April 17, 2007

Your Taxes Explained!

Courtesy of Denny:

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 on 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. 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

"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, 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 possible.

Posted by caltechgirl at April 17, 2007 05:15 PM | TrackBack

It's one of my favorite parables that comes around every tax season. Too bad too few take notice of it.

Posted by: Teresa at April 17, 2007 08:33 PM

Oh, I've never heard this one before, but I love it! It does always crack me up when people complain that the tax breaks go to the wealthy. Uh yeah, the tax breaks would actually go to the people who pay the taxes. What a surprise . . .and you know, it wouldn't be so bad if the money wasn't going to support things like train museums and farm subsidies. Don't get me started.

Posted by: Anita at April 18, 2007 03:55 AM

I loved that post at Denny's! I had seen something similar before... but it is perfect right now.

Posted by: vw bug at April 18, 2007 05:17 AM

Very cool. I'll add a link in my annual anti-Tax Day post.

Posted by: physics geek at April 18, 2007 11:13 AM

Oh yes - perfet post for today!!

Posted by: Richmond at April 18, 2007 12:54 PM

An old "joke" but a great one-- and the Ayn Randesque ending, where the rich go away is the topper!

In the real world, of course, the "rich" guy puts his money into tax-free or off-shore accounts and settle in at around #5's share-- to a great deal of teeth-gnashing!

Posted by: Tony Iovino at April 22, 2007 09:50 AM