10 people go out for beers every night. The bill comes to $100 every time. They decide to pay the way we pay taxes, so the bill gets divided like this
- the 4 with the lowest incomes pay $0
- the 5th pays $1
- the 6th pays $3
- the 7th pays $7
- the 8th pays $12
- the 9th pays $18
- the 10th pays $59
One night the owner of the bar decided to lower the cost of beer to $80 for the 10 of them: an overall savings of $20 per visit. The group still wanted to pay their bill the way we pay our taxes, but since some of them weren’t paying for their beer anyway, they decided to divide the $20 savings between the ones who were paying. So the effect looked like this
- the 4 with the lowest incomes still paid $0
- the 5th now paid $0
- the 6th now paid $2
- the 7th now paid $5
- the 8th now paid $9
- the 9th now paid $14
- the 10th now paid $49
Once outside the bar, the drinkers began comparing their savings, and it sounded like this
- “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!”
So the nine men surrounded the tenth and beat him up. The next night the tenth man didn’t show up for drinks; the other nine had their beers without him. But when it came time to pay the bill, they discovered that they didn’t have enough money between them to pay even half the bill!
And that, boys and girls, journalists and college professors, 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 somewhat friendlier.
David R. Kamerschen, Ph.D.
Professor of Economics
University of Georgia
For those who understand, no explanation is needed. For those who do not understand, no explanation is possible.