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Author Topic: Lesson for the Day  (Read 1405 times)

Rob C

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Lesson for the Day
« on: May 15, 2013, 03:53:38 AM »

Economics Of Taxation

By David R. Kamerschen, Ph.D. Professor of 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 a spanner in the works.

"Since you are all such good customers, he said, Iím going to reduce the total cost of your daily beers 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 everybodyís share, then the fifth man and the sixth man would each end up being paid to drink the beer.

So, the bar owner suggested that it would be fair to reduce each manís bill by a higher percentage the poorer he was, to follow the principle of the tax system they had been using.

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 (100% saving).

The sixth now paid £2 instead of £3 (33% saving).

The seventh now paid £5 instead of £7 (28% saving).

The eighth now paid £9 instead of £12 (25% saving).

The ninth now paid £14 instead of £18 (22% saving).

The tenth now paid £49 instead of £59 (16% saving).

Each of the six was better off than before. And the first four continued to drink for free.

But, once outside the bar, the men began to compare their savings.

I only got a pound out of the £20 saving, 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 pound 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 got only £2? The wealthy get all the breaks!Ě"

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

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 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 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 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.

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

Rob C


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Re: Lesson for the Day
« Reply #1 on: May 15, 2013, 05:08:24 AM »

1. People who drink free beers will never beat up the guy who pays for them.

2. Tax-reductions? Yeah right. What country would that be?

End of parable

Jim Pascoe

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Re: Lesson for the Day
« Reply #2 on: May 15, 2013, 06:04:56 AM »

Well it illustrates a couple of points.

Firstly that life is not fair.
Secondly that too many people are obsessed with what they've got, and terrified of having to share it with anyone else.

Let's also remember that almost without exception those of us using this site are incomparably better off that two-thirds of the world's population.  Do I get annoyed sometimes about my taxes and what they are used for?  You bet I do.  Would I want to swap places with those who are sucking the most out of the system?  No I would not.

Not sure of the exact quotation, but "Death and taxation - the two certainties in life".
I try not to expend too much energy worrying.  The system sucks more money out of taxes than the benefit recipients do.  Money is just an oil to keep society moving - keep it flowing round I say.



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Re: Lesson for the Day
« Reply #3 on: May 15, 2013, 07:52:26 AM »

Great explanation, Rob, but Dr. Kamerschen left out one point: Chances are that in this small town where ten guys always drink together it's likely that the first through fifth or sixth guy could drink beer because the tenth had come up with a great idea, built a local factory, and was able to employ them. Without him, no jobs and no beer.

Harald L

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Re: Lesson for the Day
« Reply #4 on: May 15, 2013, 08:10:07 AM »

The story hasn't been finished yet:

When the nine men realized that they don't have enough money to pay the bill they started to blame the bartender for being so unreasonable expensive. So they beat up the bartender as well and when the came back next evening the bar was closed because the bartender has vanished, too.

So no beer and very bad mood at all. Until one of the four no-payers had a good idea: is it fair that only the payers have an advantage by saving their money and we are only thirsty? So they poor started an argument to get some compensation for beeing thirsty...
Glad to be an amateur

David S

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Re: Lesson for the Day
« Reply #5 on: May 15, 2013, 11:37:18 AM »


Dave S


Rocco Penny

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Re: Lesson for the Day
« Reply #6 on: May 16, 2013, 01:03:46 AM »

hmm if we're using analogies,
let me intersperse,
is it too early to be in the loser bar if it hasn't yet reached lunch?
Or as the veterans and old hackers like to say,
"we only drink whiskey after 5"
so essentially my friends would scheme the 5th guy,
work on getting an alliance with the 3rd and 4rth guys,
and make the 1rst and second guys leave the premises before they started trouble.
After the alliance has formed and the 5th guy has no shoes,
the 3rd and 4th guys are invited to come back again next saturday night.
Oh my g's are the 4 broke ass chumps

Rob C

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Re: Lesson for the Day
« Reply #7 on: May 16, 2013, 04:30:04 AM »

Really, it simply backs my suspicion that it's best to stay out of bars unless it's raining and they sell coffee. Trust me, there's one here called Max's Cafť and he does not do coffee. It is raining today, but that won't change his offer. But then, as he only opens at night anyway...

Yeah, best out of those depressing places.

Rob C
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