Taxes Bar Stool Style

Our Tax System Explained: 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 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 dail y 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
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).< BRThe 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 a ll of them for even half of the bill!

And that, ladies and gentlemen, 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.

Your rating: None Average: 4 (3 votes)

Very interesting way to explain it.
Thanks for posting it.

If this bar tax scenario were to take place in Toledo, Carty would charge cover to get in and TPS would charge $1.00 per song. Beer would be draft and no one can smoke. Hence the 10th guy got beat up a long time ago and has already moved out of state. The 7th, 8th and 9th guys have moved out to the suburbs.
Carty struggles with Toledo Pride and Brain Gain on guys 5th and 6th.

Bartender is struggling trying to keep the first 4 men out of his bar, while the 5th and 6th can't afford to pay cover, have a beer, and pay for music. They're strapped. Bartender tries to raise prices on drinks.

The tax system as represented is a progressive one, where you pay more when you earn more. Notice that the emphasis is on tax payments, and NO mention is made on incomes except in dismissive passing. If incomes are brought into the equation of attention, then you'd notice that the richest man who pays $59 for his drink is making 100s of times the income over the men who pay 2 to 7 bucks for their drinks. Any way you slice it, when you pay 20 times the tax but enjoy 200 times the income, you're still way ahead.

The truth is, that the wealthy are disproportionate beneficiaries of our society, and as such, taxing them at a higher rate makes sense. True, we're in the middle of a long-running tax revolt where that argument is being contended ... but the extensive tax evasion of man #10 is not a sufficient reaction to this revolt.

Personally, the progressiveness of our tax system should be downgraded, and from the government energy so liberated, strong collections activity should commence. For the price of comparative pocket change, the top 5% of our society hire lawyers and accountants to save them huge percentage chunks of their lawfully-owed taxes. That (nearly) free ride must end!

The tax system that should be invoked for a survivable, future USA should have the following features (with the kind allowance of you readers for fairly arbitrary choices of money amounts):

1. Tithe Cap. No person should pay over 20% of their yearly income, and over 1% of their wealth yearly, to all taxing authorities. This means that all levels of government should cooperate, compare records, and not overcharge the citizen either individually or collectively. If a municipality wants more revenue, and it's capped, it should petition the state or federal government for it. Anyone inadvertently taxed over the 20%/1% amounts must be refunded forthwith, and the levels of government can spend their time arguing about who has to write that check.

2. Minimum Progressiveness. Taxes should be progressive at a minimum level, with 3 "untaxed holes" that are nods to each of the classes (lower, middle and upper). The first untaxed hole should be $0 to $10,000. The second untaxed hole should be $100,000 to $150,000. The third untaxed hole should be $1,000,000 to $2,000,000. Everything else is taxed without exception or exemption, and at the SAME TAX RATE (refer to the Tithe Cap, above).

3. 100% Enforcement. No one is exempt, and no exceptions or deductions may be applied. If you're blind, then too bad for you. If you paid an arm and a leg for mortgage interest this year, then too bad for you. If your capital investments took a huge hit, then too bad for you. Etc. Now, if anyone actually thinks that pursuing every evader is cost prohibitive, then you should realize that there's no reason why all levels of government have to avoid using private companies to pursue taxes. If all private companies find certain evaders too expensive to pursue, then the government level in question can just outsource the records of profitable evaders, and then concentrate on the ones that private companies refuse to touch under the profit motive.

4. Income and Wealth. No form of income or wealth are exempt from taxation, and only income and wealth are taxed. Since all income and wealth is taxed, there's nothing to miss when taxing, hence there's no need for a sales tax and all that other, contrived rubbish.

With such rules, we can stop the current fall of the USA and return this nation to a Libertarian-esque greatness once again. Imagine living here as a citizen, where you KNOW for damned certain that whatever you earn this year, you will NOT pay over 20% out of the income slice, and will NOT pay over 1% of the wealth slice. You would also realize that any attempt to evade taxes will ASSUREDLY produce a knock on your door within 90 days, where a tax official (either from the government directly, or from "Tax Corp LLC") will be standing there with a friendly local police officer at her side.

But it'll never happen.

I disagree with you on one part. I dont think its right that the wealthy are punished for their sucess through excess taxation. I dont feel that those who dont try to suceed should be rewarded via no tax or earned income tax credit when it continues year after year after year....



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