Godsdog
Landlord.
I think I need a sobre mind to understand this :whistle:
Suppose that once a week, ten men go out for beer and the bill for all ten comes to ã100.
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 ã1.
The sixth would pay ã3.
The seventh would pay ã7.
The eighth would pay ã12.
The ninth would pay ã18.
And the tenth man (the richest) would pay ã59.
So, thatââ¬â¢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. ââ¬ÅSince you are all such good customersââ¬Â, he said, ââ¬ÅIââ¬â¢m going to reduce the cost of your weekly beer by ã20. Drinks for the ten men would now cost just ã80.
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
ã20 windfall so that everyone would get his fair share? They realized that
ã20 divided by six is ã3.33 but if they subtracted that from everybodyââ¬â¢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 manââ¬â¢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 ã2 instead of ã3 (a 33% saving).
The seventh man now paid ã5 instead of ã7 (a 28% saving).
The eighth man now paid ã9 instead of ã12 (a 25% saving).
The ninth man now paid ã14 instead of ã18 (a 22% saving).
And the tenth man now paid ã49 instead of ã59 (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. ââ¬ÅI only got ã1 out of the ã20 saving,ââ¬Â declared the sixth man. He pointed to the tenth man, ââ¬Åbut he got ã10.ââ¬Â³
ââ¬ÅYes, thatââ¬â¢s right,ââ¬Â exclaimed the fifth man. ââ¬ÅI only saved ã1 too. Itââ¬â¢s unfair that he got ten times more benefit than me.ââ¬Â
ââ¬ÅThatââ¬â¢s trueââ¬Â shouted the seventh man. ââ¬ÅWhy should he get ã10 back when I only got ã2? The wealthy get all the breaks.ââ¬Â
ââ¬ÅWait a minute,ââ¬Â yelled the first four men in unison, ââ¬Åwe didnââ¬â¢t get anything at all. This new tax system exploits the poorââ¬Â. The nine men surrounded the tenth and beat him up.
The next week the tenth man didnââ¬â¢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 ââ¬âthey didnââ¬â¢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
Suppose that once a week, ten men go out for beer and the bill for all ten comes to ã100.
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 ã1.
The sixth would pay ã3.
The seventh would pay ã7.
The eighth would pay ã12.
The ninth would pay ã18.
And the tenth man (the richest) would pay ã59.
So, thatââ¬â¢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. ââ¬ÅSince you are all such good customersââ¬Â, he said, ââ¬ÅIââ¬â¢m going to reduce the cost of your weekly beer by ã20. Drinks for the ten men would now cost just ã80.
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
ã20 windfall so that everyone would get his fair share? They realized that
ã20 divided by six is ã3.33 but if they subtracted that from everybodyââ¬â¢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 manââ¬â¢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 ã2 instead of ã3 (a 33% saving).
The seventh man now paid ã5 instead of ã7 (a 28% saving).
The eighth man now paid ã9 instead of ã12 (a 25% saving).
The ninth man now paid ã14 instead of ã18 (a 22% saving).
And the tenth man now paid ã49 instead of ã59 (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. ââ¬ÅI only got ã1 out of the ã20 saving,ââ¬Â declared the sixth man. He pointed to the tenth man, ââ¬Åbut he got ã10.ââ¬Â³
ââ¬ÅYes, thatââ¬â¢s right,ââ¬Â exclaimed the fifth man. ââ¬ÅI only saved ã1 too. Itââ¬â¢s unfair that he got ten times more benefit than me.ââ¬Â
ââ¬ÅThatââ¬â¢s trueââ¬Â shouted the seventh man. ââ¬ÅWhy should he get ã10 back when I only got ã2? The wealthy get all the breaks.ââ¬Â
ââ¬ÅWait a minute,ââ¬Â yelled the first four men in unison, ââ¬Åwe didnââ¬â¢t get anything at all. This new tax system exploits the poorââ¬Â. The nine men surrounded the tenth and beat him up.
The next week the tenth man didnââ¬â¢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 ââ¬âthey didnââ¬â¢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
