I recently saw the following piece from David R. Kamerschen and certainly feel the spirit of this story highlights how those with the broadest shoulders are already bearing the greatest burden within our tax system with the pips in danger of being squeezed too hard.......
“One of
our team in Europe shared this with me so I felt compelled to re-post as its
relevance here in the US, and people enjoy a good real-world demonstration of
economics.
THE UK TAX SYSTEM EXPLAINED IN 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″
“Yes, that’s
right,” exclaimed the fifth man. “I only saved £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
