Bar Stool Economics
Suppose that every day, ten men go out for beer and
the bill for all ten comes to $100 and 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." so 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!" "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, ladies and gentlemen, journalists 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, 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
