O/T Tax System Explained in Beer

Got this from a family member in my email today, thought it was interesting/enlightening and would pass it along.

This is not meant as a political post. It was written by a professor from the University of Georgia. I am not passing judgement on our tax system or anything else, (at least not overtly). No need to respond or comment.

U.S. Tax System explained in Beer

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.
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 $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!
'The nine men surrounded the tenth and beat him up. The next night the
tenth man (the richest) 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.

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.

Now my head hurts, and I will have to go buy a beer. Wait,I am one of the poor guys, now what do I do?

Find a rich guy?

I would but the rich guy told all his friends they might get beat up, guess I'll have to make myself rich.

That's the spirit!

When you do, I'll let you buy me a beer. ;o)

Thats pretty good. I say "the more you make the more they take". I used to find it funny but now I wonder how far it is from the truth anymore.

You don't need to wonder. While that was written in a fun way, the ratios are true.

I wonder though, this guy has a Ph.D.? Is it really that hard to figure out? Hopefully he knew this before he went through all that. I don't have a Ph.D. and already knew how taxes worked.....

I think he was just trying to put it in terms everyone could understand and relate to. Especially the part about beating up on the rich, and what happens when they take their ball and go home.

Yeah. I don't like beating up on the rich or poor. I just don't like guys like Mitt Romney who are spoiled brats. I'm glad McCain picked Palin. Someone who worked her way up like he did and didn't have everything given to them. He really stuck it to Romney when he did that. I was just hoping he wouldn't pick him. McCains' wife is loaded but that happens sometimes.

McCain's wife's parents sold everything they had to start that distributorship, built it up themselves and deserved everything they had. I heard Mrs. McCain speaking about it herself after someone questioned her about it. She was very proud of them and all they accomplished.

Don't know how you can say what you did about Mitt, unless you've met him and spent some time with him. I've known a lot of Mormons and can't say anything bad about them. Great family folk, nice, honest people. He seems the same to me. But I don't want this to turn into any kind of a political post, so I'll stop now.

Have a good one.

You forgot one thing. The rich guy, if he is REALLY rich won't pay any tax!!! He, or his tax advisers, will find a way around it.

Regards, RAB

And then move your job to China for a tax break.

OK, you're right. Keep beating up on them.

Ya! But at least we're sticking it to the kinda rich.

The rich people pay less taxes than the working class. They can afford tax lawyers and accountants that find them all kinds of loopholes, tax shelters, hidden incomes, etc. The Right Wing crowd would like everyone to believe that the rich pay most of the taxes, but it is the middle class that carries both the rich and the poor. Unequal distribution of wealth where the rich get a disproportionate share of the wealth. This was one of the factors that made the 1929 crash so severe. And today, the wealth is even more unevenly distributed.

someone understands how the tax system works.....

Rod

Romney was self made, father was gov, don't think he was spoiled much more than any of the others.

What the hell are you talking about? The money is not evenly distibuted? You must be a socialist. How about, it's their money, and you don't have any right to it. You want more money, go work for it. Jack

I have heard, do not know if true, that Warren Buffet said it was obscene that his secretary paid more taxes than he did.

Kent

This the kind of economics I can relate to!

What Buffett reportedly said....

"The Oracle of Omaha issued a challenge to members of The Forbes 400 in October; said he would donate $1 million to charity if the collective group of richest Americans would admit they pay less taxes, as a percentage of income, than their secretaries."

Rod
the link...

Well, here's what happened with NAFTA: took the jobs south of border where wages are almost nothing and they made a killin' because the products still cost the same or more.
It's about time to let the companies go outside the country but slap them with the appropriate tariff.

What's missing here is that the rich guy would pay a group of thugs $22 dollars to intimidate the other guys so that he would only have to pay $12 for the beer, and the other guys would have to take out a long term loan to pay for the other $25.

And that the bar tender didn't reduce the price of beer $20 out of the kindness of his heart, but that the rich guy, not happy with his $25 savings paid the thugs an extra $4 to intimidate the bar tender so he could save a net of $6 more.

Pitiful. Just pitiful. Boo-hoo for you. "The Man is keeping me down and I just don't have a chance, it's all someone else's fault and I can't do anything to better my own situation".

Is that about it?

I didn't want this to turn political, or mean spirited, but I couldn't just let this one go.

Or how about lowering corporate taxes here in the U.S. so companies won't want to leave?

And where do you get your facts? Please tell me so I can go see them.

Or, try searching the United States Census Reports. But you won't like what you find because it doesn't jibe with your warped view of the world.

Say hello to Alice for me.

And I have to address your statement, "Unequal distribution of wealth". Tell me, who is it that is supopsed to distribute the wealth?

cj I don't have alot of money but if I have it in my pocket I will buy any body a beer including you.

Lets make it a little more real. The truly rich guy, Ted Kennedy or John Kerry, they don"t drink beer much less pay their share. So lower the rich guy to a guy who grosses 1.75 mil at his business he worked his whole life to build. Of course after taxes, employees, etc and what not his take home is more like $85-140K. Start there and the rest of the story would be more accurate.

It can't be made more real, they are facts. Interpret them how you like, deny them if you wish, but they are what they are.

Is the person you described you?

You want facts? Here are some published numbers, taken fom Forbes magazine. This would be the top 10 on their 400 list....

1. Bill Gates Net Worth $57.0 billion
2. Warren Buffett Net Worth $50.0 billion
3. Lawrence Ellison Net Worth $27.0 billion
4. Jim Walton Net Worth $23.4 billion
5. S Robson Walton Net Worth $23.3 billion
6. Alice Walton Net Worth $23.2 billion
7. Christy Walton Net Worth $23.2 billion
8. Michael Bloomberg Net Worth $20.0 billion
9. Charles Koch Net Worth $19.0 billion
10. David Koch Net Worth $19.0 billion

'The rich haven't gotten richer--or poorer--this year. The price of admission to this, the 27th edition of The Forbes 400, is $1.3 billion for the second year in a row. The assembled net worth of America's wealthiest rose by $30 billion--only 2%--to $1.57 trillion.' (quoted from Forbes)

Now, take that in perspective. The 400 richest americans have a net worth of 1.57 trillion dollars.
The entire GDP of Canada from a 2007 estimate, as found in teh CIA world factbook (correct or not?) https://www.cia.gov/library/publications/the-world-factbook/print/ca.html is listed as being 1.432 trillion dollars.

Really... stop and think about that. The accrued wealth of 400 people essentially exceeds the annual value of the national economy of 33 million people.
You would really have us believe that there is NOT an uneven distribution of wealth?

Whether it's right or wrong is an entire other debate, but I don't think the numbers or the fact of the matter is a subject of much informed debate.

Rod

The problem with this guy's whole scenario is the US has the lowest taxes compared to living standards in the whole world. You can raise taxes on the rich and they're still paying a whole lot less than any of their European counterparts.
The rich aren't going anywhere and to try and scare people by saying the rich will leave if we tax them is beyond stupid. And don't tell me there is some place else in the world that pays lower taxes and still drink the water.

the operating mindset of those in high office;

"we have what it takes, to take what you have"

Brian,

You posted an article that basically says everyone in America is a winer except for the rich. Well I do OK but I am not rich, so I take your post as an insult.

For you to say that you didn't intend this to turn political is B$ - though I'm sure you could not admit that to the board or to yourself. Look at your posts man - when others post opinions contrary to yours, you resort to personal attacks.

It is just a fact of civilized life that the rich in this country (as in pretty much any other) use their money to influence political system. A primary role of the govenment needs to be to keep that in check. Ours has not been doing too well lately.

The every widening gap between the rich and the middle class (not to mention the poor) is extremely unhealthy for a civilized society.

Though I do respond to political posts such as yours here at YT , I don't start them. You should move to a discussion board intended for political discussion so you opinions can get lost in oceans of B$ where they belong.

For a partial explaination of how Enron bought their way to de-regulating the electrical energy market which allowed them to steal hundreds of millions from California rate payers in 2000 2001, which, when corrected finally by regulation lead to their downfall, and then to their defrauding their shareholders and employees see the attached link.

And the point you made the other day about having to repeal the mark to market requirements for investment banks - good idea. Basically lets let the investment banks tell their shareholders that hey ...., we have these groups of mortgage backed securities that no one wants, but we just know they will be worth something again someday so, lets just assume they are worth like what - 99 cents on the dollar.

Actually I heard they may just be allowed to do that - and just in time for them to sell them to Uncle Sam. At the risk of you and Phil Gramm calling me a winer again - I can forsee that we are going to get screwed again.
The devil and Mrs. Gramm

I'm just wondering, where you get this idea of a "distribution of wealth".

Wealth isn't distributed, it's created and earned.

When you start talking about distributing wealth, that's a very socialistic/communistic idea. Is that what you're advocating? That the government tells us how much we can earn? That someone else decides what's fair for each of us? Do you think that is what the Founders had in mind?

And yes, isn't it something that 400 people in this, the greatest country on earth, can outproduce an entire country. Maybe if Canada reversed many of their socialistic tendencies they would have a few Bill Gates of their own.

You don't understand. It's happened before. They don't physically leave, they send their money out of the country.

It's amazing to me how the media has caused such class warfare. You think it is unfair that someone else has more than you, or more than you think they should have? Who are you to tell someone else how much they can have?

You cannot limit one's ability to earn. If you do, our entire system will fail and we will become another Soviet Union. It sounds like you would take that in order to stick it to someone that you deem has too much. Stinikng thinking my friend.

The level of class warfare in this country is disturbing to me. "He has more than me and that's not fair!" is a very unhealthy attitude.

The economic pie is not finite. I think people have a hard time understanding that. It can grow, more can be created and earned without taking from someone else.

And no, I didn't want this to be a political post. It's just that from previous posts it's obvious that many here have a grudge against those who earn more than they do. That's un-American. So I was simply trying to help them to understand that the rich do in fact pay their fair share, and more.

What are you people advocating that we do? That the government takes it all and doles it back out in what you consider a fair way? That is pure communism! The Pilgrims tried that when they first arrived and almost parished!

Many seem to think I'm one of the rich. I am so far from that it's not even funny. I'm a courier. I have one vehicle, my work van that is not paid for, I rent a cruddy little house, I have too much debt, and I struggle. But I do not blame anyone else for that. I've made some poor decisions in the past, mostly not going to college. But no one else is responsible for me. Not you, not the government. We are free to excel and succeed, and free to be as miserable as we like. I don't want to take from someone else so I can have more.

I think the abundant media is causing this angst and ire toward the rich, and you and others are falling for it. Not me. Yes, the system has flaws, but it is still the best on earth, and I don't want us to move further toward sociallism. Do you?

'Distribution' has nothing to do with 'ideology', which is what you're advocatiing.
'Distribution', as I've used the term simply states how it sits. I didn't say anything about wealth being 'evenly' distributed. In fact, I stated that the idealogical argument of right/wrong is an entire different matter which I wasn't getting into in my post.

As far as wealthy Canadians is concerned, there are plenty per capita... probably about the same as US billionaires. There's a few that rank quite high on Forbes' list of billionaires too. David Thompson (and previously his father Ken Thompson) rank quite high.

The top ten follow...

1. The Thomson family (Thomson Corporation) 24.41 billion (CAD)

2. Galen Weston, George Weston, W. Garfield Weston (food/fashion) $7.7 billion

3. Arthur Irving, James Irving, John Irving (natural resources) $5.45 billion

4. Edward Samuel Rogers, Rogers Communications Inc $4.54 billion

5. Paul Desmarais and family (Power Corporation of Canada) $4.41 billion

6. James (Jimmy) Pattison (founder of Jim Pattison Group) $4.17 billion

7. Jeffrey Skoll (eBay) $3.93 billion

8. Saputo Family (Saputo Inc.), Montreal: $2.78 billion

9. Michael Lee-Chin (AIC Group) $2.6 billion

10. Bernard Sherman (Apotex Group of Cos.) $3.23 billion

From that list it's not so easy to quantify they wealth of Weston's, Irving's and Pattison, and perhaps a few more since they are entirely privately held companies. Irving is notoriously tight lipped about their holdings to the point that many people have no idea what or where a good portion of their holdings ARE. One point to ponder is that these estimates are based on a rough valuation of known hard (real) assetts rather than a stock value, and secondly, since much is not known, the number could be vastly understated.
JDI is one of the largest private land owners in the US with extensive timber lands in the notrtheast....
Staunch Liberals too. I don't think their soalicist tendencies held them back any.

I also think that if you are to look at these privately held companines like Irving, you'd notice that they are right up there in size with any privately held company in the US or anywhere else. It only seems to be publically traded companies that are larger...
It's got nothing to do with left wing or right wing politics.


As far as what the founders had in mind... I don't know. I wasn't there. However, I'd tend to think if they were to take a look at our society today they'd be horrified at many things they saw. One being the massive concentration of wealth in the hands of a few. You seem to forget that they either left of were driven from the old country by kings and feudal lords intent on starving them out. What exists today is a new class of feudal lords equally intent on looking after themselves at whatever cost, minus the monarchy... which they seem to have replaced.
You might see that if you stopped believing the rhetoric of the party line.

Rod

I think you don't understand perhaps? How do they send their money away so as to avoid tax? They take their keister with their money, for six months plus a day... to another country. That makes them no longer a resident, and only a resident is liable to pay tax (here anyway, as old Irving did that for a good many years being a resident of Bermuda).

Personally I could care less how rich these people are. That fact doesn't bother me. By the same token there are a lot that are poor that don't have to be poor. They're living that way by their own making, to SOME degree.
What bothers me is that the rules of the game are not in yours or my favor, whether you think so or not.
In this country today, my generation has been indoctranated with the idea that you go to school, get the 100 grand education and go get a better job. Well... I know a good many who did. I know several who aren't working in their trained field at all and can't find work in that field. Many, many people from this area where I live are travelling liek nomads to work 4000 miles from home in the Athabaska tar sands...
Now tell me, if your theory is completly true, and in a purely capitalistic economy, everything is regulated by money... WHY IS IT THAT THESE COMPANIES DEVELOPING OUR OIL RESOURCE are importing chinks and rag heads to lug chuck blocks and drive busses? Shouldn't they just pay more money and eventually the labor will show itself from other sectors, or the cost will slow the development to a pace that can be sustained? I mean,that's the theory...
But that's not how it's working. How it's working is that they're importing workers, taking our jobs, paying them as little as they can get away with and extracting the resource as fast as they can, for their profit. Those are the rules that we seem to operate under. They don't seem to be geared towards the little guy getting the piece of the pie he's entitled to either...
You don't see a problem witht that?
I wouldn't care if it worked the way the theory says and we all played by the same rules... but we don't all play by the same rules.

Rod

Thanks for the clarification.

Kent

As far as what the founders had in mind... I don't know. I wasn't there."

Well, we have two things here in the United States called The Declaration of Independance and Constitution, and they tell us in no uncertain terms just what their intentions were. I understand you are not an American, but it is easy to know exactly what they intended. For you to say you don't know because you weren't there is a poor argument. If you never have, you may want to read them. They are clear and easy to understand.

You said..."Really... stop and think about that. The accrued wealth of 400 people essentially exceeds the annual value of the national economy of 33 million people.
You would really have us believe that there is NOT an uneven distribution of wealth?"

And again I say, wealth should be earned, not distributed. You have the mindset that there should be some entity, be that government or an individual, I don't know which, that should determine how much a person can or should earn. Who is that entity? And what gives them the right you feel they should have to limit what a person can earn? And to take from that person wealth they have leagally earned and give it to another person who has not?

Do you believe that when Henry Ford developed the means to mass produce automobiles through assembly line production, and therefore earned great sums of money, that the government should have stepped in and said "Wait a minute, that's too much, we must take what we think is approriate and give it to others who had nothing to do with your idea or your efforts."?

I say no. Ford developed a means to produce things people needed and wanted and was rewarded buy people who felt his product was worthy of their money. No one forced anyone to buy a car, they wanted a car.

So at what point would you limit one's ability to create new products and earn from it? I sugest that any limitation, or interferance into the free market stiffles innovatoin. That is why the U.S.S.R. had to constantly steel our ideas to create their jets, tanks, and other things. With no incentive to create, there is no reason to. I also suggest that this is why America has prospered to such a great degree. We were the first to unleash man's creativity and ingenuity.

I think a big problem is what people expect their lives to be. I think we are bombarded by the media to believe we should all be able to have what Bill Gates has. We see "The Lifestyles of the Rich and Famous" and they make us believe it's not fair that someone else gets to live that way while we must work so hard for what seems like so little when campared to them.

I say look at our standard of living. When campared to 80 or 100 years it's beyond belief. Even those of us that labor daily to put food on the table have more than our grandfather's could possibly imagine.

So I say be happy with what we have and stop being envious of those who have more. We don't have to get up in the middle of the night to go to the cold smelly outhouse. We don't have to get up early and gather eggs from the henhouse and milk from the barn. Very, very few people go to bed hungry in this country. And our country, the United States of America does more to help people around the world than any other, because we have prospered to such a great degree.

That's how I see it. I hold no grudge against Ford, Gates, or anyone else. I thank them for what they have given us and hope that there will be many more of them in the future that will bring us new technology and innovations that will forever continue to raise our standard of living.

Best to you and yours.

No one is going to change your mind, so I'm not going to try. You keep in thinking as you wish, and I'll do the same.

Again, it'd be nice if you could get over putting words in my mouth.

'Distribution', in the broad context that I used the term has nothing to do with anyone making any decision of how wealth comes to be in the hands of this person or that person. It was used simply in the context of showing the disparity from one extreme to the other... and I beleive that's the context that most people would take from what I said.
Dunno what more I can say to that.

Beyond that, I don't know why you think I'm envious of anyone that has more than me. That doesn't bother me. I make my own choices and live with them, and if I don't like them I can make other choices.

I'm more preturbed by the idea that some, including you, who seem to believe that the rich are the backbone of this country... and that we couldn't function without them, and that they operate under the same rules as the rest of us.
When you get down to looking at the facts of the matter, they don't operate under the same rules as the rest of us. Many companies are now so big, and so powerful that they are beyond the power of most governments to regulate them... and yes, I do believe that they do need to be regulated TO SOME DEGREE. If they're not, you'll have no environment left, no labor laws, no standard of living and no nothing else because they'll have near total control.
Mabey you don't read much history, or mabey you don't come from an area with a long industrial heritage... but I do read some history, and I come from an area where coal was king and that coal fed coke ovens that powered steel mills through two world wars and supplied the steel for a good part of Canada and the british empire at the time. It employed tens of thousands of men, and the ones in the mines in particular were treated not so different to the folks that used to pick your cotton...
They were owned by the company in all but a certificate. That's what unrestrained, free enterprise will give you, and it certainly did here. They were slaves and they had little choice in the matter until they walked out enmasse and shut the thing down, at which point the company set out to starve them, which brough on a riot where men were murdered by armed company security.
That's one example of operating without regulations.
Standard oil was another... and actually, Standard was the impetus for a good big pile of regulations that exist in the US today with the Sherman Antitrust act being the main one.

You are right though... you won't convince me, and I won't convince you of anythign different.

Rod

"For those who understand, no explanation is needed.
For those who do not understand, no explanation is possible."

Sorry, fella. When you wrote these lines, you lost all credibility.

Whether you are correct, incorrect, I agree, or disagree becomes immaterial at this point.

Aaron

Rod,

So the men in the mines couldn't up and leave, go somewhere else, do something different? Immigrants from Mexico and much further in South America can endure great hardship to find their way into my country, walk through the dessert with little or no food or water, with no guarantee of anything once they arrive. But those miners had no other option? People always have options and choices, it's just how bad do they want it. I know it would be hard for them, especially if they had families. But I also know that others have endured worse. Mormon pilgrams walked from Missouri to Utah, over the Rocky Mountains in the winter to get where they wanted to be. But those miners were just stuck? I don't buy it.

The Founders of my country had choices. They were all well to do and didn't need to take the risks they did to form a new nation. In fact, half of the men that signed the Declaration of Independance were hunted down and hung for it, as they knew they would be when they signed their names. Now that was some choice to have to make. That's why John Hancock signed his name so prominently, as if to say to the King, "Here, I'm signing this, I mean it, and I don't care what happens to me".

And I don't think the rich are the backbone of my country. To the contarary, I think it is the common man, the farmers, the factory workers, the clerks, truck drivers and the like that are the real backbone. But I also do not believe that those who have prospered to a great degree should be ashamed of it, or own anyone else for what they have acheived.

I understand how you feel, and I'm not saying you're wrong about any of this or that I'm right. We disagree and that's ok. I respect your opinion and have enjoyed discussing it with you.

Best Wishes,

Brian

Sorry fella, I didn't write that, the Professor that authored the story did.

The miners ahd options indeed... they could walk to wherever the hell they wanted and hope thjey didn't starve to death before they got there. That was their option. When you live in the company's house, buy at the company's store with 'company' dollars and have damn little else... no, you don't have many options. That's not to say that a lot didn't find a way to leave... but poverty tends to be a trap, and few tend to escape the trap no matter how hard they try or how hard they want to.

That's why there's a UMWA, USW and various other unions today, not because they were being greedy and seeking something they didn't deserve...

Rod

Oh, I understand alright, corporations have sent and are continuing to send their money over seas, been doing it for years. It's got nothing to do with taxes and all to do with low wages and no OSHA type organizations. The well off aren't going anywhere, nothings going to change.
Further more I never said anything about whether some one can make money I said that guy's conclusion of his analogy was full of something you fill a spreader with.

I guess all nnalert are saints then but I'd trust John McCain anyday over Romney. Doubt he (Romney) was a POW.