October 26, 2008
TAXES EXPLAINED SO THAT EVEN US DRUNKS CAN UNDERSTAND
The Chief sends along this parable to illustrate for us morons what Joe the Plumber was trying to explain to Obama.
For those who understand, no explanation is necessary.
For those who don't understand, no explanation is possible.
By David Kamerschen, Ph.D.
Professor of Economics
University of Georgia
Here's a follow up from Rumen, a native Bulgarian, who revises the fable to illustrate the "sub-prime bubble" and what it's like to "pay taxes" outside of America, under the Hot Breath of the Cossacks.
Until they pass the Internet Fairness Doctrine, that is.
UPDATE: A real life example of this parable!
Comments are disabled.
Post is locked.
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." (The Bush tax cuts) The bill for the ten men now cost them just $80.
The men 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. What about the other six men, though, 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 their beer (the Obama plan). So, the bar owner suggested that it would be fair to reduce each man's bill by roughly the same amount. So, he proceeded to work out the amounts each should pay.
> 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 paid $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 man now paid $49 instead of $59 (16% savings).
Each of the six men was better off than before, and the first four continued to drink for free. Once outside the bar, though, the men began to compare their savings. (Listening to Obama) "I only got a dollar out of the $20," declared the sixth man. He pointed to the tenth man and said, "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 did!" "That's true!" shouted the seventh man. "Why should he get $10 back when I only got 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 man and beat him up. The next night the tenth man didn't show up (Name: Atlas. Reaction: Shrug)
So the remaining nine sat down and had their beers without him. When it came time to pay the bill, though, they discovered something important. They didn't have enough money between them for even half the bill.
And that, boys and girls, 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, or attack them for being wealthy, and they may not show up anymore. In fact, they might start drinking their beer overseas, where the atmosphere is somewhat friendlier.
[JBD comment: Depending, of course, where "overseas" you go. Most of the "10th men" from the EU and socialist Asia had to come to America just to get the privilege of of earning enough money to pay for 9 free beers for every one he enjoyed. What we really get from "going overseas" is either cheaper beer or more "friends" for the same amount of money]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." (The Bush tax cuts) The bill for the ten men now cost them just $80.
The men 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. What about the other six men, though, 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 their beer (the Obama plan). So, the bar owner suggested that it would be fair to reduce each man's bill by roughly the same amount. So, he proceeded to work out the amounts each should pay.
> 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 paid $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 man now paid $49 instead of $59 (16% savings).
Each of the six men was better off than before, and the first four continued to drink for free. Once outside the bar, though, the men began to compare their savings. (Listening to Obama) "I only got a dollar out of the $20," declared the sixth man. He pointed to the tenth man and said, "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 did!" "That's true!" shouted the seventh man. "Why should he get $10 back when I only got 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 man and beat him up. The next night the tenth man didn't show up (Name: Atlas. Reaction: Shrug)
So the remaining nine sat down and had their beers without him. When it came time to pay the bill, though, they discovered something important. They didn't have enough money between them for even half the bill.
And that, boys and girls, 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, or attack them for being wealthy, and they may not show up anymore. In fact, they might start drinking their beer overseas, where the atmosphere is somewhat friendlier.
For those who understand, no explanation is necessary.
For those who don't understand, no explanation is possible.
By David Kamerschen, Ph.D.
Professor of Economics
University of Georgia
Actually the true story was a little bit different:
It started the same way you describe it:
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.
But one day the richest man (Bill Clinton) came to the bar with this "great" idea. "Lets have a credit card (FannieMae) and pay 20 % from our bill with it."
This way :
>The fifth would pay $0.80. - $0.20 on the credit
>The sixth would pay $2.4 - $0.60 on the credit
>The seventh would pay $5.6 - $1.4 on the credit
>The eighth would pay $9.6 - $2.4 on the credit
>The ninth would pay $14.4 - $3.6 on the credit
>The tenth man (the richest) would pay $47.1 - $11.8 on the credit
Everybody was happy, especially the richest man. He was saving a lot. They start drinking more and more and spending more and more money and paying with the credit card. Suddenly on the eight day something happened. The credit card was maxed out. They couldn't use it anymore. They gathered together and started to discuss what to do next. How to get out from this crisis situation.
They had to pay as they used to pay eight days ago:
>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
But what about the credit card they maxed out? Who will pay for that? Everybody was very angry with the rich man. (Now George Bush) "You put us into this mess! You will have to pay it!" The rich man got angry and said. "OK I won't drink beer in this bar anymore" and he left.
He went overseas into another bar. As soon as he entered the bar a big scary looking guy with huge muscles (Nancy Pelosi) came to him. "Look fellow, this bar is nothing like the bar you came from. Here you have to pay me 50% from the money you spent so I can protect you."
"Are you crazy?" said the rich man. "I'm not giving you a shit"
As soon as he said that another four guys even bigger and scarier than the first one came and beat the crap out of him and took all his money away. (The mainstream media)
I might have goofed up the story line with my paretheticals, but it is my blog, after all. It started the same way you describe it:
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.
But one day the richest man (Bill Clinton) came to the bar with this "great" idea. "Lets have a credit card (FannieMae) and pay 20 % from our bill with it."
This way :
>The fifth would pay $0.80. - $0.20 on the credit
>The sixth would pay $2.4 - $0.60 on the credit
>The seventh would pay $5.6 - $1.4 on the credit
>The eighth would pay $9.6 - $2.4 on the credit
>The ninth would pay $14.4 - $3.6 on the credit
>The tenth man (the richest) would pay $47.1 - $11.8 on the credit
Everybody was happy, especially the richest man. He was saving a lot. They start drinking more and more and spending more and more money and paying with the credit card. Suddenly on the eight day something happened. The credit card was maxed out. They couldn't use it anymore. They gathered together and started to discuss what to do next. How to get out from this crisis situation.
They had to pay as they used to pay eight days ago:
>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
But what about the credit card they maxed out? Who will pay for that? Everybody was very angry with the rich man. (Now George Bush) "You put us into this mess! You will have to pay it!" The rich man got angry and said. "OK I won't drink beer in this bar anymore" and he left.
He went overseas into another bar. As soon as he entered the bar a big scary looking guy with huge muscles (Nancy Pelosi) came to him. "Look fellow, this bar is nothing like the bar you came from. Here you have to pay me 50% from the money you spent so I can protect you."
"Are you crazy?" said the rich man. "I'm not giving you a shit"
As soon as he said that another four guys even bigger and scarier than the first one came and beat the crap out of him and took all his money away. (The mainstream media)
Until they pass the Internet Fairness Doctrine, that is.
UPDATE: A real life example of this parable!
Posted by: JBD at
01:11 PM
| No Comments
| Add Comment
Post contains 1130 words, total size 13 kb.
18kb generated in CPU 0.0096, elapsed 0.0278 seconds.
23 queries taking 0.0224 seconds, 28 records returned.
Powered by Minx 1.1.6c-pink.
23 queries taking 0.0224 seconds, 28 records returned.
Powered by Minx 1.1.6c-pink.