Thursday, October 30, 2008


Our old friend, Scott Johnson emailed this to me this morning. It's long, but explains the point better than any member of the media.
Suppose that everyday, 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!'

'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, boys and girls, journalists, lawyers 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

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


E said...

I used to drink beer with a group of fellows, one of whom would go home before his round came up. It was within his rights, and we had the means to cover him, but it was irksome. Why should he get for free what the rest of us pay for?

What irks me about Obamesque policy making is that the Obamas and Bidens of the world want to "make it fair" using everybody else's money and are stingy with their own. Biden is all-time stingy in his own charitable giving and Obama was nearly as bad until 2007 when he knew he better give some money away for CYA purposes. (Much of which went to a certain honky hating church.) When Biden was called on it, his campaign said he gives a lot of money away that he does not report on his tax return. Yeah, as if. That is either a blatant lie (very likely) or he is dumber (for not receiving the tax credit) than anyone thinks. My own opinion is that if you would increase the tax credit for charitable giving (as Bush wanted to do), you would see more giving (esp. by Republicans, as is well documented) and you would see needs met at the local level, which is always more appropriate and far less wasteful than doling it out thru the federal government which makes its living on inefficiency, corruption and waste.

Dude said...

I saw this same beer analogy years ago. It does explain the system fairly well. Rush was always harping on the radio that of course tax cuts go disproportionately to the wealthy because that's who's paying the most taxes. Libs just don't want to see well off people paying less for fairness reasons, even if you get an extra guy drinking beer for free out of it.

Marci threw the factoid at me yesterday that rich Republican wouldn't give anything at all to charity if there weren't tax advantages. I know that to be patently false. The statistics show that most charitable contributions come from the right since the left seems only willing to donate via the taxation system.

E said...

A Republican gets a 25% tax credit on his charitable contributions, so if he gives $1,000 he gets to knock $250 off his taxable income. It is more profitable to give nothing yet Republicans always give more. Using that logic is like the guy who sells his house for $1 so he only has to give his ex-wife 50 cents.

I spoke one Wednesday night at my small church years ago. At the end I mentioned a friend who was in desperate need of cash, and folks emptied their pockets of $880 in cash with no benefit to themselves for someone they didn't know and would never meet. I don't see St. Obama doing that for his own family members.

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