The Tax system
> > 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 |
