Bar Stool Economics:how our tax system works.

[misfitsfiend138]

This is really interesting.

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 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 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.

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.

[Cluny the Scourge]

There are two differences in reality:

1) The 10th man uses a system of tax havens to ensure he pays almost nothing at all on the bulk of his income (look at the despicable practices of Rupert Murdoch and his kind).

2) The 10th man (and all his cousins and friends) are so gargantuanly wealthy that from the perspective of any ordinary, sane person (i.e. someone who is not gargantuanly wealthy and so not spoilt and corrupted by the mindset of the plutocratic elite) the changes made in their payments by these alterations are meaningless.

In how many swimming pools can one man swim? In how many fine houses can they live? What number of bottles of fine champagne can they swallow? So they end up with an income of THIS many tens of millions instead of THAT many tens of millions. Big ****ing deal. You're making my liberal heart bleed.

[Count of Montesano]

Interesting read but this article omits a few crucial details. I think the following would be a more accurate picture:

1. The poor may not have to pay for beer, but they do pay a steep price for "peanut snacks" at the state and local tax level. States without income taxes but high sales taxes actually put an even higher burden on the poor.

2. Much of the beer bought in America represents payroll income taxes, but doesn't take into account investment income. See article below about how badly skewed the tax code is towards wage earners:

http://www.ctj.org/pdf/earnpr.pdf

In other words, the 10th guy pays New York prices for beer but gets his steak dinner free because he's co-owner of the bar.

3. Believe it or not, the 9th and 10th guys are not completely getting stiffed - they get plenty of perks for being the bar's high rollers. They get to tell the bartender what sort of beer to carry on tap; they enjoy special protections from the bouncer; if they park their Benz behind the bar where it's likely to get vandalized the bartender will pay for most of the damages.

In other words, the rich have access to PACs and powerful lobbyists that in reality make many of the rules in Washington. The rich often get preferential treatment in criminal cases and enjoy even greater civil protections. After all, the US Justice system vigrously enforces patents and contracts, protects the rich from frivilous lawsuits, etc. My comment about the Benz may seem weird until you realize the tens of millions paid out by the government every year to the wealthy who lose their beach vacation homes to landslides or hurricanes.

4. This is kind of my own pet peeve, so here goes. Considering the fact that a rampaging biker gang intent on burning the bar and killing everyone inside is circling just outside the establishment, I think it's high time everyone from the poorest to the richest SHUT THE F UP ABOUT TAXES and make sure the troops - I mean bouncers - have the funds available to win the war against Terror - I mean bikers.

[Erik]

I like the ending statement:

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

In other words: if you don't agree with me you are stupid.
And this coming from a Professor (ie: teacher) of Economics.

I wonder how his lessons are:
OK, I'll explain this only once, and if you don't get it straight away you are just dumb and you have no hopes of passing the grade.
Interesting teaching method.
I suppose this is why the "University of Georgia" isn't as famous as many other American universities.

[Curtana]

In other words: if you don't agree with me you are stupid.

So you agree with him then E, right?
[move]I'm just kidding.[/move]

[Shaftoe]

Poor, uneducated peasant...is it not so hard to understand that the rich must be bled of their wealth, because wealth amassed by one individual is unfairly with-held from the poor? Also, since an individual is singularly incapable of making the proper decisions to handle all this money, the government must be entrusted with the responsibility? As the Senate majority leader, Nancy Pelosi, stated in an address to congress, "The proper distribution of wealth must be one of our greatest goals."

As your story points out, the redistribution of wealth is a wonderful thing, as long as you are not the one paying the bill for someone elses' idea of social equity.

[Erik]

So you agree with him then E, right?

No comment

As your story points out, the redistribution of wealth is a wonderful thing, as long as you are not the one paying the bill for someone elses' idea of social equity.

Then why are socialist parties often more popular amongst the rich than amongst the middle-class?

[Ma'ahes]

Then why are socialist parties often more popular amongst the rich than amongst the middle-class?

Which, of course, begs the question: What's the matter with Kansas? What's the matter with Massachusetts?

These bring up the fact that it would be in the economic self-interest of said states to change their political alignment to be more in tune with their wealth. Kansas is mostly blue-collars who would benefit most from the Dem's, but mainly vote Rep. Conversely, the rich North tends to vote Dem, even though it'd prolly be "better" for them to vote Rep.

Anyways, I got a laugh out of the overly-simplified example by the professor, but it mainly does point out fatal flaws in the perception and reality of the tax system: it pays to cheat, lol. The off-shore banking created during the Cold War has come to bite everyone in the arse, especially since the thousands upon thousands of pages in the US tax code means that no two tax experts will do their taxes exactly right .

On the other hand, it brings up the whole welfare system, which is another discussion entirely, and one that has been beaten to death .

[Cluny the Scourge]

Poor, uneducated peasant...is it not so hard to understand that the rich must be bled of their wealth, because wealth amassed by one individual is unfairly with-held from the poor? Also, since an individual is singularly incapable of making the proper decisions to handle all this money, the government must be entrusted with the responsibility? As the Senate majority leader, Nancy Pelosi, stated in an address to congress, "The proper distribution of wealth must be one of our greatest goals."

You could not have said it better, however ironic you intended to be. That is EXACTLY and unironically correct.

[Tom Paine]

Actually it always pays to cheat, always, until we can find a way of making cheating cost more than taxation, which is impossible.

[misfitsfiend138]

the thing is...the harder you work, the more you get, the better you feel, the "free'r ya ar..." after all, he who dies with the most toys wins!

Is that so bad?

Rupert Murdock, as far as I can tell, employs thousands of people, who earn thousands of dollars, and spent thousands more....so, yes, he's filthy rich, but the more he makes, the more money other people end up making off of him or what he effects/creates. Don't be jealous, get some yourself!
It is not a crime to be rich. It shouldn't be an "honor to be poor".
I acknowledge that despotic, often non-capitalist societies in our world have governments that hinder individual success, but in the US, there is no excuse for being poor! It is too easy to succeed here! Poor decision making by individuals often ruins/reduces their success potential, but, the potential to succeed is here...that's why everyone wants to come here, legally and Illegally.
Capitalistic, open and democratic societies, particularly representative democracies/republics are the most fertile grounds for individual success!
if you don't live in one, get together with your neighbors and build one. (Oop's did I infer revolt?!)
As for those folks who want to come here and yearn for the good old days of repression and misery in their old lands/countries......go home, visit, take a vacation...you'll be back! : )

[Tom Paine]

Trickle down economics actually doesn't work - how rich do those poor Africans get, hm? If anything they get poorer; and the wealth gap nationally as well as internationally is increasing. Trickle down is a myth to salve the consciences of the rich.

[misfitsfiend138]

Trickle down economics actually doesn't work - how rich do those poor Africans get, hm? If anything they get poorer; and the wealth gap nationally as well as internationally is increasing. Trickle down is a myth to salve the consciences of the rich.

educate me...How many African Nations have a democratic/republican form of government? despots don't create opportunity for their nations.

this may hurt but...only one comes close, and that is south Africa. of note, they had to invite those dreaded capitalistic Afrikaners back into the mix to accomplish that, but...what the hey, they finally broke the code!

[Erik]

educate me...How many African Nations have a democratic/republican form of government?

According to the Economist:
Full democracy: Mauritius
Flawed Democracy: South Africa,Botswana,Cape Verde,Namibia,Lesotho and Mali.
source: http://en.wikipedia.org/wiki/Democracy_Index
Ghana is ranked as a "mixed regime", but in reality it is very democratic.

[ErikinWest]

According to the Economist:
Full democracy: Mauritius

Also, Mauritius has the most free economy of the african continent. It's a good example of economic liberalism pulling a country out of poverty.

Erik

[Erik]

Also, Mauritius has the most free economy of the african continent. It's a good example of economic liberalism pulling a country out of poverty.

Erik

When was Mauritius poor?

[ajm317]

Trickle down economics actually doesn't work - how rich do those poor Africans get, hm? If anything they get poorer; and the wealth gap nationally as well as internationally is increasing. Trickle down is a myth to salve the consciences of the rich.

It seems to be working fine in Asia.

[hsimoorb]

I liked the article. I enjoyed the subtle threat at the end of peice the best. You'd better pay up to rich people or they'll screw americans out of their jobs, so says this guy.

[Count of Montesano]

It seems to be working fine in Asia.

Depends on where you look at. India and China have massive income inequalities that are causing all kinds of social upheaval. Tens of thousands of rural Indian farmers are committing suicide because they can't feed their families, while a portion of the hip urban population enjoy a Hollywood Hills or Silicon Valley lifestyle.

Likewise, China has a growing middle class but must also deal with large numbers of rural protests and even urban riots, which may be why the country has one of the largest prison populations in the world (between 5-20 million, depending on if you count those in mandatory "work placement" camps.)

Despite some economic setbacks in the last few years Japan remains one of the world's most prosperous countries. Whether you measure quality of life by access to technology or extremely long life expectancy rates, Japan places near the top among industrialized nations, excepting such negatives as heavy traffic and small apartments.Japan also has a very low level of income inequality.

Then there are places like South Korea and Hong Kong. Both have done very well in the past few decades and both have created large middle classes to rival Japan, Europe or the US. But both places are also facing a rise in severe income inequality. About 15 percent of South Korea's population - or 7 million people - live way below the poverty line of $1,300 a month for a family of 4.
The Standard - the Wall Street Journal of China - recently reported that the number of poor in Hong Kong has doubled since 1997 and that a third of the city's children live well below international rates of poverty.

So while I do applaud how well India's and China's economies are booming, I think the cost of such success in terms of human suffering. But in all fairness both countries have in recent history had high levels of poverty. I think it will be interesting to see the final shakeout in places like South Korea and Hong Kong, which are experiencing rising poverty rates while their overall economies remain strong. Will socialist Japan be left in the dust and will South Korea also fail for trying to greatly expand social programs? Or will South Korea's and Hong Kong's growth stall due to large numbers of the desperately poor?

[ErikinWest]

Flat Tax anyone?

Erik