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. For those who understand, no explanation is
needed. For those who do not understand, no explanation is
possible.
