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 ball.
>
> "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 men would 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 a higher percentage.
>
> They decided to follow the principle of the tax system they had been using, and he proceeded to work out the amounts he suggested that each should now pay.
>
> And so the fifth man, like the first four, now paid nothing (100% saving).
>
> The sixth now paid $2 instead of $3 (33% saving).
>
> The seventh now paid $5 instead of $7 (28% saving).
>
> The eighth now paid $9 instead of $12 (25% saving).
>
> The ninth now paid $14 instead of $18 (22% saving).
>
> The tenth now paid $49 instead of $59 (16% saving).
>
> Each of the six was better off than before. And the first four continued to drink for free.
>
> But, once outside the bar, the men began to compare their savings.
>
> "I only got a dollar out of the $20 saving," 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 benefit than me!"
>
> "That's true!" shouted the seventh man. "Why should he get $10 back, when I got only $2? The wealthy get all the breaks!"
>
> "Wait a minute, "yelled the first four men in unison, "we didn't get anything at all. This new tax 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 their 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 government ministers, is how our tax system works.
>
> The people who already pay the highest taxes will naturally 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
>
> For those who understand, no explanation is needed.
> For those who do not understand, no explanation is possible.
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