Bar Stool Economics (received this AM in email)

[Squatch]

(Snopes only discusses the provenance of this email, not the validity of its content)

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. He said, "Since you are all such good customers, 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 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 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).
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 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 $2? 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 all of them for even half of the bill!

And that, boys and girls, 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 any more. In fact, they might start drinking overseas where the atmosphere is somewhat friendlier.

David R. Kamerschen, Ph.D.
Professor of Economics, University of Georgia

[ProdigalJunkMail]

1. been around for some time... n/t

[Squatch]

2. I figured as much

[Touchdown]

3. I see this "Ph. D" conveniently omitted the fact...

...that the 10th man owns the bank that the bar has a loan on, and is charging a variable rate.:eyes:

[jtrockville]

4. Not quite how our tax system works...

In our system, the 1st-9th men pay, while the 10th man drinks free (and drinks much more than the others).

[northzax]

5. who, exactly, is paying 59% in federal taxes?

is this France?

the highest marginal tax rate in the US is 35%, not 59%, and let's not forget that even the poor are paying 12.5% in SS and Medicare, so the real difference is not 59 points, but 23 points (given the caps on SS and Medicare, for anyone with an AGI of over a couple of hundred thousand, those are minimal, if you make $200K, your SS and medicare burden is 6.25%, $400K=3.12% and so forth, yes, I am counting employer contributions as taxation on the worker, since otherwise people would earn that income)

so your real table looks like:

two poorest: $10
seven middle class guys: $11
one richest guy: $13

amd. of course, since capital gains are taxed at 28%, not the 33% most high level income is taxed at, it's more likely that the rich guy is actually paying LESS than the middle class guys.


by the way, in case people want to see what sorts of actual income the government recieves in taxes from different rates and different incomes, there is a nice chart courtesy of the IRS here warning, it is an excel spreadsheet.

[gratuitous]

6. And in addition

Who is paying a 59% marginal tax rate and only getting one beer? A more realistic "example" would have the wealthy guy sucking up all the bill while one guy lapped what the rich guy spilled, and the other eight getting to enjoy the fragrant breath and farts of the rich guy, who would then turn mean after knocking down ten beers and start kicking the other nine guys in the ass.

As Galbraith remarked, "The only function of economic forecasting is to make astrologers look good." The clown who wrote this probably keeps where he "earned" his credentials hushed up. At the institution's request.

[Selatius]

10. It's not marginal rates that are important. It's effective rates. Rich people effectively pay less.

They have access to many shelters and credits and loopholes, so 35% is unrealistic. 15% is probably closer to the truth for many of the wealthiest, since they derive most of their annual income from capital gains, not payroll income, which is taxed at a higher rate.

[DS1]

7. God, republicans are so fucking stupid

everything is about having a beer with someone, to them.

[flamin lib]

8. Why should the rich pay more in taxes? Two reasons . . .

Why should the rich pay more in taxes? Two reasons: as Willie Sutten said about robbing banks, that’s where the money is and as Jesus said (Luke 12:48), “From everyone who has been given much, much will be demanded; and from the one who has been entrusted with much, much more will be asked.”

Money has different value depending on how much of it you have. The last $100 a clerk at the convenience store earns is more precious than the last $100 that Paris Hilton made doing whatever Paris Hilton does. By paying a higher marginal tax rate Ms Hilton’s contribution more closely matches the value of the clerk’s tax bill.

You pay for what you get. Wealthy people get advantages from government not available to everyone. Highly paid professionals benefit from strict government licensing practices that eliminate competition from foreign professionals while at the same time CAFTA and NAFTA import competitive labor for the middle class. That’s why doctors in the US average $180,000 a year and in Europe only $80,000 while the quality of care and education is equivalent and CEOs here make hundreds of times what foreign CEOs do. The wealthy take disproportionate advantage of airlines for recreational travel knowing that the FAA and NTSB, both government agencies funded by taxes, will keep them safe. When they vacation in foreign countries, which they are able to do more frequently than middle class wage earners, they have the protection of American embassies and diplomats. Federal flood insurance also benefits the wealthy because they own a disproportionate share of the choice properties so often destroyed by nature and rebuilt with insurance paid for with federal tax monies. There are a host of other advantages available to the wealthy simply because wealth allows them access. There is nothing illegal, immoral or unethical in any of this; it is simply something that should be recognized as worth paying for.

[Tyler Durden]

9. Every time that POS shows up in my email, I delete it and temporarily block the sender.

Which usually gets me a CALL from the sender, then I tell them WHY I blocked them and tell them if they won't send me any more Right Wing Bullshit Talking Points, I'll unblock them

Usually works.