So simple and smart! It’s an email sent to me by my uncle.
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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 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 start drinking overseas where the atmosphere is somewhat friendlier.
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And no, it is not written by David R. Kamerschen, Ph.D., Professor of Economics @ the University of Georgia and he doesn’t know who wrote it.
Anyone know?
Just a girl trying to find a balance between being a Shopaholic and a Saver.
I cleared $60,000 in 18 months earning $65,000 gross/year.
Now I am self-employed, and you can read more about 
I know who wrote it… A FREAKING GENIUS!
Daniel, you’re changing the analogy at will to make it mean what you want it to mean. The men don’t split the bill according to consumption–that would be normal capitalism. They didn’t get the bill until after all had consumed their beer, so they couldn’t have consumed according to their share of the bill.
Daniel, you’re changing the analogy at will to make it mean what you want it to mean. The men don’t split the bill according to consumption–that would be normal capitalism. They didn’t get the bill until after all had consumed their beer, so they couldn’t have consumed according to their share of the bill.
Funny, but if we throw in how much beer these guys get it looks a little different:
10 guys, so about 30 beers…
The rich guy (#1) gets about 28 and a half of these beers.
#2 guy gets about 10 and a half ounces (not even a full beer)
#3 has to share less than 5 ounces with #4 (not even half a beer!)
#5 and #6 get a little over an ounce and a half
guys 7 through 10 all get to split up less than a cap full of beer (about a drop each).
The first guy is paying (even after the $20 is kicked back) a little over 58 cents a beer, while guys 3 and 4 are paying about $35 for a beer. If the rich guy has a problem with paying more for getting all the beer, then he should get beat up.
They’re all drinking the same amount, but paying differently… that’s the point. If they drank the same amount, your analogy is reversed because now the rich man is paying MORE for the same benefits as the other men.
I’m fine with the system for the most part. I just wonder why the tab is so high? Let’s cut the tab down and everyone will be paying less money. We all win. The government can cut non essential spending. It’s such a simple concept.
I know people will argue about what’s considerered non essential. But if it’s a luxury and we want it badly enough, we can use our extra money to buy those things and start organizations and committees not funded by the government. In essense, we would gain a little more control.
I think the flaw in this analogy is the capitalists don’t go “overseas” just because of taxes. They go overseas to take advantage of the cost difference between third world countries and first world countries. Or they import third world people illegally. Tax would be just one part of the decision. Also the rich mostly live on capital gains which are taxed at a lower rate not personal income.
So your uncle presented an intentionally flawed argument a rich person would make to keep more of his money. He then says he will take his ball and go home if we ask him to pay. His home is here and he knows it. I don’t see any of our country’s wealthy running to live in Bangalore yet.
Hmmmm, “They import third world people illegally” Funny words from a party that panders to, and supports illegal immigration…
Love this post! When people face the facts and realize that the top 10% of US income earners pay 96% of all taxes but only use a fraction of those spent taxes, they come to face with reality of our tax system. Instead all I ever hear is rampant class warfare which inevitably boils down to “rich people are teh EVULLZ!”
I’m disappointed. Usually I agree with your post – but you are soooo far off here! This $59 tab would be considered chump change to the 10th person – not like a real 59 bucks like it is to us people in the middle class.
The problem is – that 10th person who was originally paying $59? Would actually get “beer breaks” and not pay anything. And then the 3rd, 4th, and 5th most wealthy would be stuck with the balance he was paying, or the bar owner would be short changed $59. So he’d be the wealthiest, but he’d be drinking for free.
I don’t think it’s about taxing the wealthy more – I think it’s about getting rid of the tax breaks that let them pay less (or nothing) than those who don’t make as much. In fact – the US is kind of in the situation at the end of the analogy – there isn’t enough money because the people who can afford it aren’t paying up.
It is a good analogy but not an accurate one. You need to take into account the distribution of wealth in USA and when one looks at it with this filter one can see how the middle class is truly getting the shaft.
“Although it is not specified, I think we must be discussing Federal income taxes. But taxation in the United States is more complicated than that. There’s state income taxes, payroll taxes, estate taxes, capital gain & dividend taxes, property taxes, sales tax and more.But to simplify, let’s discuss the distribution of wealth. In the United States at the end of 2001, 10% of the population owned 71% of the wealth. On the other hand, the bottom 40% owned less than 1% of the nation’s wealth. Just for fun, let’s see how the distribution of beer would work out in your example.With that bill of $100, let’s say our heroes purchased a total of 50 beers at $2 apiece. • The first four men (the poorest) all shared 1% of the beer, or half a can. (1.5 shots of beer a piece)• The fifth man drank 3% of the beer, which was a can and a half. • The next four men drank 25% of the beer, or 12 ½ cans – about 3 cans apiece.• The tenth man (the richest) drank 35 ½ beers. I don’t think we should begrudge the first four guys for their measly 1 ½ ounces of beer apiece. I guess the fifth guy got a good deal on his 1 ½ cans for only $1. But the next four guys (mostly the middle class) paid $40 for 12 ½ beers, while the richest guy drank $71 worth of beer and only paid $59. Then, when the price of beer is reduced, the richest guy ends up paying even less of his share, giving guys 6 thru 9 the shaft.I would have beat up the rich guy too. And when he didn’t show up the next night the remaining 9 guys would have had plenty of money to go around. They could consume 14 ½ cans of beer just like the night before. But without the rich guy there they would only have to pay $29 instead of the $41 they paid the previous evening. And with that $20 price reduction they would only have to pay a total of $9. Not a bad deal.You’re right, that’s just the way our tax system works. The middle class has been getting the shaft and we need to get to the part where the richest 10% pay their fair share. But that’s not going to happen if we elect another trickle-down Republican president this November.”
– http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=389×4084631
The problem is that taxes don’t pay for frivolous things like beer. They pay for a lot of basic necessities. Check out http://www.usataxdollars.com/ and
http://www.buzzflash.com/perspectives/taxes.html
Plus, much of the structure and security that the government provides is what allows some people to get so far ahead in life. Thus, I’m a fan of Elizabeth Warren’s approach: http://www.youtube.com/watch?v=htX2usfqMEs
I think the example is not so much that taxes pay for beer, but to use beer as an analogy……..
E.g. Go here and scroll down a little: http://fabbroke.wpengine.com/2011/12/november-2011-budget-roundup-3921-00/
Makes perfect sense, but doesn’t really explain the situation in the USA specifically. Works well for Canada, well it did 10 years ago.
If you only look at effective marginal tax rate the richest pay approximately 20% or less (Buffet pays ~$7.0M ~18%) while someone that makes substantially less will pay 30% – 50% (office workers, engineers, teachers, etc)
So if everyone’s effective income tax rate was equal I think that the beer analogy would work perfectly well.
source: http://journalstar.com/news/opinion/editorial/article_d3961de4-0194-53f4-a31d-ff786174d692.html
Ah, thanks for clarifying. As I understood it in Canada, my brother who earns the highest, pays 40% and when I had a job, I paid less than 40%, around 28% and so on.