelled to give it to those who have less??
How about this simple lesson in fairness—4 guys go to a bar, drink equal amounts of everything, the bill comes…
Shouldn’t it be divided equally regardless of what each person earns for a living?
I believe if you can’t afford to pay—maybe you shouldn’t be playing!
—iChef Politikos
The next time you’re out with some of your friends for drinks or dinner. The friends that believe, the rich should be compelled to pay for the poor, or that money from the rich should be given to the poor, and we don’t already pay too much taxes.
Try these experiments:
- When the check comes tell everyone that you will be dividing the check up by each persons means and personal wealth (—those who can afford more, pay more, even if you all ordered equally.)
- Order the most expensive bottle of wine and drink it all yourself, when the bill comes tell everyone at the table they need to share the expense with you
At a social gathering tell everyone:
- you’re planning on quiting your job to go back to school and give them each a bill to help you pay for it.
- you need an operation, a very expensive operation and you will be sending them the bill to help you pay for it.
I will guarantee that you will piss-off a whole lot of people and you might even lose them as friends. My question is why would they be outraged by that and not by the taxesthey propose or system that currently exists?
From the stool…
Let’s take a look at the debate through a common everyday example of everyday life and see how it compares to what happens through our tax system. After reading and digesting let me know if you still think it’s fair…
From Scott Allan’s World
Bar Stool Economics by David R. Kamerschen, Ph.D.
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!’
‘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, 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 somewhat friendlier.
For those who understand, no explanation is needed.
For those who do not understand, no explanation is possible.
