Tuesday, April 8, 2008

Barstool Discussion on the Economic Structure of Taxation

A refresher course in the economics of taxation anyone should be able to understand.

First, crack open a cold one. (don't drink too much beer)

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. (don't drink too much beer)

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. (don't drink too much beer)

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. (don't drink too much beer)

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! (don't drink too much beer)

''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! (If you drink too much beer this could happen)

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.

For those who understand, no explanation is needed.

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

Now crack open a cold one, drink it down and think about it for a while but don't drink too much beer.

Four lessons can be drawn from this discussion, 1.) Let Atlas Shrug and let those rich bastards go to China or other developing nations because one day those people will wake up clamp down on them much worse then we have and they are going to learn what social revolution really means when they are huddled atop their mansions and scrambling for their jet planes, or 2.) we should all work together, rich and poor, to build a better more just society or 3.) let the rich do what they can while the poor suffer what they must; 4.) end taxation and preferential regulatory structures so everyone can benefit making lesson #2 a reality.

Which of these positions is what you want America to be? The choice is yours.

h/t to Jeff Manday for providing this excellent discussion.

1 comment:

Anonymous said...

Many a TRUE WORD is said in jest!