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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
The
The
The
The
The
The first four men (the poorest) would pay nothing.
fifth would pay $1.
sixth would pay $3.
seventh would pay $7.
eighth would pay $12.
ninth would pay $18.
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 on e 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
The
The
The
The
The fifth man, like the first four, now paid nothing (100% savings).
sixth now paid $2 instead of $3 (33%savings).
seventh now pay $5 instead of $7 (28%savings).
eighth now paid $9 instead of $12 (25% savings).
ninth now paid $14 instead of $18 (22% savings).
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.
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
