What do you think of this example of economic/tax policy?

BAR STOOL ECONOMICS or Taxes 101

Suppose that every day, ten men go out for beer and the bill for all ten
comes to 0.

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 .
The sixth would pay .
The seventh would pay .
The eighth would pay .
The ninth would pay .
The tenth man (the richest) would pay .
total equals 0.00

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 .

Drinks for the ten now cost just .

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
windfall so that everyone would get his ‘fair share?’

They realized that divided by six is .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 instead of (33%savings).
The seventh now pay instead of (28%savings).
The eighth now paid instead of (25% savings).
The ninth now paid instead of (22% savings).
The tenth now paid instead of (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 , ‘declared the sixth man. He pointed to
the tenth man, ‘but he got !’

‘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 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

Tagged with: bar owner • bar stool • curve • drinks • economics • fair share • four men • six men • sixth man • tenth man • windfall

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