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Current Tax Rebate Risk
Old 01-30-2008, 10:34 AM   #1
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Join Date: Jan 2008
Posts: 42
Current Tax Rebate Risk

At first this seemed more appropriate for the Joke thread, but it does point out a risk.


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
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, thatís 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. ďSince you
are all such
good customers,Ē he said, ďIím going to reduce the cost of your
daily beers by
$20. Drinks for the ten now cost just $80.Ē

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 Ė the paying customers? How could they divide the $20
windfall so
that everyone would get his ďfair share?Ē They realized that $20
divided by six
is $3.33. But if they subtracted that from everybodyís 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 manís 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 (29% 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 (17% 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
savings. "I only got a dollar out of the $20," declared the sixth man.
pointed to the tenth man, "but he got $10!" "Yeah, thatís right,"
exclaimed the
fifth man. "I only saved a dollar, too. Itís unfair that he got TEN
times more
than I!" "Thatís 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,"
the first four men in unison. "We didnít get anything at all. The
exploits the poor!"

The nine men surrounded the tenth and beat him up.

The next night the tenth man didnít show up for drinks, so the nine
sat down and
had beers without him. But when it came time to pay the bill, they
something very important - they didnít 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.

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!
TBPu is offline   Reply With Quote
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