Tax Time

With the tax season here I thought I would share this story with you. Do you agree? What do you think?

A Modern Fable

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. 'Since you are all such go do customers, he said, 'I'm going to reduce the cost of your daily beer by $20. Drinks for the ten 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 roughly the same amount, and he proceeded to work out the amounts each should pay.

And so:
The fifth man, like the first four, now paid nothing (100% savings).
The sixth now paid $2 instead of $3 (33% savings).
The seventh now pay $5 instead of $7 (28% savings).
The eighth now paid $9 instead of $12 (25% savings).
The ninth now paid $14 instead of $18 (22% savings).
The tenth now paid $49 instead of $59 (16% savings).

Each of the six was better off than before. And the first four 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,'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 than I!'

'That's true!!' shouted the seventh man. 'Why should he get $10 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 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 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, is how our tax system works. The people who pay the highest taxes 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 friendlier.

David R. Kamerschen, Ph.D.
Professor of Economics, University of Georgia


Anonymous said...

As said on your other post. The Rich gets richer and the poor gets poorer.

Anonymous said...

Let me say first I enjoy your blog Reginald. I visit your site several times a week. Continue doing what you do best, you are a plus for Memphis.


What was not said was that:

-the 10th riches man owns the bar,
-the 8th and 9th men have stock in the bar,
-the 7th man is the manager of the bar,
-the 5th and 6th men are employed by the bar,
-the four poorest men eat out of the trash can behind the bar!

So yes the riches man pays more but he also is making profit as well.

The two below him make dividends from the bar so they are committed
to its success.

The next man, the manager, will sing the praises of the process hoping to join the ranks of the other three.

The two employees keep their mouths shut because they want to keep their jobs.

And the last four have no voice so society doesn't care what they think.

Anonymous said...


The rich get richer because they work!

Anonymous said...

You can't go by taxs along the wealth benefit many different ways more than the poor benefit. They use up more and are able to pay people to help get them out of paying for taxes. The poor can't do that they don't have anything in the first place.

Anonymous said...

What I think a lot of people do not understand is the enormous burden placed on business owners. We are being taxed to death. And we are forced to pass these expenses on to you the consumer. So when the poor demand government tax the rich more in the end they are taxing themselves. This country will not be able to tax its way out of its problems. Better fiscal management and people taking greater responsibility for their own life is what is needed.

Anonymous said...

Let me tell you my situation. I am 44 years old, married, two children, a mortgage, two car note, and me and my wife make together 55k. If anybody is being tax to death it is us (12:14 PM). Don't tell me about the rich they pay a smaller percentage than we do. The truth is the middle class is what keeps this country going and we are tired of it.

Anonymous said...

Dr. Kamerschen is full of hot air. I bet you that rich guy won't trade place with any of the other ones. The rich are making money hand over fist. Any taxes they do pay is far less than what they make. Go back to Mr. Milton's Post on Commissioner Chism where this company was asking for huge tax breaks. We need to overhaul our tax system.

Anonymous said...

How can U tax food? How can U tax clothes? They know this is wrong but they not going to chance. These rich people own this city and there nothing going to change that.

Reginald Milton said...

To 7:56 A.M.

You make an interesting observation. Clearly Dr. Kamerschen makes the issue too simplistic. We must do something about our regressive tax system.

I had the pleasure of attending a meeting where Mayor AC Wharton was speaking. The Mayor lamented over the present tax system and spoke of the difficult times ahead.

People some times ask why I go through the trouble of maintaining a blog with all the other duties I have. To me the reason is very clear. All one needs to do is spend a little time reading some of the insightful posts you the viewers leave and they would understand.

This blog would be nothing without all of you. Please continue sharing your comments. Thank you.

Anonymous said...

Four (4) months out of twelve we work for free. That's how much of your money is being eaten up by taxes. I for one feel I pay enough taxes. Obama, Clinton and yes even McCain will raise our taxes and make us a bigger slave to an ever expanding military, greedy corporations and lazy welfare queens.

No More Taxes.

Anonymous said...

Hey 7;59

Take it from the poor we work hard too.