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st8smn

THE TAX SYSTEM EXPLAINED IN BEER

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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 ?

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 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 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, 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

sounds logical to me ...its beer!! ,

 

what about you ?

Edited by st8smn

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I bet those who drank free beer still insisted they shouldn't have to pay anything. They probably vote Labor, too.

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Nice find there, but it was the last sentence that got me;

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.

Sounds very similar to the way games are sold here, and just what the trend may do if this continues.

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Nice find there, but it was the last sentence that got me;

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.

Sounds very similar to the way games are sold here, and just what the trend may do if this continues.

 

A BIG +1 on that...

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This makes the assumption that the top 10% pay 50% of the tax.

This sounds like its based on the US federal income tax. Over there, the bottom 50% pay no net income tax (they get as much or more back from the federal government than they pay). The top 10% pay over 50% of the income tax. In fact, the top 1% earned about 20% of the income but paid about 40% of the total income tax.

 

Some individual states over there also have income tax. For example, in California the top 1% pay 45% of the state income tax.

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I didn't know the poor got free beer, where do I sign up to be poor?

 

Oh, wait... :(

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Ah doesn't really matter who wrote it... Funny thing is though, one of the economists to whom it was attributed used it as a teaching tool to get his students to analyse it, but wouldn't actually comment on its accuracy (probably for that reason, ie not giving future students his opinion on it), so who knows how valid it is.

 

Economics/finance etc - my eyes glaze over and my brain shuts down... these occurred at the point in this piece where the tax came into it and calculations started occurring.

 

Lucky my wife's an accountant haha... the extent of my abilities in this regard is e-tax.

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Not actually written by the bloke to whom it's attributed there... actually it seems nobody knows who really wrote it.

 

http://davidk.myweb.uga.edu/

 

http://www.snopes.com/business/taxes/howtaxes.asp

Yep.

 

Further more, it's inaccurate and silly.

 

For example, in this case, Mr 10 would actually be buying all the beers through young relatives using a family trust structure, therefore getting much of them for free.

 

In any event, it's a gross simplification of quite a complicated issue, and it's not proportional either.

Do 10% of individuals pay 60% of income tax?

 

 

 

Here's a proper analogy using the 2009/2010 tax rates, and a nominal "beer to income" ratio of 1:$3000.

There's a bunch of guys buying beers in a pub.

Each guy buys their own beer, but the more beers they buy, the more they cost.

 

The first guy has two beers, and they cost him nothing.

The second guy buys eleven beers. He gets the first two for free (just like the first guy), and then he has to pay $15 each for the next nine.

The third guy buys twenty six beers. He gets the first two for free, then he pays $15 each for the next nine, then he pays $30 each for the next 15.

The fourth guy buys sixty beers. He gets the first two for free, the next nine for $15, and the next 15 for $30, then the next 34 for $38 dollars each.

The fifth guy decides he is going to top them all, and have MORE than 60 beers. He pays the same cost as the fourth guy, including the first two complimentary beers. For every beer after the sixtieth, he's paying $45 for every beer, which is pretty expensive.

 

Now we get to discounting.

Sometimes, the discounts favour those "at the top". Guy number four and five might get a discount on what they pay for their beers, while the others don't. That's fair, they pay more in total for their beer, however they do have a lot of beer that they want to drink.

Sometimes, the first and second guy get the discount. You see, (for this examples sake), eleven beers isn't enough to get you drunk. Not over the period of time they are spending in the pub. It's hard only having elven beers, and sometimes they get drunk, other times they don't. Therefore, they might get a discount on their drinks, so they can afford to have a bit more.

 

There's no single structure for how discounting works, and there are a large number of ways that the fourth and fifth guy can reduce the cost of their beer. They can get their nephews and nieces who aren't drinking any beers, to go buy for them, and they ship the beer back to their uncle. Each of these nieces and nephews get their own two free beers, and the other reduced cost beers, which they give to their uncle who gave them the money to buy them for him. He might also sneak in the odd beer or two from another pub, or use a complex system of shifting beers between cans and glasses so he can effectively drink more beer in the pub without paying as much for it.

 

Sometimes it's fair, other times it isn't.

 

In any event, the poor whine when the rich get tax cuts, and the rich whine when the poor or middle class get tax breaks or support.

The farmers whine when the city businesses get tax cuts, and the city businesses get upset when the farmers get support or tax cuts.

 

The fact is, there are tax breaks and benefits for everyone, over a long enough period.

The problem is that people universally don't understand or empathise with the stress and strain others are under.

The CEO thinks that dole bludgers have it easy, while the unemployed think that the rich have it easy.

 

Neither is true. Life is a struggle.

 

Chill out, and be kind to each other.

Edited by TinBane

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