Bar Stool Economics

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Here is one that a friend of mine emailed me and I thought that it would be great to share it.
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 on 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.
 

NJ-XC-Justin

KY-DH-Freddy
For trickle-down economics to work, you need a system that is overall somewhat fair. One where large corporations don't set up straw hut headquarters in the Caymans so they don't pay the same taxes as businesses that play fair, where giant corporations aren't given giant tax breaks just to keep dong business in the US, and where executives are paid based on longer-term incentives instead of monthly and yearly profit grabs. Since none of these things are being solved anytime soon, I don't see how you can put your faith (and savings) in the hands of the rich. That concept is dead yo.
 

MST.ESQ

New Member
For trickle-down economics to work, ... That concept is dead yo.

You are correct. The concept of trickle-down economics is basically dead - but the joke has as much to do with trickle-down economics as it does with Social Security reform...
 

MST.ESQ

New Member
...One where large corporations don't set up straw hut headquarters in the Caymans so they don't pay the same taxes as businesses that play fair...

This is the main point of the joke. We need a taxation plan that does not result in companies going overseas. The problem is that I have yet to hear of a solution from our politicians.:(

Vote for Chuck Norris!
 

THATmanMANNY

Well-Known Member
Although their are many benefits of outsourcing. I hate it, tremendously. The number #1 thing is I hate being on the phone with customer service and speaking to someone with a heavy accent that I can hardly understand haha.

I also hate the good for nothing World Bank.
 

Glancing Aft

Active Member
"and for all of you Joe Sixpacks playing a drinking game at home tonight, MAVERICK!"

God, I can't wait for this election to be over... And we can finally change all the wrong that has happened in this decade...
 

dhsean

Member
Interesting, but the rich don't play fair. And why would they? We all take advantage of the system. The system doesn't work because it's human nature to look out for yourself and your buddies. Business is business I guess?
 

MTB Aussie

Member
I think the point of the original post is to point out that graduated taxation looks good to everyone except the tenth guy.

Flat, no deduction income tax and a broad based consumption tax fixes that problem. Those who don't make much spend only on necessities and pay no taxes, and everyone else is forced to pay as much tax as their neighbor assuming they drive the same car and live in the same size house. If you want to earn big and live large, you pay. If you want to live cheap and save (investing instead of spending on your credit card) you don't pay much tax.

There is nobody on my street who is starving or has nowhere to live, but I am sure the income ranges are quite different. There is no reason why the higher incomes should pad the pockets of the lower (but not impoverished) folks in order for them to get a new car or a trip to Cancun.

As the tax system reaches out and grabs more middle incomes and hits them with AMT and other insidious non-indexed taxes we pull more people down and the incentive to work hard and earn disappears.

Read about the Roman empire some time.
 

DD-

New Member
...As the tax system reaches out and grabs more middle incomes and hits them with AMT and other insidious non-indexed taxes we pull more people down and the incentive to work hard and earn disappears.

Good point - I've often thought if they keep increasing my taxes I'd be better off working less and riding the bike more.

I think the issue everyone should be aware of is, just how defines "rich" and what is that number. I was listening to the radio where the Democrat plan to tax the wealthy went from "people making $250,000/year" to "people making $200,000/year" then Biden slipped and said the "rich folks" are the ones making "$150,000/year".

I don't know about the rest of you, but I certainly wouldn't define "rich" as people making $150,000 and living in Northern NJ or NYC - especially if they have a few kids. More realistically, you are probably somewhere in the middle class - and worried how the heck you will afford college tuition for the kiddies. But if you were making that same $150,000/year and living in Oklahoma, or West Virginia, or somewhere were the cost of living is much less, you are really closer to "rich".

The danger is, how to fairly define this "rich" person and take into account the difference in cost of living throughout the country.

My $.02
 

kush

Active Member
Good point - I've often thought if they keep increasing my taxes I'd be better off working less and riding the bike more.

I think the issue everyone should be aware of is, just how defines "rich" and what is that number. I was listening to the radio where the Democrat plan to tax the wealthy went from "people making $250,000/year" to "people making $200,000/year" then Biden slipped and said the "rich folks" are the ones making "$150,000/year".

I don't know about the rest of you, but I certainly wouldn't define "rich" as people making $150,000 and living in Northern NJ or NYC - especially if they have a few kids. More realistically, you are probably somewhere in the middle class - and worried how the heck you will afford college tuition for the kiddies. But if you were making that same $150,000/year and living in Oklahoma, or West Virginia, or somewhere were the cost of living is much less, you are really closer to "rich".

The danger is, how to fairly define this "rich" person and take into account the difference in cost of living throughout the country.

My $.02
You mean statement made by Joe "The Gaffe" Biden? Go on obama's site and put in your or whatever income you want into the calculator. accrdg to that, a person making between $200-250k with 2 kids and a mortgage will have an $800 tax savings compared with McCain's $224 savings.

i'm not starting anything here, just facts as presented in an open online public medium, which have been reviewed by factcheck.org, wash post edit board, politico, the atlantic, etc.

in reality, there's no guarantee what either candidate will do to us once in office. campaign promises are just that.
 

crash_in_nj

New Member
Here it is for you in plain and simple English. Your taxes are going to go up. It doesn't matter who you vote for. Your taxes are going up. And guess what? We only have ourselves to blame. We all want government services of some sort. They cost money. We've been borrowing and borrowing and borrowing to pay for them so far, but someday we have to pony up. You can't fight 2 wars, keep troops stationed around the world, bail out the poor millionaires on Wall St (and maybe even the people who got tricked into buying houses they couldn't afford) and all of the rest AND cut taxes.

I loved the last line. Let me spout my opnion at you and then, if you don't agree, close off debate by telling you you just don't get it. Even if I agreed with you, I'd still be insulted...
 
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