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 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, ladies and gentlemen, 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.
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 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, ladies and gentlemen, 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.
;-)
ReplyDeleteI got it, except for the purpose of the picture. No, I actually got that. One track mind.
ReplyDeleteI searched for "bar stool" the rest were just stools...
DeleteYou have excellent taste in bar stools TD.
DeleteBecause my work isn't done.
ReplyDeletehttp://thepeoplescube.com/peoples-blog/let-us-rally-around-dear-leader-s-battle-cry-t9606.html
I'm confused. Can you explain your theories against present economic conditions. Should I pull out my binoculars and look for unicorn aerial sightings?
ReplyDeletehttp://trimtabs.com/blog/2012/09/05/obama-bernanke-bankrupting-u-s/
You're confused because my work isn't done yet... Check after 11/11
ReplyDeleteDon't leave me with a bait and switch 11/11 forecast. Compile your thoughts in a simple bullet form format.
ReplyDeleteOK. First off, I understand "Modern Monetary Theory" if you don't know what I am speaking of read this link
ReplyDeletehttp://www.washingtonpost.com/business/modern-monetary-theory-is-an-unconventional-take-on-economic-strategy/2012/02/15/gIQAR8uPMR_story.html?wprss=rss_homepage
“Modern Monetary Theory” (MMT)was coined by Bill Mitchell, an Australian economist and prominent proponent, but its roots are much older. The term is a reference to John Maynard Keynes, the founder of modern macroeconomics. In “A Treatise on Money,” Keynes asserted that “all modern States” have had the ability to decide what is money and what is not for at least 4,000 years.
"This claim, that money is a “creature of the state,” is central to the theory. In a “fiat money” system like the one in place in the United States, all money is ultimately created by the government, which prints it and puts it into circulation. Consequently, the thinking goes, the government can never run out of money. It can always make more.
This doesn’t mean that taxes are unnecessary. Taxes, in fact, are key to making the whole system work. The need to pay taxes compels people to use the currency printed by the government. Taxes are also sometimes necessary to prevent the economy from overheating. If consumer demand outpaces the supply of available goods, prices will jump, resulting in inflation (where prices rise even as buying power falls). In this case, taxes can tamp down spending and keep prices low.
But if the theory is correct, there is no reason the amount of money the government takes in needs to match up with the amount it spends. Indeed, its followers call for massive tax cuts and deficit spending during recessions."
>If you understand this issue we can have a discussion. I am not at all convinced that the general population realizes that this President governs using MMT. Furthermore, I am not a a believer that MMT is working for, lets say Japan. Japan plunged a decade ago and has been using MMT ever since. Study up on what hasn't happened so far for Japan.
>Healthcare: No country with a population greater than 120 million has "Universal Healthcare". Read this link:
http://coto2.wordpress.com/2010/03/22/list-of-countries-with-universal-healthcare/
Then read this link:
http://www.nationmaster.com/graph/hea_phy_per_1000_peo-physicians-per-1-000-people
# 52 United States: 2.3 per 1,000 people
(Physicians > per 1,000 people (most recent) by country)
Obamacare will double that number. Doctors are going to get out of the business in droves.
http://michellemalkin.com/2009/09/15/ibd-poll-45-of-doctors-would-consider-quitting-under-obamacare/
>Israel, Obama is no friend of Israel his administration doesn't even recognize a capital for the country.
>"Can you explain your theories against present economic conditions. Politics is the issue I am no economist, however I understand this.
If you look at a long term political strategy, one that guarantees you will be the party in power for all time, one only needs to follow the play book. 1. There's a depression 2. Give the voters money to get thru it. 3. Take no real action to fix the problems that created the depression. 4. Convince the majority of voters that they need government to provide the solutions, from taxes, to end the depression. 5. Add voters to the roles of the party that is providing the welfare to a point where the majority of voters are on welfare 6. Once in the majority the party is now in power forever.
The Democratic Party playbook has just been shown to you, do you debate the realization that this is what is being done to us or do you refute that this is not happening?
Does this remind you of the 30's?
Now if you wish to remain "Anonymous" fine, however if you don't I am the owner of this blog I can either add you as an author or block you, your choice
Twinsdad,
DeleteI know what I'll be doing during lunch. Eerie. Those 60s Flower kids - "five year plans and new deals, wrapped in golden chains" nailed it so long ago, yes?
They did one thing correctly: some good music.
Jean
The contrast of the government using MMT and individuals and businesses having to use old world economics is very confusing. People and businesses can actually run out of money. They have a sense of what is fair, but the government has it's own morality. The government morality tends to reward the underachievers and poor decision makers - our government also tries to convince us that illegal immigrants should be supported just like our own leaching underachieving citizens. In a way, it really doesn't matter much as far as the government and their money. What does matter is that people get upset about the perceived unfairness of it all. The ones paying their way AND paying taxes have a hard time dealing with people who have been on government support AND get the same products and services for free.
ReplyDeleteHas viral email nonsense now become economic common sense for the masses? I doubt seriously that this can be the work of an economist but if it is true then surely he is without a job now teaching economics.
ReplyDeleteNohelp,
DeleteI'm finding this discussion interesting. Could you be more specific as the the nonsense segments, and why you find them so?
Thanks.
Jean
I'm very glad to see your post here, but feel a little cheated by the brevity of your response. I too would like to read your take on this subject.
DeleteThis bad analogy, although wonderfully simplistic in design, does not reflect the real world that we live in nor the tax system and provision of government services. It would take much writing to debunk this entire analogy. First, the paying of the bar bill is assumed to reflect the paying of taxes but what is given no attention is the fact that the beer being purchased is government services that our taxes are buying. In the analogy, each of the ten people get the exact same beer but none of us are under any illusion that we all get the same government services. Each gets a beer to drink but each does not benefit the same from government services.
ReplyDeleteSecondly, in the real world of taxes we face a marginal tax rate which is based on the ability to pay and not based upon the size of the bar bill. Thus, each person pays the exact same tax rate on income within each marginal bracket.
Additionally, the analogy assumes that any tax break is available to all individuals which maybe true in context but not in application. For example, anyone may be able to take their second home as a deduction if it is a working cattle farm. Now this deduction is available to everyone but technically only a few will be able to take advantage.