The Tax System Explained In Beer

The Tax System Explained In Beer

16:05 PM, 21st September 2017, About 6 years ago 20

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Suppose that once a week, 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
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 and seemed quite happy with the arrangement until, one day, the owner caused them a little problem. “Since you are all such good customers,” he said, “I’m going to reduce the cost of your weekly 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 not only would the first four men still be drinking for free but the fifth and sixth man would 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 a higher percentage. They decided 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 (a 100% 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 continuing to 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 tenth man, “but he got £10”

“Yes, that’s right,” exclaimed the fifth man. “I only saved £1 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 only got £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 week 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 to pay 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 might not show up anymore. In fact, they might start drinking overseas, where the atmosphere is somewhat friendlier.

For those who understand, no explanation is needed.

For those who do not understand, no explanation is possible.

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Mark Alexander - Founder of Property118

16:07 PM, 21st September 2017, About 6 years ago

I am the 10th man.

Cheers from Malta!


18:55 PM, 21st September 2017, About 6 years ago

Reply to the comment left by Mark Alexander at 21/09/2017 - 16:07
That's great, can we prevail upon you to buy the beer?

Neil Patterson

8:28 AM, 22nd September 2017, About 6 years ago

Reply to the comment left by Mark Alexander at 21/09/2017 - 16:07
You're actually somewhere between the 10th and "In fact, they might start drinking overseas, where the atmosphere is somewhat friendlier."

Mark Alexander - Founder of Property118

8:58 AM, 22nd September 2017, About 6 years ago

Reply to the comment left by David Price at 21/09/2017 - 18:55
I actually prefer bubbles these days

mark smith

11:26 AM, 22nd September 2017, About 6 years ago

This is deserving of a PhD on its own

user_ 7167

12:35 PM, 22nd September 2017, About 6 years ago

Obfuscated Data

Dr Rosalind Beck

13:26 PM, 22nd September 2017, About 6 years ago

I'm trying to work out what this would mean in the context of the £100 I gave to Action Aid yesterday to go towards helping those fleeing Myanmar. If I were to put this in my tax return, I believe I would in fact only pay £60 as 40% would be claimable back. Does this mean I am benefiting by £40 and thus am 'scum'? Would it be better if I had given the suggested amount of £40? Then I would only be able to 'claim back' £16. So I would receive less 'tax relief' which the landlords haters presumably would like. Or should I just give nothing, as then I will receive no tax relief? (Of course I will be £60 better off then and the charity will be £100 down.)

14:37 PM, 22nd September 2017, About 6 years ago

Whist I agree wholeheartedly with the principles and fundamentals of this post, it appears to have an incorrect attribution as attests.

Major John

11:31 AM, 23rd September 2017, About 6 years ago

I've done a similar exercise serving lunch to groups where the food on your plate represents how it's distributed in reality. One or two get a feast, most others sit and starve over a glass of water. If you believe the economy is fair and the rich pay too much tax, you might want to ponder this (the principles apply to the UK and world):

Simon Lever - Chartered Accountant helping clients get the best returns from their properties

14:56 PM, 24th September 2017, About 6 years ago

To continue the story .......

The tenth man would have paid off a politician for £10 to get a beer subsidy of £30 per night (to create jobs for the bartender). Of this £30, £10 of course would have covered the lobbying expense, £10 would go in his own pocket, £1 would go to the bartender to keep his mouth shut, and £9 would go to the bar.
The Bar would give him a kickback of £10 each night for bringing in his 9 buddies to make them into alcoholics, repeat customers for life.
The Bar would then raise their prices to £130 citing inflation and higher taxes.
The tenth richest man would then secure his finances in a Dutch Holding Company managed by a trust in Ireland which invests in Barclays Bank. He would then explain to his buddies that he is as poor as the rest of them and can’t afford to pay himself as he cries into his beer that night citing his latest financial report which shows him to be broke on paper so that he doesn’t have to pay taxes in the UK ever again.
Citing his former generosity, the other nine men would agree that the tenth man can now pay nothing like the 4 poorest.

The others would then be faced with an adjusted amount of

The fifth would pay £3.
The sixth would pay £10.
The seventh would pay £22.
The eighth would pay £38.
The ninth would pay £57.

Now the group would recognize that this is not fair and so would lobby the Government for an Earned Drinking Credit for the Poorest men. The government would oblige and give the four poorest men £2 each, but they would tax the 5th - 9th men £2 each as well.

4 men receive a total of £8 and 5 men pay £10.

The adjusted amounts would then look like this for all 10

First Receives £2 pays £2 | Net 0
Second Receives £2 pays £2 | Net 0
Third Receives £2 pays £2 | Net 0
Fourth Receives £2 pays £2 | Net 0
Fifth Pay £1 to bar pays 32 to tax | net paid £3
Sixth Pay £8 to bar; pays £2 to tax | net paid £10
Seventh Pay £20 to bar; pays £2 to tax | net paid £22
Eighth Pay £36 to bar pays £2 to tax | net paid £38
Ninth Pay £55 to bar; pays £2 to tax | net paid £57
Tenth Man: Tax Credit Received: £30 ;
Pays £10 to politician;
£1 to bartender;
Receives £10 from Bar
Net RECEIVED £29 per night and free beer

Of course this can not go on forever as the sixth, seventh, eighth and ninth men can’t afford to pay those rates forever. So they start paying with their credit cards held by Bank of America and Chase.
The tenth man would start demanding a higher Return on Investment from his investment managers, who would be hearing similar requests from all of their other investors. They would then expand their holdings into mortgaged back securities where a good deal more profit could be made.
Meanwhile the Fifth through ninth men are racking up debt on their credit cards from drinking every night, their health care costs are increasing as their liver fails, and they are also spending more on gasoline as they drink and drive as they can no longer afford to cab it.
Ultimately, they end up refinancing their credit cards into their house where they have equity. The mortgage broker promises them a 4.9% interest rate on the refinance which sounds good as their credit card interest rate is up to 21%. The broker promises them that they will not have to verify their income, provide P60’s nor copies of their tax paper work.
Their mortgage broker doesn’t tell them, but lies about the value of their house in order to refinance their credit and help them avoid paying private mortgage insurance. At their current income levels, and without verifying their income, their mortgage would be classified as Sub Prime and the interest rate would be 10.9%
The mortgage officer lies about their income levels as well to boost the internal credit scoring mechanism and get them financed, not at 4.9% but 5.9%, which is better than 10.9% and happens to pay the mortgage broker a higher commission than a loan at 4.9% that is not sub prime.
The mortgage broker also promises them a payment of £900 per month, but fails to mention the balloon payment of £50,000 in the 5th year and doesn’t mention the adjustable rates in year 3.
The men separately show up with a hangover and sun glasses on the date of their close for their new mortgages. They trust their broker and do not read the paperwork in detail flipping and signing almost as fast as they could raise a beer bottle to their lips.
The loan closes, the mortgage broker gets a fat commission, the bank securitizes the mortgages by selling them to an Irish Hedge Fund and pockets collectively a billion dollars in profits that year.
The hedge fund holds the investment for a year, shows a 35% gain on paper and starts selling shares to pension funds that the Sixth through 9th men just happen to have the rest of their life savings sitting in.
The tenth man sees the writing on the wall, literally magic marker on a stall in the restroom of the bar.
“The end is Nigh”
He pulls his money out of the Irish Hedge fund invested in real estate and invests in Gold at £600 a troy ounce.
Meanwhile, he lobbies the Govenment to tighten bankruptcy laws for credit cards which he still has a sizable investment in. Government tightens bankruptcy laws and makes it impossible to absolve credit card debt, forcing people into PVA’s where they must pay off the debt within 3 years or go to debtors prison where they can work it off in 7 years.
Fuel prices are still going up so the Prime Minister ignores a minor terrorist threat, allows the terrorists to blow up a major building and then goes to war with the terrorists home country where there is no oil, and simultaneously with a country that sits on 10% of the world’s oil reserves that has a decimated military infrastructure.
Oil prices shoot through the roof with Gold following close behind. The PM whose family comes from an oil background make a fortune.
Meanwhile our famous 10 guys, start paying even more money at the pump. The first 4 guys end up taking second jobs working at Asda and have to give up drinking at the bar so that they can try and beat their teenage kids out of a promotion.
The fifth and sixth guys get foreclosed upon. They were forced to stop paying their mortgage payments so that they could pay their mandatory credit card payments as required by the new bankruptcy law.
The seventh, eighth and ninth men all previously traded up their homes for mansions that they can not afford with interest only payments of £2300 a month. When foreclosures start happening their plans on flipping their mansions and cashing in on the equity slips through their fingers.
To make matters worse seven and eight get laid off from the companies they work for when their jobs get outsourced to China. The ninth man keeps his job at a law firm, but fails to notice that his pension fund is slipping and has lost 10% in the last year. Things are looking up as his law firm seems on the edge of landing a big contract with Merrill Lynch.
Then the real estate crash and sub prime mortgage scandal erupt. Banks start dropping like flies to be saved not by the cash strapped government that can barely afford the war for oil any longer, but by China. Oil and Gold soar, Gold hits £900 a troy ounce and Oil hits £130 a barrel (about the same amount for 10 rounds of beer prior to the crash). Beer prices hold steady for the first few months, but then start to edge up as gas prices for delivery creep into the bar owners expenses.
Then the first four men one night remember their favorite bar. They sneak around back around 4:30 am and steal 50 empty kegs that just happen to be made of pure aluminum. Those kegs are now worth about half the value of a keg that is full in scrap metal prices or about £80.
They are not stupid and don’t want to get caught turning the kegs in at the dump where the police are already looking for keg thieves. So they head out to the closed down manufacturing plant where they used to work. They start a big fire, and melt down the aluminum into big messy aluminum splashes on the cement.
They turn in the aluminum for cash and get caught up on their back alimony and child support before heading back to work at Asda where they now work for their teen age kids that beat them out for that promotion earlier in the month because their job skills weren’t as good as recent school graduates. They then begin dreaming of new ways to find aluminum alimony allowances.
Meanwhile, the banks and mortgage companies lobby government spending about £10,000 a head in an election year to bail out the economy. Government provides the major banks with government backed loans to refinance the bad sub prime loans so that the government can personally guarantee those bad loans. They also put £100 billion of actual cash into the hands of Britains hoping to stimulate the economy.
Britains however, are all in debt up to their eye balls and use the extra £1200 they receive to make 2-3 credit card payments. They take the £300 for each kid and buy groceries for the month and then they start worrying about next month.
The banks get away free as they have Chinese financing now and no bad loans as they have refinanced them over to the UK Government. The UK government had to print more money to pay for all of these actions and so Gold goes up to £1500 a troy ounce.
The tenth man is now worth Billions and moves to Monaco to retire taking the new trophy wife that used to be the bartenders girl friend with him.
The first four men end up going to prison for 3 months for stealing aluminum dog crap receptacles after running out of kegs to steal.
The fifth and sixth men end up living in an apartment and then homeless after they lose their jobs at Asda.
The seventh and eighth men whom we previously left hanging in our story after they lost their jobs and ability to pay for their homes, end up losing their homes, and their kids. They and their spouses are each convicted of mortgage fraud by the Serious Fraud office in a major sting operation after it is revealed that they lied on their mortgage applications. Their mortgage brokers who actually did the paper work cop a plea agreement in exchange for immunity with the SFO and rat out each of their unsuspecting customers.
The ninth man ends up losing his entire retirement fund which took a big hit as the pound rapidly plummeted into free fall. He ends up refinancing his own house under a government backed loan for £650,000. Unfortunately, a tornado comes through that winter in a freak coincidence and levels the home. The Government promises to provide assistance but never shows up and the ninth man freezes to death attempting to salvage the shreds of his belongings. His home insurance policy refuses to pay as they claim that his house was over valued and then they prove it with comparables studies from his own mortgage brokers database.
The tenth man ends up dumping his new bride a year later, moving back to the UK a year after that when the UK appears to have hit rock bottom and he leads up a Chinese real estate investment initiative in the states. He makes another £10 billion in ten years, but is then executed in Beijing for espionage. Meanwhile, the bar tender goes on to win Britain’s Got Talent and sleep with Amanda Holden. They are now blissfully happy, doped up on anti-psychotics, and the biggest two idiots the world has ever seen.

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