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Thread: The Tax System explained - through the medium of beer

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    Default The Tax System explained - through the medium of beer

    Suppose that once a week, 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.
    And the tenth man (the richest) would pay 59.

    So, that's what they decided to do. The ten men drank in the bar every week and seemed quite happy with the arrangement until, one day, the owner caused them a little problem. "Since you are all such good customers," he said, "I'm going to reduce the cost of your weekly 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? 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 not only would the first four men still be drinking for free but the fifth and sixth man would each end up being paid to drink his beer.

    So, the bar owner suggested that it would be fairer to reduce each man's bill by a higher percentage. They decided 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 (a 100% saving).
    The sixth man now paid 2 instead of 3 (a 33% saving).
    The seventh man now paid 5 instead of 7 (a 28% saving).
    The eighth man now paid 9 instead of 12 (a 25% saving).
    The ninth man now paid 14 instead of 18 (a 22% saving).
    And the tenth man now paid 49 instead of 59 (a 16% saving).
    Each of the last six was better off than before with the first four continuing to drink for free.

    But, once outside the bar, the men began to compare their savings. "I only got 1 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 1 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 only got 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 week 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 to pay 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 might 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

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    Default Re: The Tax System explained - through the medium of beer

    That is a really brill explanation of how it all works.
    Now I know who is screwing me.

    Cheers,

    Kip

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    Forum God > 400 posts Club Member Winst's Avatar
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    Default Re: The Tax System explained - through the medium of beer

    Quote Originally Posted by KipMac View Post
    That is a really brill explanation of how it all works.
    Now I know who is screwing me.

    Cheers,

    Kip

    Yeah......the alcoholics

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    Cool Re: The Tax System explained - through the medium of beer

    Just made me fancy opening a beer at home, and thus avoid the tax banding mentioned above, and so is the way of the self employed....

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    Very active > 100 posts Club Member Philip's Avatar
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    Default Re: The Tax System explained - through the medium of beer

    Quote Originally Posted by leakey5562 View Post
    Just made me fancy opening a beer at home, and thus avoid the tax banding mentioned above, and so is the way of the self employed....
    Yes but you had to pay for the beer, and so is the way of the self employed.....

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    Default Re: The Tax System explained - through the medium of beer

    Quote Originally Posted by Philip View Post
    Yes but you had to pay for the beer, and so is the way of the self employed.....
    But it's probably tax deductable somehow, and so is the way of the self-employed with a good accountant
    I'r Gad!

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    Default Re: The Tax System explained - through the medium of beer

    plus the rich guy was paying for the beer from his secret account in the Seychelles where all his real money is stashed

    tony

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