Bar Stool Economics
Simplified Tax System
Best definition and least boring way to explain
why the producers are getting the shaft. One of the
things that ended the Roman Empire was the ability of
citizens to legally pick pockets of the wealthy at the
Best explanation to share with your congressman
or congresswoman, who clearly does not seem to
understand, this complex principle.
States Tax System Explained: Bar Stool Economics
Suppose that every day, ten men go out for beer
and the bill for all ten comes to $100.00. 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
The fifth would pay $1.00.
The sixth would pay $3.00.
The seventh would pay $7.00.
The eight would pay $12.00.
The ninth would pay $18.00.
The tenth man (the richest) would pay
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 $20.00." Drinks for the
ten, now cost just $80.00.
The group still wanted to pay their bill the way
we pay our taxes, so the First Four Men were un affected.
They would still drink for free. But what about The Other
Six Men - the paying customers? How could they divide the
$20.00 windfall, so that everyone would get his "fair
share?" They realized that $20.00 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 pad
nothing (100% savings). The Sixth Man now paid $2.00
instead of $3.00 (33% savings). The Seventh Man now paid
$5.00 instead of $7.00 (28% savings). The Eighth Man now
paid $9.00 instead of $12.00 (25% savings). The Ninth Man
now paid $14.00 instead of $18.00 (22% savings). The
Tenth Man now paid $49.00 instead of $59.00 (16%
Each of The Six Men were better off than
before. The First Four Men 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 $20.00,"
declared The Sixth Man. He pointed to The Tenth Man, "but
he got $10.00" 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 got!" "That's true!! " shouted The
Seventh Man. "Why should he get $10.00 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
The Nine Men surrounded The Tenth Man and beat
The next night The Tenth Man didn't show up for
drinks, so The Nine Men sat down and had beers without
him. But when it came time to pay the bill, they
discovered something very important. They didn't have
enough money between all of them for even half of the
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 deduction. Tax them to much, attack them for
being wealthy and they 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
For those who do not understand, no explanation
Saturday, May 31, 2008