by kehote on April 25, 2012
I recently received this old saw from a friend of mine, with the simple suggestion to “Think about it.”
THE TAX SYSTEM EXPLAINED IN BEER
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, 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.
Well, I thought about it.
While it’s a rousing story, it’s a painstakingly crafted message designed to make your blood boil, to hate the poor beneath you – the only thing missing in it is one of the four poor men should have been an illegal immigrant. It’s an “astroturfed” whisper campaign to save the poor, unfortunate wealthy who “will refuse to work unless their taxes are lowered”.
Not only is this bullshit, it’s also bad economic reasoning.
A graduated income tax has been a part of the American system for 70 years or more. In the past, the wealthy paid a much higher percentage of their incomes as taxes yet they still seemed to continue working and accumulating wealth. Even at higher tax rates, the rich make much, much more money than the rest of us and if they suddenly stopped their juggernaught income gravy train “to take their toys and go home”, they would simply cut off their own nose to spite our face.
The idea that if you tax me too much, I’ll quit working or investing in my business is idiocy. The rich go where there’s money to be made, and they’re staying right here in the U.S. because there’s fortunes being made by them here every day, 24/7. They aren’t taking their toys and going home. They are home.
The thing with being rich is, (or so I hear) making money becomes an addiction. You thrive on making more and more and you don’t let anything get in your way, like say… the truth. The Republicans have said for years that if you lower tax rates on the rich, the resulting increase in wealth would trickle down to the rest of us. That’s the heart of Reaganomics, and it’s resulted in the greatest disparity of wealth the in the U.S. we’ve ever seen. When Reagan became President in 1981, the top marginal federal income tax rate was 70%; when he left office in 1989, the top rate was 28%.
They want you to believe that taxes are incredibly high on them and that they’re “paying for the party”, when in fact taxes are currently on the low side these days – the rich pay as little as 15% on capital gains while the rest of us pay double or more that on wages and other income. Take a look at ANY chart of American income disparity since Reaganomics began and as yourself: How much trickled down to us?
Second, the “tax” system analogy he emailed to me does nothing to explain the distribution of wealth among the participants and how it was acquired.
In this overly simplistic example, the 10th person who paid $59 for his share of the beer controls 70 dollars out of every hundred the men made together. It doesn’t mention how the poorest 4 in this microcosm work the hardest, yet are paid only one thousandth as much as the rich man for their labors. The rich man just pays his other people to manage the 70%+ he extracts from the system by virtue of having vast capital resources, access to deal-makers and a system that they design to tilt in their favor.
The bottom four combined made less than a dollar yet it says nothing about how they have to pay a large percentage of that dollar for other tiny taxes that accumulate over time: a nickel tax on using the bathroom, a few pennies for napkins and plastic forks, a dime for the soup and a dime on bar stool rental. In fact, most if not all of that one dollar is gone over the course of a day and then it’s back to another long day to earn that one dollar. When do they have time and resources to accumulate their fortune?
The house almost always wins. In many cases, one could say the tenth man made his fortune cheating the other 9.
Really though, George Carlin explains it much better than I ever could.
Now that’s a rousing story.