Bar Stool Economics
 

Our Tax System Explained: Bar Stool Economics

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. '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 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 got' '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 important. They didn't have enough money between all of them for even half of the bill!
And that, ladies and gentlemen, 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 start drinking overseas where the atmosphere is somewhat friendlier.

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

For those who understand, no explanation is needed.
For those who do not understand, no explanation is possible.

This will turn into an argument regardless; assuming enough people will read it all.

Sadly people just don't get it! Less govt is good govt!

I read that on thehun yesterday. I'm not qualified to comment on it but I do think it's important because it's central to the future of America.

A good short informative discussion here:

http://rebaneruminations.typepad.com...-bar-stoo.html

Rebuttal scenario:

However, this post resonated with me:

In other words, for all the griping about economic inequalities, America provides the best quality of life and opportunities than any other nation on earth. We can tweak our economic policies, but we must be very cautious not to tip the balance too much.

Here are questions I have about the candidate's plans, specifically Obama's for this first question and general questions. If taxes increase for a large company, won't that company lay people off proportionally to keep their revenue the same as before? Or will this spurn more corporate efficiency and innovation to grow?

Now general questions: Does giving a tax break to the middleclass help them or will the middleclass simply spend that extra money away and continue to increase their individual debt, which is already at record highs? It seems to me that both government and individual citizens have to start reigning in spending. Maybe I'm wrong?

In a globalized economy where there is cheap labor overseas, is a middle-class basically doomed to shrink dramatically no matter what tax policy is implemented domestically? Most manufacturing jobs can be shipped overseas if they haven't already been. Tech jobs can be done overseas too, and even many low level jobs like telemarketing. There are always jobs needed domestically (a handful that are middleclass jobs) - teachers, doctors, lawyers, garbage men, gocery clerks, janitors, bank tellers, and so forth, but isn't the bulk of the middleclass composed of manufacturing job workers?

We know the war in Iraq isn't about eliminating terrorism. For whatever the real reasons are, be it oil and socio-political reasons or other, will America begin benefitting financially from it any time soon?

Essentially the middle class will always spend the extra money you give them. That is why they recently had the stimulus checks. They know if they give the average person on extra $600 they will go out and spend it. Consumer spending makes up the bulk of the strength of the US economy. When people stop buying shit they don't really need the economy shrinks and trouble starts to brew. So I think if you want a sure fire infusion of cash into the economy, give the middle class extra money....they will spend it.

As for the middle class, I think they are in transition. The middle class in America was built around manufacturing jobs. These were jobs any high school graduate could get and if they worked at it after 8-10 years they were making a good living and they could afford a house, raise a family and have a nice life. Those jobs are getting shipped out of the country and they are being replaced with lower paying service and retail jobs and some jobs that pay as much or more but are tech jobs or white collar jobs. This means that a lot of these people either have to adapt to having less money or they have to go back to school and learn a new skillset. Neither is a fun option. If you spent 15 years building your life around a $20 an hour job then suddenly you lose it and can only find a job that pays $12-$14 an hour you will struggle and you will go into debt. not to mention when you were making $20 an hour you were probably using credit cards and credit accounts to live like someone making $40 an hour so you already in major debt.

The simple reality is both the rich and companies need the middle class and the middle class needs the rich and the companies. Without the rich and companies there are no jobs for the middle class. Without the middle class buying the things that the rich and companies are selling, there are no rich and companies.

I personally think things are going to get worse for the middle class before they get better. I'm not an economist so I won't even being to assume I know how to fix the problem.

Not that this is relevant to discussing the merits of the original post but for the sake of accuracy it should be known that the original piece was not written by David R. Kamerschen, Ph.D. Professor of Economics University of Georgia.

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

That is a good way to explain it