An Easy Explanation of Our Tax System (Or 'Who Pays for the Beer?')

I wish that I could take total credit for this explaination of our tax system but I must give credit to an old econ professor of mine, Dr. Schmidt.  I just changed the story a little and updated the percentages of taxes paid to reflect 2012.

Suppose that every day, ten guys 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 guys (the poorest) would pay nothing, zero, bupkis, nada, the big goose egg.
The fifth guy would pay $1
The sixth guy would pay $3
The seventh guy would pay $7
The eighth guy would pay $12
The ninth guy would pay $18
The tenth guy (the richest) would pay $59

So, that’s what they decided to do.

The ten guys 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 guys would now cost just $80.

The group still wanted to pay their bill the way we pay our taxes. So the
first four guys were unaffected. They would still pay nothing and would drink for free. But whatabout the other six guys? 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 guy and the sixth guy would each end
up getting paid to drink his beer.

So, the bar owner suggested that it would be fair to reduce each guy'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 guy, 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 guys began to compare their
savings.

“I only got a dollar out of the $20 saving,” screamed the sixth guy. He
pointed to the tenth man,”but he got $10!”

“Yeah, that’s right,” exclaimed the fifth guy. “I only saved a dollar too.
It’s unfair that he got ten times more benefit than me!”
“That’s true!” shouted the seventh guy. “Why should he get $10 back, when I
got only $2? The wealthy get all the breaks!”

“Wait a minute,” yelled the first four guys in unison, “we didn’t get
anything at all. This new tax system exploits the poor!”

The nine guys surrounded the tenth guy and beat him up.

The next night the tenth guy 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 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. As for those of you paying zip, zilch, nada, bupkis, zero or the big goose egg my advice is shut the hell up and be happy that some one pays your way.