Our Tax System Explained: Bar Stool Economics:
David R. Kamerschen, Ph.D.
Professor of Economics
University of Georgia


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 based on what they had been paying,
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.

Remember "Atlas Shrugged" (Ayn Rand)

For those who understand, no explanation is needed.

For those who do not understand, like Obama supporters, no explanation is possible.

Sen. Obama warned regulators and the nation 19 months ago that the subprime lending crisis was a disaster in the making. Sen. McCain backed tighter rules for Fannie Mae and Freddie Mac, but didn't do much to advance that legislation. Of the two candidates, Sen. Obama better understands the mortgage meltdown's root causes and has the judgment and intelligence to shape a solution, as well as the leadership to rally the country behind it. It is easy to look at Sen. Obama and see a return to the smart, bipartisan economic policies of the last Democratic administration in Washington, which left the country with the momentum of growth and a budget surplus that President George Bush has squandered.

On the most important issue of the day, Sen. Obama is a clear choice.
http://www.adn.com/opinion/story/567867.html


http://www.usatoday.com/news/politics/election2008/2008-09-23-50stateillinois_N.htm

Sarah Palin: "I'D VOTE FOR OBAMA" !!!
http://www.youtube.com/watch?v=jO6dmBm1SFw




http://noquarterusa.net/blog/wp-content/uploads/2008/01/obama-superman.jpg


SARAH PALIN PRAISES BARACK OBAMA!!! (pssst, only until she was offered a seat as V.P.)

http://www.youtube.com/watch?v=Ws4Tl3vHryQ&NR=1

In order to be analogous to REAL economics and tax policy, this quaint little story would need to be adjusted a tad:

Perhaps the first four men who paid nothing, still paid the cover - which pretty much stretched their already thin incomes.  The others agreed to this arrangement, because if the four stopped coming altogether (which they most certainly would if they couldn't drink), this small bar they so dearly loved to patronize would have to close before long without the door free profit.  The 9th man also owned the jukebox, and the 10th man owned the distributing company that furnished the bar snacks - a very lucrative venture for them.  They needed quarters in the juke box and consumption of peanuts, respectively.  So they paid the bulk of the beer costs to keep the patrons coming.

Also, the owner of the bar used to charge $140 for their beer before he dropped the cost to $100.  At some point, however, he made a series of rash and idiotic decisions; one of which was to pay a street gang to constantly vandalize the bar ACROSS THE STREET in response to an employee of the rival bar NEXT DOOR throwing a brick through one of his windows.  This proved to be quite costly, and unsightly - because he skipped on some much needed renovations to pay for this idiotic rivalry with the bar across the street.  He also neglected to install a decent security system and night patrol to protect him from the antics of the bar next door.  

He needed more money to renovate and install that new security system.  So...he took at look at his books, and decided that he needed to charge $120 for beer, with the 9th and 10th paying the same price they paid years ago when the price was $140, and the others getting a decrease since they'd fallen on even harder times.  

(SIDE STORY)The first 8 had actually fallen victim to the 9th and 10th when they convinced them to invest much of their earnings in some risky investment schemes that the two men concocted.  Those schemes failed, even though the 9th and 10th guy still had tripled their already massive incomes.(/SIDE STORY)  

In order to keep the 9th and 10th guy from drinking in other bars while reaping the benefits of his bar operation, though, the owner decided that he would attach vendor fees that would make it more unprofitable for the 9th and 10th guy to operate if they started drinking elsewhere.  They knew there wasn't a market for their services in other bars and they wouldn't be profitable if not allowed to operate in the bar they loved so dearly.  They also knew that business would be bad for them if their bar went to shit.  No problem.  After all, they'd paid the increased price years ago and would have no problem doing it again under the circumstances.  

Dr. David could stand to do a bit more studying.  

-- Modified on 10/26/2008 6:49:17 PM

Listen to Dr. David Kamerschen, or listen to a john (you) who lurks on an erotic board. Boy that's a tough one. Might have to flip a coin. Higher taxes have unintended consequences, i.e. migration to other states with more favorable tax treatments, at least on the state level, or migration to foreign countries with favorable tax treatments. Just look at the number of ex-pats living in Panama, Costa Rica, etc., which are specifically targeting the baby boom generation.

The majority of Americans who actually pay taxes are not necessarily against taxes, even a progressive tax system. They are against an abusive tax system that can consume upwards of 60% (federal income, payroll, state, property, sales, excise, etc..etc..) of a person's income. Tell me the incentive of working for $.40 on the dollar?

Perhaps we should listen to a john (you) who automatically assumes that someone is correct because they have certain title and are able to write cute little anecdotes to advance their political opinions.  I like to call that "gullible" or "dumb."  

The good doctor's analogy didn't account for all sorts of important details that one would need to draw a conclusion about tax policy - which was what my response addressed - and you really haven't refuted anything I said.  Just regurgitated some bullshit you read on Expedia and Priceline; and heard from the McCain campaign.  Weak.  Given your previous posts, though, I don't think anyone really expects you to reply with an argument that would spur valid discussion.  

Next.

-- Modified on 10/26/2008 3:56:46 PM

Just like a democrat to take a simple tax policy and fuck it up with all sorts of superfluous bullshit so it makes no sense, and no one else can understand it. Even themselves. Why do you think the House and Senate created an office within the IRS to do their taxes for them? Think it might be because they don't understand the tax laws that they, themselves, have written? You got it.

at least he didn't him a racist.

Someone had a bad night.

I found both explanations interesting. The first was a little easier to follow. I agree that offshore tax loopholes have to be reigned in. Also a fair tax system where no individual pays more percentagwise.

Businesses are not individuals and have a responsibilty to those they employ.

That said other "johns" listen. We dont lurk we check in on our posts and respond back to interested people.

Dream on - Redistribution of wealth NEVER works.  Communism has been historically PROVEN to fail. The company for which I work, an LLC, is owned by minorities (African Americans) & THEY are terrified and already figuring who will have to be cut when their taxes go up under Obama's "Robin Hood" plan to take from those who are the very ENGINE of our economy & CREATE jobs to distribute to those that are not willing to work & sacrifice for it.

this is PURE BS.

...when you're trying to advance a narrow political opinion in the form of a cute little story about barstools.  I wouldn't call an expensive war, crumbling infrastructure, or citizens who hover around the poverty line "superfluous."  These are valid factors that one would need to take into account when making an argument about the advantages of one tax policy doctrine over another.  

Just like a partisan lackey; to blindly align himself with a political party and dismiss anything he can't understand.  You and RWU are one in the same - Morons that ceased to learn anything after typing class.

Somebody has WAY to much time on their hands to create this crock of shit.  However it DOES illustrate the mentality of a lib & the way Obama & his ilk address issues and answer questions - just make stuff up & declare them to be facts. Who said anything about a cover charge or renovations?

And BTW, if you look where the "Shaky Mortgage" situation really originated it was when ACORN & their ilk shut down banks & demanded they give mortgages to borrowers that they KNEW couldn't repay them as they didn't have jobs & awful credit histories - but then Wall Street worked THEIR magic as well so there is MORE than enough blame to go around.  The answer is not Govt takeover, but Capitalism as it always has been - hell, look at "Communist China" & Ireland, they finally are embracing Capitalism & LOW taxes & their economies have never been stronger.

And furthermore, look at cause & effect. Communism was the death of the Soviet Union but go back all the way to REAL Democrats like JFK & you will see that EVERY time the highest marginal tax rates are decreased the Govt collects MORE revenue & the economy is stimulated & EVERY time taxes increase, revenues DECREASE & Recession & inflation increase - Remember the Carter Administration & the "pain" index?

Really YOU could stand to do a LOT more studying - And get a life as well.

yes

a typical response of an inferior intellect. Almost like a child that say "na-na-na-na-na" I'd have said an inferiority complex but this person is really inferior, its not a complex.

... and the fairest tax system of all is HB 25, "The Fair Tax." It would completely eliminate taxation of the lowest income families from ALL taxes including payroll taxes such as SS & Medicare AND make the USA the greatest tax haven on earth drawing back much of the business & dollars from overseas.  It would switch taxation from income to consumption so those who CONSUME more (bigger carbon footprint?) PAY more & also encourage thrift & self-reliance.  The DOWNSIDE for politicians is that it REMOVES the ability of government to use TAX POLICY for social engineering.  It's THE most researched tax proposal there has ever been.

Before someone says it will raise prices, remember that 20-25% of the price of items now consists of IMBEDDED INCOME TAXES & that component of cost will be removed when income taxes go away.

..is the idiocy of an illiterate TER member who buys wholeheartedly into a simple analogy to half-ass explain a very complex issue.  Barstool economics?  LOL.  Get the fuck outta here.  You're terribly lost and will buy into anything the McCain campaign or some UGA professor feeds your feeble mind.  Perhaps literacy test SHOULD be a requisite for voting...lol.  

The mortgage crisis was created by ACORN?  LOL!  That's news to me; but then again, I don't listen to the Rush Limbaugh brand of blustering; But what the fuck does that have to do with that lame tax policy analogy you posted?  Do you even understand what was said?  Probably not.  Making sure the guy was a Republican is the extent of the research people like you, jersey, and RWU conduct before subscribing to someone else's opinion.    

LOL.  "Barstool economics."  Sit the fuck down...I see why you post so little.

have seen the example before.  No reason to try and reason with the loathsome douchebag that has attacked your posts here. He is an angry jackass that cannot get over himself and wants to whine about everything.  When I picture him I have to think of George Jefferson.  Maybe it is time for him to get out of the hobby and go back to Weesie and bitching about his half white daughter in law.  Like anybody gives a shit about what his little mind has to express.

-- Modified on 10/26/2008 7:49:09 PM

You have no idea who I am but you are demonstrably a complete moron, and that is an insult to morons, and not worthy of any further response or consideration. BTW, how many reviews to YOU have? Probably on welfare or in a minimum wage job - What a pathetic joke you are.

Oh, I forgot, I have a company to run & a life so posting here is not a priority to me; it appears it is your entire pathetic life -

Okay, Bugs Bunny. Did you just call me a moroon?LOL.