From an old e-mail I have on file, here's what happens when a 'tax break' doesn't hit proportionately.
(In other words, if you reduce taxes 1%, the $50,000 household gets a $500 rebate, but the $250,000 household gets a $2,500 check.
Then everyone complains that it's 'unfair' for the $250,000 household to get a bigger rebate check than the $50,000 household.)
Anyways, here goes:
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BAR STOOL ECONOMICS
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, 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 did!"
"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, liberals, 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, or 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 Georgia
For those who understand, no explanation is needed.
For those who do not understand, no explanation is possible.
