Explanation of our tax system using actual percentages

[Lasher]

The propaganda:

A brilliant explanation of our tax system using actual percentages, the impact of a tax cut, and the public reaction that everyone should be able to understand.

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!"

"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 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
University of Georgia

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

The debunk:

First of all, as noted here and here, Dr. David R. Kamerschen is not the author of this article.

Although it is not specified, I think we must be discussing Federal income taxes. But taxation in the United States is more complicated than that. There’s state income taxes, payroll taxes, estate taxes, capital gain & dividend taxes, property taxes, sales tax and more.

But to simplify, let’s discuss the distribution of wealth. In the United States at the end of 2001, 10% of the population owned 71% of the wealth. On the other hand, the bottom 40% owned less than 1% of the nation's wealth.

Just for fun, let’s see how the distribution of beer would work out in your example.

With that bill of $100, let’s say our heroes purchased a total of 50 beers at $2 apiece.

• The first four men (the poorest) all shared 1% of the beer, or half a can.
• The fifth man drank 3% of the beer, which was a can and a half.
• The next four men drank 25% of the beer, or 12 ½ cans – about 3 cans apiece.
• The tenth man (the richest) drank 35 ½ beers.

I don’t think we should begrudge the first four guys for their measly 1 ½ ounces of beer apiece. I guess the fifth guy got a good deal on his 1 ½ cans for only $1. But the next four guys (mostly the middle class) paid $40 for 12 ½ beers, while the richest guy drank $71 worth of beer and only paid $59. Then, when the price of beer is reduced, the richest guy ends up paying even less of his share, giving guys 6 thru 9 the shaft.

I would have beat up the rich guy too. And when he didn’t show up the next night the remaining 9 guys would have had plenty of money to go around. They could consume 14 ½ cans of beer just like the night before. But without the rich guy there they would only have to pay $29 instead of the $41 they paid the previous evening. And with that $20 price reduction they would only have to pay a total of $9. Not a bad deal.

You’re right, that’s just the way our tax system works. The middle class has been getting the shaft and we need to get to the part where the richest 10% pay their fair share. But that’s not going to happen if we elect another trickle-down Republican president this November.