Saturday, October 18, 2008
Taxes And 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. 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.
Taxes And 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. 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.And that my Happy readers is why Europe is in a flat tax revolution of a life time, country after country battling each other for jobs and growth which are necessary in any economy that wants to keep growing. I'm not an economist, but I do know that it's not the poor and decrepit that buy yachts and mansions that pay for the gardener and the landscaper and the housekeeper. It's not the poor and decrepit that support the economy by quitting high school to work at burger king to pay for their 22 inch rims on their souped up Neon instead of going to school, educating themselves and being an economic producer.Right now, 50% of our population pays no federal income tax. You have asked an entire generation of producers who generated their income potential through hard work, sacrifice and determination and education. We as a nation are asking them to provide more and more for a population to accept mediocrity. To accept the government as their savior. To forgo self worth and determination to create their own destiny.We are asking productive citizens to support the non-productive citizens. To sacrifice their delayed gratification so the consumers can support their habits. As more and more manufacturing jobs leave in favor of better economic environments our service oriented economy will require education as a premise for financial stability.As a nation, I suspect we will get exactly what we wish for. A dumbing down of risk and sacrifice that creates greatness, in favor of mediocrity. Watch as America continues to dumb itself down in favor of social equalism at the risk or foregoing exceptional success.If you want to punish hard working successful business men and women for getting that American dream, prepare yourselves for an eflux of wealth and determination to countries that understand the basic concept. Punishing success while supporting economic mediocrity is a recipe for disaster.Good Luck America. You're going to need it.
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