Our tax system explained as beer

A classmate from pilot training days emailed this. Normally I don't pass these on but this is too spot-on. It was written by David R. Kamerschen, Ph.D., a professor of economics. (I've edited it slightly.):

THE TAX SYSTEM EXPLAINED IN BEER

Suppose that every day ten men go out for beer and the tab for the entire group is $100. If they paid the 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.

The ten men enjoyed their beer every day, and even the richest guy was content with the arrangement. Then one day the owner said, "Since you're such good customers, I'm going to discount your daily tab 20 bucks." 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--those who were paying something for their beer? How could they divide the $20 windfall equitably?

They realized that $20 divided by six is $3.33. But if they subtracted that from everybody's share, then the fifth and sixth men would end up being paid to drink.

The bar owner suggested reducing each man's bill by a higher percentage the poorer he was, to follow the principle of the tax system they had been using, and suggested that each should now pay as follows:

Instead of paying a buck, the fifth man--like the first four--would pay 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 dollar 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 dollar 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 rich get all the breaks!"

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

At that point the nine angry 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 tab!

And that, boys and girls, journalists and government ministers, is how our tax system works. The people who already pay the largest share of taxes, at the highest rate, will naturally 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.


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