Economics made understandable
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 good 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.
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
'That's true!!' shouted the seventh man.
'Why should he get $10 back when I got only two? The wealthy get all the
'Wait a minute,' yelled the first four
men in unison. 'We didn't get anything at all. The system exploits the
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, 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.
For those who understand, no explanation
is needed. For those who do not understand, no explanation is