July 24, 2011

Suppose We Ran Saloons the Way They Run the IRS

As I observe the daily news coming out of Washington, I get more and more discouraged. Should we raise the debt ceiling? Should we eliminate tax breaks for the rich? Who should pay less tax, and who should pay more? Do we really have to live within our means?

I found this story on the Internet today.  Apparently it's been going around for years, and nobody really knows where it began. But it seems to paint a fair picture of our progressive tax system:

Suppose that every day, ten men go out for beer at Bubba's Bar, and the bill 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) 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

These men drank in the bar every day for years, and seemed quite happy with the arrangement.  That is, until one day when Bubba threw them a curveball that changed everything: “Since y'all are such good customers, I’m going to reduce the cost of your daily beer by $20.” Drinks for the ten men would 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, the ones who actually paid for their drinks? 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 getting change back even though they never paid a nickel in the first place. In other words, they actually got paid to to drink beer.

Nice work if you can get it, I suppose.

Bubba suggested that it would be fair to favor the poorest among them with the greatest discount, by following the same pattern. He calculated the amounts that each should now pay:

The fifth man, like the first four, now paid nothing (100% saving).
The sixth now paid $2 instead of $3 (33% saving).
The seventh now paid $5 instead of $7 (28% saving).
The eighth now paid $9 instead of $12 (25% saving).
The ninth now paid $14 instead of $18 (22% saving).
The tenth now paid $49 instead of $59 (16% saving).

No doubt, all six were better off than before. But once outside the bar, the men began to compare their savings.

“Hey! I only got a dollar back,” 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 benefit than me!”

“That’s true!” shouted the seventh man. “Why should he get $10, when I got only $2? The wealthy get all the breaks!”

“Wait a minute,” yelled the first four men in unison, “we didn’t get anything at all. This new tax system exploits the poor!”

The nine men surrounded the tenth and beat him up.

The following night, the tenth man got fed up and went drinking at Billy-Bob's Tavern instead. The remaining nine enjoyed their brews at Bubba's as usual. But when it came time to pay the tab, they discovered something important. Between them. they didn’t have enough money to pay even half of the bill.

Alas, that's exactly how our tax system works. The people who already pay the highest taxes will naturally 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 friendlier.

I'm tired of hearing our president, in speech after speech, complain of the abuses of  "millionaires, billionaries, hedge fund managers, and corporate jet owners." They're paying exactly as much (or as little) tax as the law requires.  Do you really expect them to volunteer to pay more?

I'm tired of hearing him promise to give tax breaks to "all Americans," when in fact most working people don't pay federal taxes at all.  At worst they give up a few dollars a week in payroll withholding, but they get it all back in April.

Do you really want to create jobs, Mr. President? Then stop punishing the success of the very people who do all of the building and hiring and producing in this country.


  1. Story's essentially true. Your comments are spot on.

  2. you know nothing about taxes. you are basing this on the crap you read in the main-stream media, not the tax code or statistical information which includes ALL taxes paid by all persons: income, social security, sales tax, property tax [including flow through property tax] et al. go read warren buffet.

  3. Robyn, my comments were about federal income tax. FICA is technically a pension contribution, not a tax. Sales and property tax are not in the jurisdiction of the federal government.