Bar Stool Economics by David R. Kamerschen, Ph.D.
Suppose that every day, ten men go out for beer and the bill for all tencomes to $100. If they paid their bill the way we pay our taxes, itwould 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 everyday and seemed quite happy with the arrangement, until one day, theowner threw them a curve. 'Since you are all such good customers, hesaid, '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 thefirst four men were unaffected. They would still drink for free. Butwhat about the other six men - the paying customers? How could theydivide the $20 windfall so that everyone would get his 'fair share?'They realized that $20 divided by six is $3.33. But if they subtractedthat from everybody's share, then the fifth man and the sixth man wouldeach end up being paid to drink his beer. So, the bar owner suggestedthat it would be fair to reduce each man's bill by roughly the sameamount, 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 tocomparetheir savings.'I only got a dollar out of the $20,'declared the sixth man. He pointedtothe 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 thebreaks!''Wait a minute,' yelled the first four men in unison. 'We didn't getanything 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 satdown and had beers without him. But when it came time to pay the bill,theydiscovered something important. They didn't have enough money betweenallof them for even half of the bill!And that, boys and girls, journalists and college professors, is how ourtax system works. The people who pay the highest taxes get the mostbenefit from a tax reduction. Tax them too much, attack them for beingwealthy, and they just may not show up anymore. In fact, they mightstart drinking overseas where the atmosphere is somewhat friendlier.
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 tocomparetheir savings.'I only got a dollar out of the $20,'declared the sixth man. He pointedtothe 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 thebreaks!''Wait a minute,' yelled the first four men in unison. 'We didn't getanything 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 satdown and had beers without him. But when it came time to pay the bill,theydiscovered something important. They didn't have enough money betweenallof them for even half of the bill!And that, boys and girls, journalists and college professors, is how ourtax system works. The people who pay the highest taxes get the mostbenefit from a tax reduction. Tax them too much, attack them for beingwealthy, and they just may not show up anymore. In fact, they mightstart drinking overseas where the atmosphere is somewhat friendlier.
For those who understand, no explanation is needed.For those who do not understand, no explanation is possible
