An ode to economics and the tax system

by Mark Alexander

8:29 AM, 3rd April 2013
About 8 years ago

An ode to economics and the tax system

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An ode to economics and the tax system

An ode to economics and the tax systemI have to confess to not being the author of this piece, I found it on Facebook, but I do think it is very worthy of sharing here.

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 realised 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 pound 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 pound 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.

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


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Comments

17:16 PM, 13th April 2013
About 8 years ago

@gillian, as i said, I can only apologize for being so ignorant and spreading a silly story.

anyone seen Tom ? must be off sick.

Annette Stone

12:54 PM, 14th April 2013
About 8 years ago

Mark you are absolutely right that we are a landlord's website and we should be looking after our own interests but there are a lot of Toms out there and unless we make our point forcefully about what we and other people with capitalist tendencies stand for and contribute to in this country we leave the argument open for the Left to infiltrate their nasty little ideas as facts. That's how all rotten ideologies found their feet. Lenin spoke to small gatherings at first and wrote in obscure publication and Hitler - may his name be erased - wrote a book that no one read for years and which was based on the another little book of nonsense called The Protocols of the Elders of Zion which was written by predecessors of the original nasties in what became the Soviet Union. These people always go for populist rubbish which interests the disaffected in society.

Tom - sorry to labour the point but you have really not thought your arguments through on any level. The sort of society that is based on taking from those who are able to achieve (or earn) more and supposedly give it to the poor to uplift them simply does not exist. The societies that do not allow/encourage capitalism can only enforce their ideals as long as there are sufficient ways and means of suppressing the majority of the population to be quiet on the basis that no one has more than them. That never means that the wealth of the country is spent on the poor, it is used to extend the repression of the majority by a very small minority. The lessons of this are abundant in history.

To bring this up to date you rely quite heavily on the comments of the Rowntree Foundation. No one else has pointed out to you that this is a CHARITY.

Charities can only function properly in free and democratic societies where the mainstream view is that everyone should contribute whatever they can. This is for many purposes, kindness, a sense of community and a sense of taking responsibility for others. Money which flows into major charities comes from many people making small donations to causes which appeal to them personally and all of these, from Cancer Research on an intellectual level to MacMillan Nurses on a practical level make our society good

Charity also adds something else to society and that is a quality of life. Many of the greatest museums, art galleries, orchestras and theatres thrive because of the individual donations of wealthy families through endowments or foundations. There are also many schools and hospitals which were founded and are run by Charitable Foundations.

Before you say it I know that some of this money will have attracted tax relief or donations to the country will have been made in lieu of death duties but that does not take away from the generosity of so many individuals families. Just off the top of my head I can think of a dozen foundations that enrich our life on a daily basis.

There is a reason why capitalism and freedom are linked in all of the major cultures in the world and why even countries like China are now on the way to becoming democratic and encouraging the population to become entrepreneurial and aspiration. It works; nothing else does

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