Bar Stool Economics

[hokie4redskins]

Thought this was interesting. From an email.

Bar Stool Economics

Suppose that every day, ten men go out for beer and the bill for all ten comes to $100. They could all just pay $10 since they all drank beer or if they paid their bill the way we pay our taxes, it would go something like this:

The first four men (the poorest of the 10) 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 OK with the arrangement, until one day, the owner threw them a curve. "Since you are all such good and faithful customers," he said, "I'm going to reduce the cost of your daily beer bill 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 if they divided the $20 savings by six they could each reduce the amount they were paying by $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 the same way Tax Savings are disbursed, 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) - so 5 men are drinking for free..

The sixth now paid only $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 (the wealthiest) 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, now along with the 5th too. But once outside the restaurant, the men began to compare their total dollar 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. "$20 was given back and we didn't get anything at all. This 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..."

[Midnight Judges]

I always wonder what kinds of people these sophmoric emails appeal to.

[iheartskins]

No need to include the final barb h4r--

Let's move toward discussion and away from the flame wars.

[hokie4redskins]

I always wonder what kinds of people these sophmoric emails appeal to.

Or you could refute the email itself. It's an accurate anecdotal summary of America's tax system.

[cjcdaman]

I thought it was very interesting. Thanks for posting.

[Predicto]

Hmm... Here is the webpage of Professor Kamerschen.

http://davidk.myweb.uga.edu/

"Contrary to Internet folklore, Dr. Kamerschen is NOT the author of "Tax Cuts: A Simple Lesson in Economics." Additionally, he does NOT know who wrote it."

[Mass_SkinsFan]

I've seen this particular message before, and I think it's quite interesting every time I come across it. Maybe if we brought the situation down to that simplistic level more often people would actually start to comprehend the absolute lunacy of our tax system.

[Predicto]

I've seen this particular message before, and I think it's quite interesting every time I come across it. Maybe if we brought the situation down to that simplistic level more often people would actually start to comprehend the absolute lunacy of our tax system.

Yes, it is always good to make complicated issues as simplistic as possible in order to facilitate informed debate.

[hokie4redskins]

Hmm... Here is the webpage of Professor Kamerschen.

http://davidk.myweb.uga.edu/

"Contrary to Internet folklore, Dr. Kamerschen is NOT the author of "Tax Cuts: A Simple Lesson in Economics." Additionally, he does NOT know who wrote it."

I noticed that too, but what's your point? Does it discredit the content of the email?

[Mickalino]

I'm more worried about Bar Stool Ergonomics - it's bad for your back.

[Predicto]

I noticed that too, but what's your point? Does it discredit the content of the email?

No, the simplistic approach to the issue discredits the content of the email.

[hokie4redskins]

Your explanation falls just a tad short.

[DeanCollins]

Or you could refute the email itself. It's an accurate anecdotal summary of America's tax system.

The message and the simplicity of it are intentionally skewed toward the obvious point. No mention was made of the difference in wealth, percentage of disposable income etc... In reality there is a finite sum of income in this country to be taxed, and likewise a certain requirement of funds needed to run the country. It's got to come from somewhere. If an individual is fortunate enough to make 50 times the median income, owns 10 times the real estate, and has 10,000 times the amount the average person has in savings, He's not going to pay the same amount of income tax. He's gonna pay an exponentialaly higher, amount and should learn to like it as he would any other responsibility . Leaving the country is always an option.

I know that I pay about 5 times what the average person does in FICT, and this time of the year when half a dozen ad valorem tax bills come in the mail (and only one is paid by a mortgage escrow) it's no fun but it beats fliping burgers in mexico.

[Predicto]

After all of the detailed tax discussions that we have had over the years on this board, I see little purpose to reverting to the level of "Dick and Jane Do Their Taxes."

I guess I'm just lazy, but it's not worth it.

[PleaseBlitz]

Your explanation falls just a tad short.

The example is too simplistic because it doesnt show how much the disparity in income is between the 10 customers nor does the richest guys CPA come in when the bill is passed around and allow him to welch on most of his share of the bill.

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

[DjTj]

Actually, I think this is a pretty good analogy, and it properly illustrates the point that Democrats tend to over-exaggerate the numbers whenever there's a "tax cut for the rich."

But let's consider a story with a different ending:

Suppose that every day, ten men go out for beer and the bill for all ten comes to $100. They could all just pay $10 since they all drank beer or if they paid their bill the way we pay our taxes, it would go something like this:

The first four men (the poorest of the 10) 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 OK with the arrangement, until one day, the richest man decided he didn't like the plan anymore. "I can't believe I've been paying $59 for beer while four of you are getting your beers for free. I think we should all pay a flat price for beer, so I'm only going to pay $10 from now on."

Without the tenth man's money, the poorest five men couldn't afford to go to the bar every day, so they only came in occasionally from then on. The sixth, seventh, eight, and ninth men stuck with the arrangement and the four of them still had a good time drinking together every day. They missed their old friends though, and they were all mad at the richest man, who eventually stopped coming because he had nobody to talk to.

The bartender, who used to be making $100 a day, was now only making $40 a day, and soon he had to take out a loan just to keep the bar open. Eventually, he couldn't pay the loans back, and the bar had to close. The ten men, now down to four, went their separate ways. The richest man had saved himself a lot of money, but his greed cost him his nine best friends, and his favorite bar, which many people considered to be the greatest bar in the world, was gone forever.

[iheartskins]

C'mon DjTj, be honest, did you laugh to yourself while typing that up?

[Corcaigh]

The example is too simplistic because it doesnt show how much the disparity in income is between the 10 customers nor does the richest guys CPA come in when the bill is passed around and allow him to welch on most of his share of the bill.

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

Next time I take my kids out for a meal I'll be sure to make the point about what a great guy I am for picking up the check.

[DjTj]

C'mon DjTj, be honest, did you laugh to yourself while typing that up?

Not until I re-wrote the last line, but I think it's pretty good ... I should start forwarding it around the interwebs.

[iheartskins]

Not until I re-wrote the last line, but I think it's pretty good ... I should start forwarding it around the interwebs.

It's pretty good. It'd make for a good point/counterpoint email chain.

[Ancalagon the Black]

I'm with DjTj on this one. The left do bang on about "tax cuts for the rich" and then talk about absolute numbers far too often in an attempt to incite inter-class rage. However, the analogy really falls down when the nine people surround the tenth man and "beat him up." How often does that happen?