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Lowas.be

How Tax Works

Fiscal Concerns around beer …

Well that’s a good one! Beer and analogy… For a long time now, there is a story going around on the web about beer, a story about taxes and beer that generalizes the principle of taxation between rich and poor people. After reading the aforesaid story, it would be easy to put aside our comments about how “rich people don’t pay taxes” and rethink our prejudice. Claude Picher brought it up in the ?LaPresse paper a few days ago. Mister Picher mentioned an anonymous author, but let’s gives due credit to its diffuser: David R. Kamerschen, an economy teacher at Georgia University. For those of you who have not read it, here is the text: Taxes can be explained by simple logic. But many still do not understand it. As it is tax season, let me explain in simple terms understandable by all. Let’s say everyday 10 men gather together for a beer and that the bill amounts to 100$ (usually 10$ each) If they paid the bill the same way we pay taxes, it would result in something like this:

The first 4 (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 last one (the richest!) would have to pay 59$

They decided to do as described above.

The ten men gathered together everyday to drink their beer and seemed content in the settlement. Until the day the bartender offered a dilemma:

“As you guys are good clients, he said, I decided to give you a 20$ discount. You will therefore pay your beers only 80 $”

The group decided to keep paying the new total the same way they would pay their taxes. The 4 first still drank for free. But how would the other six (the paying customers) divide the 20$ discount fairly? They realized that 20$ divided by 6 was 3.33$. But if they subtracted the amount from what they paid, the 5th and 6th men would get paid to drink their beer. The bartender suggested that it would be fair to apply a bigger discount percentage for the “poorest” and to divide the bill as such:

The 5th man pays nothing, like the 4 first The 6th pays 2$ instead of 3$ (33% discount) The 7th pays 5$ instead of 7$ (28% discount) The 8th pays 9$ instead of 12$ (25% discount) The 9th pays 14$ instead of 18$ (22$ discount) The 10th pays 49$ instead of 59$ (16% discount)

All six “payers” paid less than before and the 4 first still drank for free. But once out of the bar, each started comparing their savings:

“I only got 1$ out of the 20$ discount” said client 6 and pointed at client 10 “he got 10$”

“Yeah, said client 5, I only got 1$ savings too.”

“That’s right, claimed client 7, why should he get 10$ while I get only 2? The richest got the biggest part of the reduction.”

“Wait a minute! Said the first 4 clients, we didn’t get anything at all. The system takes advantage of poor people.”

The 9 men focused on the 10th and insulted him. The next night, client 10 (the richest!?) did not go to the bar. The other 9 sat down and drank without him. When came time to pay the bill, they realized an important fact: they didn’t have enough money to pay even half the bill. And that, boys and girls, journalists and teaching colleagues is the reflection of our tax system. People who pay more taxes get more benefits from a tax reduction. Charge the strongest; accuse them of being rich and they just might not show up anymore. In fact, they could start going elsewhere to drink, someplace where the atmosphere is, let’s say, more friendly

To those who understood, no other explanation is necessary.

To those who did not, no explanation is possible.

David R. Kamerschen, Ph.D.

Economy Professor

University of Georgia, USA


Last edited on Thursday, February 21, 2008 at 15:49:21 pm.