The following is a parable that keeps circulating on the internet. I consistently receive it from my conservative friends because they view it as a reasonable example of how our tax system exploits the rich. Read it and then read my version. They call theirs:
Bar Stool Economics
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, until one day, the owner said, “Since you are all such good customers, I’m going to reduce the cost of your daily beer by $20. Drinks for the ten now cost just $80.”
The group still paid their bill the way we pay taxes, so the first four men continued to drink for free, but the other six men, the paying customers, were faced with a dilemma. How could they divide the $20 windfall so that everyone would get his “fair share”? $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—
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).
Outside the restaurant, the men began to compare their savings.
“I only got a dollar out of the $20,” declared the sixth man, “but he got $10,” pointing to the rich man.
“Yeah!” exclaimed the fifth man, “I only saved a dollar, too. He got ten times more than I did!
The seventh man shouted, “Why should he get $10 when I got only $2? The wealthy get all the breaks!”
“Wait a minute,” yelled one of the first four men. “We didn’t get anything at all. We’ve been exploited!”
The next night the tenth man didn’t show up and so the nine sat down and had beers without him. But when it came time to pay the bill, they didn’t have enough money between all of them for even half of the bill! And that, boys and girls, journalists and college professors, is how our tax system works.
Cute. It makes sense to a lot of people. But that’s the problem with parables; they illustrate lessons but they are not real life. In the real world it might go something like this. I call my version:
Loose Stool Economics
10 men go out for a beer and the bill comes to $100. They decide that the only fair way to pay is that each man pay for himself. So each man paid the bar $10 and the bar got $100.
The next day only 6 showed up. “Where are the other guys?” the richest guy asked.
“They can ‘t afford to go out for beer every night so it will be just the 6 of us,” said his middle income buddy. So they paid the bar $60.
The next evening came and only 3 showed up. “Where are the other 3 guys?” asked the rich guy.
“Bob’s company is laying off and he figured he better tighten his belt. Jim’s son is going to college next month and Ray needs minor surgery so they won’t be in for a while. The three men settled their bill and gave the bar $30.
It was like this for a couple of months but then one night only two men arrived and noticed that Jenny the waitress was now missing.
“Where is everybody?” asked the rich guy.
“The bar isn’t making enough because a lot of us can’t afford to go out and they laid Jenny off because there isn’t enough business. Did you hear? Bruce’s wife lost her job so he won’t be in for awhile.”
They paid the bar $20 and left.
The next night the rich guy showed up but no one else was there. He sees a sign on the door: Closed.
On his way back to his car he’s stopped by a guy in an apron. “I was the dishwasher here and now I’m out of work, can you spare bus fare?”
“You’re a thief!” the rich guy exclaims while throwing his change.
And that, boys and girls, journalists and college professors, is why our tax system is progressive. There is no economy when only the rich have money.