A Professor of Economics explains the TAX SYSTEM IN BEER. .
THETAX SYSTEM EXPLAINED IN BEER
Suppose that once a week, ten men go out for beer and the bill for all tencomes to £100.If they paid their bill the way we pay our taxes, it would gosomething 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.
And the tenth man (the richest) would pay £59.
So, that's what they decided to do. The ten men drank in the bar every week andseemed quite happy with the arrangement until, one day, the owner caused them alittle problem. "Since you are all such good customers," he said,"I'm going to reduce the cost of your weekly beer by £20." Drinks forthe ten men would now cost just £80.
Thegroup still wanted to pay their bill the way we pay our taxes. So the firstfour men were unaffected. They would still drink for free but what about theother six men? The paying customers? How could they divide the £20 windfall sothat everyone would get his fair share? They realized that £20 divided by sixis £3.33 but if they subtracted that from everybody's share then not only wouldthe first four men still be drinking for free but the fifth and sixth manwould each end up being paid to drink his beer.
So,the bar owner suggested that it would be fairer to reduce each man's bill by ahigher percentage. They decided to follow the principle of the tax system theyhad been using and he proceeded to work out the amounts he suggested that eachshould now pay.
And so, the fifth man, like the first four, now paid nothing (a100% saving).
The sixth man now paid £2 instead of £3 (a 33% saving).
The seventh man now paid £5 instead of £7 (a 28% saving).
The eighth man now paid £9 instead of £12 (a 25% saving).
The ninth man now paid £14 instead of £18 (a 22% saving).
And the tenth man now paid £49 instead of £59 (a 16% saving).
Each of the last six was better off than before with the first four continuingto drink for free.
But,once outside the bar, the men began to compare their savings. "I only got£1 out of the £20 saving," declared the sixth man. He pointed to the tenthman, "but he got £10!"
"Yeah,that's right," exclaimed the fifth man. "I only saved a £1 too. It'sunfair that he got ten times more benefit than me!"
"That'strue!" shouted the seventh man. "Why should he get £10 back, when Ionly got £2? The wealthy get all the breaks!"
"Waita minute," yelled the first four men in unison, "we didn't getanything at all. This new tax system exploits the poor!" The nine mensurrounded the tenth and beat him up.
Thenext week the tenth man didn't show up for drinks, so the nine sat downand had their beers without him. But when it came time to pay the bill, theydiscovered something important - they didn't have enough money between all ofthem to pay for even half of the bill!
Andthat, boys and girls, journalists and government ministers, is how our taxsystem works. The people who already pay the highest taxes will naturally getthe most benefit from a tax reduction. Tax them too much, attack them for beingwealthy and they just might not show up anymore.
Infact, they might start drinking overseas, where the atmosphere is somewhatfriendlier.
David R. Kamerschen, Ph.D.
Professor of Economics.
For those who understand, no explanation is needed.
For those who do not understand, no explanation is possible
