How Taxes Really Work
 

THE TAX SYSTEM EXPLAINED IN BEER




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 ball. “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 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? 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 a higher percentage the poorer he was, to follow the principle of the tax system they had been using, and he proceeded to work out the amounts he suggested that each should now pay.




And so the fifth man, like the first four, now paid 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 out 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 wealthy 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!”

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 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 bill!


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

Except in the real world, the 10th man who is the richest has 2 Side businesses and an S corporation. He funnels the loses from his 2 side businesses into big tax write offs. He overcharges services from Business 1 to service business #2. He over funds a retirement plan for all his Dependents who happen to employees of business ( on paper only)

In the end through tax loop holes he ends up paying next to nothing in taxes.

The 6th,7th and 8th (The fading Middle Class) will pay the brunt of the Bar tab. :)

It is always interesting to imagine a fiction of our own design, but you can't back that up with real numbers, and that is where the sad fantasy of a lie is born. There are, I will grant you, many eager to pick up a lie and use it as a tool-but it is a poor tool and one that shatters upon the first hard use.
I prefer reality to fantasy.:D

You do bring up a very good point though, as soon as we begin to treat various groups as different or special, inequalities begin to grow to dominate the system.

Good for him. If everyone would just pay the same amount percentage wise, there's be no need for class warfare. After all, we're all in this together.

Good point, but the struggle for power is fueled by warfare. We are not in this together. Equality would take the power away from those who seek it.

That is exactly why inequality persists.


It has been compared to a meal of ham and eggs "the chicken is involved, but the pig is committed".

Any thoughts on a flat tax so that everyone pays their fair share regardless of income?
I,ve heard it being thrown about but wonder if it's really doable given that some people have gotten used to not paying at all .






Fred
BTW any chance we can get more smilies added in here ?

Interesting site and thanks for posting the link Grumble:)






Ally

Yes, very interesting reading on the fair tax. Thanks.

What if the guy who pays the most for beer, drinks the most beer? In your example you assuming each man benifits the same amount. In reality the higher earners are the ones using more of the system.

In 26 years of my life I have used the court system one time which took a total of 15 minutes. Any boss I have had used it several times a year including multi year litigations.

I rely on the public transporation system generally for my own personal needs only. A higher earner or business may need that same system a thousand fold for customers, venders, employees, etc.

If China invades us tomarrow all I have to lose is pretty much what can fit into my car. A higher earner has much more to lose in real estate, businesses, material wealth, status, power etc.

Pursing a higher income is a choice and it cost money to establish and maintain an enviroment where an individual can obtain that higher income. The more money you make the more responsible you become to that system.