UNITED STATES TAXING SYSTEM

EXPLAINING OUR UNITED STATES TAXING SYSTEM WITH 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 six 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. ‘Since you are all such
good customers,’ he said, ‘I’m going to
reduce the cost of your daily beers 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 two? 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 very
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 anymore. In fact, they might star drinking overseas where the atmosphere is somewhat friendlier.

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

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