Beer And Taxes
Since it's that time of year, I got this in an Email forward today:
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 on 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 every body'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.
10 comments:
That was an excellent analogy.
I'm not sure about being rich, but I'm real sure about the taxes I pay. People in the USA are fortunate for the tax rates they have....
If they think it's bad here, go to Canada.
I never heard this. Believe it or not, even with math involved, I read the ENTIRE THING. (I have a math phobia.)
You made me think. About math. And taxes. Without crying.
You did good.
Nice blog you got here, Dave. I'm not a rich person, but I find it hard to be sorry for them either. They should pay more because they do more damage to this planet in the long run.
Ryan and Monica,
I think you get what you pay for. I'm seldom happy when it comes to thinking about what I get in relation to what I pay in taxes.
That being said, I'm still thinking, but not yet crying, because I haven't yet filed. Big decision to make tomorrow, file or file an for the the extension.
By the way Monica, I didn't do the math as I read it, it looked roughly right though so, it let it go. The part that, I didn't quite buy was the top marginal rate of 59%. Getting too technical here; but, that's only about right when you add in sales, property, ad valorum, etc. Bottom line, we pay too much in taxes, I think.
Try reading about the Fair Tax initiative. One federal tax. No IRS.
Paul,
I'm ambivilant about rich. Mostly because, I'm not sure what it means. I grew up poor and now I'm comfortable. Don't think about myself as rich or even well to do, but I guess I could be viewed as such by someone with less.
Regardless of what the definition is, stuff has never much interested me. And I think it's the stuff that uses up the resourses we all have to get by with.
Then too, we live in America, that uses more than it's share of stuff.
The fact is, education, initiative, and work ethic have a lot to do (actually, almost everything to do) with being comfortable or rich. And when you get there, you pay a lot of taxes - far more than what you get in return. You also spend a lot of money which provides jobs for others and invest a lot of money which provides jobs for others.
Some people choose not to pursue their educational opportunities or exercise much initiative. They pay few taxes, and some actually receive much more in direct government benefits than they pay in taxes. They envy the rich and the comfortable, and they may even feel that they deserve a larger share of the pie despite their small contribution to our economy.
People who come from nowhere and have no advantages can get ahead in America if they prioritize their education, think about their opportunities, and work hard. Then they can pay a lot of taxes, too.
The beer story is a pretty good analogy for how the overall tax burden is split in our country. Those who got, pay.
A friend told me that his grandfather, when income tax first came in here, said "I'll happily pay a 95% tax, if you let me earn a million a year".
That was in the Klondike, in the early part of the 20th century.
A pretty reasonable outlook, I'd say.
Starting with Reagan, conventional wisdom shifted into the absurd. Somehow people came to believe that the problem with America is that the rich don't have enough, and the poor have too much.
What this analogy leaves out is that the reason the others have so little is because the wealthy man took far more than his fair share. That money isn't his, it's theirs.
Wealth has little to do with initiative or hard work, in fact it's just the opposite- you get wealthy by leaching off the hard work and initiative of others. If the tax system can take some of that money away from the leisure class and give it back to the working class, I'm all for it.
I don't think there is one over-riding truth as to the origin of wealth or poverty.
There are rich who are born to, who worked hard to get it, who have it and want more to the detriment of others.
There are poor who are poor because they have limited abilities, because they are lazy or because they've been kept down by the rich.
Those weighty thoughts out of the way, I think our tax system sucks. It's principle element of suckitude is its obsurity. If you asked twenty people approximately what percent of their income they pay in various taxes in a year, very few could tell you with any accuracy.
This lets the government spend its hidden taxes with less carping from the payers.
I'm not sure if I totally agree with thomaslb, but I suppose he has a point.
However...."the reason the others have so little is because the wealthy man took far more than his fair share"
Everyone has that chance to "take" whatever they want, and what they "take" is normally proportional to the amount of work they put into it.
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