Thursday, July 12, 2012

The Tax System Explained With Beer

This is an oldie but a goodie. I honestly don't know who to credit for the original, but I received this in an email from a friend years ago and it just resurfaced in this post at Say Anything:

The Tax System Explained With Beer

Every day ten men go out for a beer, and the bill is $100. They wish to pay the bill the same way we pay our taxes, so it breaks down like this...

The first four men (the poorest) pay nothing.
The fifth man pays $1.00
The sixth pays $3.00
The seventh pays $7.00
The eighth pays $12.00
The ninth pays $18.00
The tenth man (the richest) pays $59.00

And that's what they decide to do.

These ten men drank in that same bar every day and were quite happy with the arrangement, until one day the owner approached and said, "Since you are such good customers, I'm going to reduce your daily round of beer by $20.00."So now a round of beer cost $80.00.

The group decided to keep paying their tab in the same manner. The first four men were unaffected. They still drank for free. But what about the other six; the paying customers? How could they divide up the $20.00 reduction so everyone would get his fair share?

$20.00 divided by six is $3.33, but if they subtracted that from everyone's share, the fifth and sixth man would each wind up getting paid to drink their beer.

The bar owner suggested they follow the principle of the tax system and reduce each man's bill by a higher percentage the poorer he was, and they worked out the amounts each would now pay.

Now the fifth man, like the first four, drank for free... (100% savings)
The sixth man now paid $2.00 instead of $3.00... (33% savings)
The seventh man now paid $5.00 instead of $7.00... (28% savings)
The eighth man now paid $9.00 instead of $12.00...(25% savings)
The ninth man now paid $14.00 instead of $18.00...(22% savings)
The tenth now paid $49.00 instead of $59.00...(16% savings)

Each of the paying customers was better off than before, and now five of the men drank for free. But outside the bar, the men began comparing the amounts they saved.

"I only got a dollar out of the $20.00" said the sixth man. He pointed at the tenth man and said, "But he got $10.00!"

"Yeah, that's right," exclaimed the fifth man. "I only saved a dollar too. It's unfair that he saved ten times as much as me!"

"That's true," shouted the seventh man. "Why should he get $10.00 back when I only got $2.00. The wealthy get all the tax breaks!"

Wait a minute," yelled the first four men in unison. "We didn't get anything at all! This new system exploits the poor!"

So the nine men beat the tenth man up.

The next night the tenth man didn't show up, and the other nine sat down and had their beers without him. But when the bill arrived, they discovered they didn't have enough money between them for even half the total.

And that boys and girls, journalists and government ministers, is how the tax system works. The people who already pay the most in taxes will 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 just might start drinking overseas, where the atmosphere is somewhat friendlier.

For those who understand, no explanation is needed.

For those who don't, no explanation is possible.