American Elephants


The Surprising Story of Bar Stool Economics by The Elephant's Child
November 12, 2008, 9:00 pm
Filed under: Humor, Politics | Tags: , ,


By David R. Kamerschen, Ph.D., Professor of Economics

(This came to me in an email, so it has probably been floating around the internet.  It is so good I couldn’t resist posting it, for I’m sure some of you have never seen it.)

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.

  • The fifth man, like the first four, now paid nothing. (100% savings)
  • The sixth man now paid $2 instead of $3. (33% savings)
  • The seventh now paid $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.



One guestimate about future taxes. by The Elephant's Child

CAPITAL GAINS TAX

McCain:

0% on home sales up to $500,000 per home (couples) McCain does not propose any change in existing home sales income tax.

Obama:

28% on profit from ALL home sales.

If you sell your home and make a profit, you will pay 28% of your gain in taxes.  If you are heading toward retirement and would like to downsize your home or move into a retirement community, 28% of the money you make from your home will go to taxes.  This proposal will adversely affect the elderly who are counting on the income from their homes as part of their retirement income.

DIVIDEND TAX

McCain: 15% (no change)

Obama: 39.6%

If you have any money invested in the stock market, IRA, 401K, mutual funds, college funds, life insurance, or anything that pays or reinvests dividends, you will now be paying nearly 40% of the money earned in taxes if Obama becomes president.  The experts predict that “higher tax rates on dividends and capital gains would crash the stock market yet do nothing to cut the deficit.”

INCOME TAX

McCain: (no changes)

Single making 30K — tax $4,500
Single making 50K — tax $12,50
Single making 75K — tax $18,750
Married making 60K — tax $9,000
Married making 75K — tax $ 21.000
Married making 125K — tax $31,250

Obama: (allowing Bush tax-cuts to expire)

Single making 30K — tax $8,400
Single making 50K — tax $14,000
Single making 75K — tax $23,250
Married making 60K — tax $16,800
Married making 75K — tax $21,000
Married making 125K — tax $38,750

INHERITANCE TAX

McCain: 0% (No change, Bush repealed this tax)

Obama: Restore the inheritance tax.  Many families have lost family businesses, ranches, farms and homes because they couldn’t afford the inheritance tax.

NEW TAXES BEING PROPOSED

New government taxes proposed on homes that are more than 2400 square feet.
New gasoline taxes.
New taxes on natural resources consumption (heating, gas, water, electricity, carbon)
New taxes on retirement accounts and taxes for socialized medicine.

Comparisons are really hard because everyone states things differently. Obama talks only about his tax credits, and doesn’t mention how much taxes you will pay, and it doesn’t really matter because the bill will be written by congress, passed by congress and sent to the President for his signature.  Presidents can only ask and/or veto or sign. Congress (12% approval) is very anxious to raise taxes.

Source: Jennifer Rubin at Commentary Magazine




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