U.S. Tax System Explained in Beer
by: David R. Kamerschen, Ph.D.Professor of Economics
University of Georgia

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.