More humor before I get serious again. This little squiggle has been around the Internet before but I got it from Finbar Taggit, formerly my favorite English blogger. This is how the tax system works.
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 realised 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 the poorer he was, 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 pound 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 pound 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 any more. In fact, they might start drinking overseas, where the atmosphere is somewhat friendlier.
That’s hilarious. Love it.
Funny, but untrue. It’s a neat little slight of hand with % versus $. Rich pay the most $ but not the highest %. The beer drinker with $59 tab while yes, paying most of the $100, generally makes up smaller percentage of his income than the guy paying the $5.
Example.
http://freakonomics.blogs.nytimes.com/2008/05/01/taxes-warren-buffett-and-paying-my-fair-share/
[...] This post was mentioned on Twitter by Matt Harding, joe barber. joe barber said: How The Tax System Works via The Daily Capitalist – More humor before I get serious again. This little … http://tinyurl.com/245oy3d [...]
Scoggins: what part of “tax cuts don’t benefit those who don’t pay taxes, but give maximum benefits to those who pay the most” don’t you understand?
Bearster, what part of “I will not unduly bust my arse so you can earn little yet still suck off the public tax teat” don’t you understand?
Bob, perhaps you misunderstood my sarcasm. I think we agree–no one should be forced to work for the sake of someone else. Transfer payments take from those who have earned something in order to give to those who have not. If this is not the very concept of “unjust” I dunno what is.
Part two to the “bar story;”
The bar owner engaged in a war with two other bars as he accused one bar of trying to steal his customers and the other bar of having an unlimited supply of beer in its basement. To placate his customers during this turmoil, he gave big discounts and offered to finance the beer purchases of the richest men. Something he had never done before.
While the richest got drunk daily, the bar owner eventually found himself so in debt that he had to declare bankruptcy and liquidate the assets of the bar.
Sound familiar?
What is it about “levity” that a great deal of people can’t grasp? Serious folks really have problems today. The majority may be broke, in more ways than one, but this does point up a problem in this countries mind set.
Thank you, Norman.
Blah blah blah…. yeah yeah yeah. I am a corporate tax accountant and have been one for a few decades. The bar scene greatly simplifies a complex matter. The statutory tax rate is higher on the upper income earners, but the effective tax rate that they are paying is more often than not much lower.
Precisely where will the high tax payers go to find lower taxes? China? Germany? Switzerland? The Cayman Islands?
Capital controls and high taxation rates will be quite ubiquitous through all Sovereigns, since they ALL are dead broke, so it will be quite difficult indeed to find a “tax friendly” nation for rich folks seeking to evade taxation.
Besides this fact of life, obviously the 4 folks at the bottom pay no taxes, since they have nothing worth taxing! Its plain STUPID to tax people with no money (or very little of it), since you just won’t raise any money that way. If you want to raise some money, DUH you have to tax people who HAVE the money! The more money they have, the more you tax them. That is just basic arithmetic.
RE
That is a good point, where would these high net worth people conceivably go? Anywhere in Europe and you are paying at least 10% more in taxes..same in Australia, NZ, Canada, etc…
US citizens easily pay the lowest taxes in the developed world. This is a reason people swing to the left: they go to Europe and see that they all have healthcare, a bigger social safety net, (not to mention lower unemployment), and then think, well shoot, why are we doing it this way? We need to raise taxes on the rich!
Not saying I agree with them necessarily, but you can see how they arrive at that conclusion.
It’s all too complicated. I agree with Steve Forbes. Flat tax. Everybody pays. And 90% of the IRS employees can go down the road and find productive employment.
What a concept! I like the idea as long as the result is a lower tax burden on everyone.