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Suppose that once a week, 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.
And the tenth man (the richest) would pay £59.
So, that's what they decided to do.
The ten men drank in the bar every week and seemed quite happy with the arrangement until, one day, the owner caused them a little problem. "Since you are all such good customers," he said, "I'm going to reduce the cost of your weekly beer by £20.” Drinks for the ten men would 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 realised that £20 divided by six is £3.33 but if they subtracted that from everybody's share then not only would the first four men still be drinking for free but the fifth and sixth man would each end up being paid to drink his beer. So, the bar owner suggested that it would be fairer to reduce each man's bill by a higher percentage. They decided to follow the principle of the tax system they had been using and he proceeded to work out the amounts he suggested that each should now pay.
And so, the fifth man, like the first four, now paid nothing (a 100% saving).
The sixth man now paid £2 instead of £3 (a 33% saving).
The seventh man now paid £5 instead of £7 (a 28% saving).
The eighth man now paid £9 instead of £12 (a 25% saving).
The ninth man now paid £14 instead of £18 (a 22% saving).
And the tenth man now paid £49 instead of £59 (a 16% saving).
Each of the last six was better off than before with the first four continuing to drink for free.
But, once outside the bar, the men began to compare their savings. "I only got £1 out of the £20 saving," declared the sixth man. He pointed to the tenth man, "but he got £10" "Yes, that's right," exclaimed the fifth man. "I only saved £1 too. It's unfair that he got ten times more benefit than me. "That's true" shouted the seventh man. "Why should he get £10 back, when I only got £2? The wealthy get all the breaks". "Wait a minute," yelled the first four men in unison, "we didn't get anything at all. This new tax system exploits the poor" The nine men surrounded the tenth and beat him up.
The next week the tenth man didn't show up for drinks, so the nine sat down and had their 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 to pay for even half of the bill.
And that, boys and girls, journalists and government ministers, is how our tax system works. The people who already pay the highest taxes will naturally get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy and they just might not show up anymore. In fact, they might start drinking overseas, where the atmosphere is somewhat friendlier.
Xxxxx X. Xxxxxxxxxx, Ph.D. Professor of Economics.
For those who understand, no explanation is needed.
For those who do not understand, no explanation is possible
Originally posted by Mads1987
I think everyone can understand the mathematics in this story, and I honestly believe that this is how most already understand taxes. Those who have given it any thought, anyway.
But I disagree with the philosophy - completely!
This little piece of propaganda, which it is, does not account for how the tenth man acquired his wealth, nor why he even bothers to pay the 59£ in the first place. Does he do this because he has a good heart, or because he knows life, his own included, is not sustainable if he doesn't?
I doubt that any Professor would ever write anything so utterly ignorant.edit on 06/06/12 by Mads1987 because:spellingedit on 06/06/12 by Mads1987 because: (no reason given)edit on 06/06/12 by Mads1987 because: (no reason given)
Contrary to Internet folklore, Dr. Kamerschen is NOT the author of "Tax Cuts: A Simple Lesson in Economics" or “Bar Stool Economics” or anything similar to that. Additionally, he does NOT know who wrote it and he has no opinion on its merits.
posted on 7-11-2008 @ 10:22 AM this post Oh, For The Love Of....!
This is the most shocking example of mathematical illiteracy I've seen in a very loooong time!
And I've dealt with A LOT of math Illiterates! (Most of them CPA's!)
Very well, School's in session. Pay attention.
10 people. Bar tab for beer= $100
If each paid an equal amount (Fair Share) towards the Tab, each would owe = $10
10 people X $10 = $100
However, per the provided example, 4 of those folks were required to pay nothing, therefore: 10-4= 6.
6 people were left to pay a $100 beer tab.
If each of the remaining 6 drinkers were to pay the same amount toward the bill, each would have owed aproximately $16.67
$100/6 = $16.666666666... (rounded off to : $16.67)
Now, instead of dividing up the bill equally amoung the remaining 6 drinkers, they decided to pay based on their percived ability to afford the expense. The named "Professor of Economics" thusly likens this method to the current income tax system.
Therefore the break down of the original $100 dollar tab looked like this:
Drinkers 1-4 pay - $0 or 0% of the tab
Drinker #5 pays - $1 or 1% of the tab
Drinker #6 pays - $3 or 3% of the tab
Drinker #7 pays - $7 or 7% of the tab
Drinker #8 pays - $12 or 12% of the tab
Drinker #9 pays - $18 or 18% of the tab
Drinker #10 pays - $59 or 59% of the tab
Total $100 or 100% of the tab
Pay attention to the Percentages
paid by each of the drinkers. This is where the good Dr. Kemerschen "falls off the wagon"!
In the example, the barkeep, in a show of generosity, gives the drinkers a $20 "rebate". This effectively reduces the beer tab to $80 for the 10 drinkers.
$100 - $20 = $80
Of course, since 4 of those drinkers didn't pay anything in the first place, the remaining 6, paying customers are left to divey up the windfall.
If the drinkers would have stuck to their original plan, as they devised for apportioning the bill, the split would have been easy;
Each payor would have received a portion of the refund equivalent to the portion (percentage) of the bill he paid. Thus:
Drinkers 1-4 paid $0 get $0 back final amount paid = $00.00
Drinker #5 paid $1 gets $0.20 back, final amount paid = $00.80
Drinker #6 paid $3 gets $0.60 back, final amount paid = $ 2.40
Drinker #7 paid $7 gets $1.40 back, final amount paid = $ 5.60
Drinker #8 paid $12 gets $2.40 back, final amount paid = $ 9.60
Drinker #9 paid $18 gets $3.60 back, final amount paid = $14.40
Drinker #10 paid $59 gets $11.80 back, final amount paid = $47.20
Original Tab $100 minus $20/20% rebate = final tab $80.00
The good doctor tried to mislead us into believeing in the inequity of the tax system by erroneously attempting to equally divide the $20 refund offered amoung 6 recipients, when, in fact, those recipients, by virtue of the fact that they had not equally contributed to the expense (the original bar tab, or by analogy, the income tax) were not equally entitled the the same refund.
The tax system does not work that way.
Our tax system is geared such that the more you make, the more you (should) pay. And the more you have paid, the more you should get back, when it is due.
Ah well, I guess it is true;
PHD = Piled Higher, Deeper!
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