Conservative Colloquium

An Intellectual Forum for All Things Conservative

A Beer Story: Tax Cuts for the Wealthy

Posted by Tony Listi on March 21, 2008

The wealthy pay most of the taxes, so it should be no surprised that they get a larger percentage of the tax cut total back!  It is only fair. 

——

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, 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

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24 Responses to “A Beer Story: Tax Cuts for the Wealthy”

  1. [...] Connecticut Local Politics â?? Connecticut politics and elections: discussion, analysis, opini… wrote an interesting post today onHere’s a quick excerpt The wealthy pay most of the taxes, so it should be no surprised that they get a larger percentage of the tax cut total back!  It is only fair.  —— 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 [...]

  2. [...] October 23, 2008 · No Comments http://conservativecolloquium.wordpress.com/2008/03/21/a-beer-story-tax-cuts-for-the-wealthy/ [...]

  3. Great article, and while the moral of the story holds true, I can tell from the figures that the good PhD only used Federal Income Tax (Quintiles 1 & 2, 0 – 40%, effectively are his “4 people who pay nothing”).
    Some have correctly criticized these exact calculations for exaggerating the EFFECTIVE TAX RATE of various quintiles.  To see the effective tax rate for various quintiles, view:

    The 21st Century Enslavement Index – Discover your TRUE Tax Rate (Part 1)

  4. [...] A beer story: The wealthy are not your enemy despite what Obama says By politicaldoc http://conservativecolloquium.wordpress.com/2008/03/21/a-beer-story-tax-cuts-for-the-wealthy/#commen… [...]

  5. JRCarolina said

    It would take a “intellectual” from GA. to come up with this kind of twisted logic. In case you haven’t noticed they have been drinking overseas for quite some time. When it comes to $ all they know is the bottom line and loyalty to country has absolutely nothing to do with anything.

    • Mike said

      Twisted Logic? Generalized perhaps but certainly not twisted. How often do we see those who contribute the least yelling and complaining about the services they want someone else to pay for? It is so much easier to be a liberal when you have little.

    • Phil said

      @JRCarolina

      So the solution is to tax the job creators more so more of them go overseas? Whose logic is twisted??

      Why is it that the job creators are the problem, but the people that want everything for nothing are the solution?

      Would you rather that Bill Gates never existed and those 56,000 jobs Microsoft has here in the USA were created somewhere else? (Not to mention the 3 billionaires and 1,400 millionaires Microsoft created HERE IN THE USA over the last 30 years.)

      Sorry, but if there is reduced incentive to create jobs (i.e. higher costs of doing business, like taxes, regulations, Obamacare, etc), then less jobs will be created. And if there is more incentive to NOT work (welfare, unemployment benefits, food stamps) then less people will want jobs.

      The only problem with socialism is that it is contrary to human nature. It incentivizes non-productivity (laziness) and punishes productivity (success). And eventually socialists run out of other people’s money to spend – see Greece, Spain, Portugal, and soon right here in the USA!

  6. Gordon said

    The parable is based on several false assumptions or false analogies:

    1. In order to make its point, the parable has to implicitly assume that everyone gets to drink the same amount of beer, 10% each. But in the real world, under the U.S. tax system and in the U.S. economy, the guy who pays $59 gets to drink way, way, way more beer than the guys at the bottom, the guys in the middle, or even the guys fairly near the top. By now the richest 1% of the people in this country, or their corporations, control 34% of the wealth, the most since just before the Great Depression, and the next-to-richest 9% control another 37% of the wealth. That leaves only 29% of the wealth for the poorest 90% of the population. So, in other words, the $59 beer drinker is actually drinking 71% of the beer.

    2. The parable has the $59-turned-$49 beer drinker getting beat up, whereas in the real U.S. economy the richest 1% receive 55-60% of the total capital income, up from about 35-40% in 1979. They’re getting beat up even less now than they were then.

    3. The parable mispredicts its own outcome: In fact, after the $59-$49 beer drinker leaves, the others will still be able to pay for their beer. They’ll still pay 41% of the maximum amount and now they’ll actually be able to drink all of their 41% share, instead of just the 29% that the $59-$49 drinker had been leaving for them in the past. That’s a net gain for them of 12% of the total available beer, at no cost to them beyond what they were paying before. The rest of the total available beer won’t get drunk, because the tenth member who used to drink it is gone, so it will remain in the keg for next time — the beer equivalent of a budget surplus.

    I’d be perfectly happy to let the $59 beer drinkers “start drinking overseas,” if they’ll stop drinking 71% of the beer on this side of the ocean and if they’ll finish paying the 12% they still owe for the beer they’ve already drunk. It will suit me fine if everyone who wants to go offshore to avoid paying U.S. taxes does so — provided that they refund all of the benefits they’ve received as a result of U.S. citizenship, participation in the U.S. economy, and government contracts and subsidies, and cancel their future participation in each. How many of his $59 beer drinkers does the author think would “start drinking overseas” if they had to do so under those fairer conditions? His implicit moral judgment is that they should be allowed to go on having it both ways — the benefits of citizenship and participation in the economy without the costs.

    That’s a judgment with which a lot of people, including myself, disagree.

    • Jim said

      Gordon;

      Spoken like a true liberal socialist. The one thing you fail to address is if the “remaining beer won’t get drunk” what happens to the business that loses the revenue? If the business owner is relying on selling 100% of his beer and now can only sell 41% the tavern owner goes out of business and the “state” must take over his business and then charge the same to everyone – of course the “state” will operate at a loss as most government agencies do, so taxes will have to be raised on all of the beer drinkers which makes it harder to afford the beer so they stop drinking beer. The state is now losing 100% and can’t afford to keep the business operating so it closes it down.

      Moral of the story is; taxes kill businesses.

      • animal monday said

        Spoken like a true conservative blind man: The “parable” makes no distinction between the rich beer drinker as individual taxpayer and rich beer drinker as corporate taxpayer. Good tax systems are engineered to tax indivuals with wealth heavily while leaving their corporations with far fewer taxes. And sorry, individual wealth for the top wage-earners almost NEVER is reinvested in business–it is usually used as gambling money, speculated with on Wall Street, where only Hedge Fund managers profit. And by the way, you haven’t answered the gentleman’s basic argument–just like Rush, you change the subject when you have no cogent response. Wealthy individuals have a social responsibility: They typically do not originate from poor families but from families with some degree of privilege, they typically go to better schools, and typically are lucky to boot. All those things are advantages that have nothing to do with how hard they have worked or how moral, ethical, and upstanding they are. These advantages are completely unearned advantages, that they–and you–don’t want to admit to. The “payback” the wealthy ought to give to society for the huge chunk of resources they consume vs. what they contribute only brings things into fair balance. Most garbagemen and single mothers work harder than most CEOs. And they get very little in return, compared to the mountain of undeserved wealth the CEO garners. The idea that the CEO “earned” this wealth is almost a perversion. In most cases (listen: most, not all–yes, there are exceptions), he (and its always a he, isn’t it?) got there off the backs of his parents, his legacy Harvard degree (just like one of our former presidents), his sociopathic ruthlessness, and/or a good bit of good chance. Very little of what he has was truly “earned”–thus his obligation to those who’ve worked their behinds off for most of their lives at low-paying jobs, just to make ends meet. Face it, you just want to justify your own selfishness. Oh, by the way–most poor people I know work their behinds off just to put food on the table. There IS no more welfare state–remember? We go rid of it. So no relying on false and tired arguments that the poor are lazy and living on entitlements. There aren’t any anymore, other than Social Security. That argument is a pile of crap as high as . . . well, as high as the mountain of dough conservatives keep handing to the already wealthy.

    • Daniel said

      Animal Monday’s flawed argument is that the wealthy are getting more beer. The analogy is about taxes, and the return on that. The wealthy do not get more roads to drive on, better national defense, cleaner drinking water, smarter more honest politicians, or more of most anything paid for by tax dollars. If they want a better commute, they purchase a more expensive car that has better handling, tires, steering leather seats, and a nice stereo, buy an expensive home in a gated community that pays to repair the roads from the HOA dues, and still drive right down the same roads used by the bottom percentage of tax payers and non tax payers. If they have a better paying job than you, then they get to buy more stuff. You don’t get to have their stuff just because you pay taxes, too. You get to have roads and free public education through high school and cheaper state college, while they pay their taxes and then pay to put their kids through private school thus not even using the tax dollars given by them. It is easy to try and twist an anology to your own liking, but anologies are never all encompassing. Nice try.

    • Phil said

      Pathetic attempt! Typical for a lib.

      Your assumption in 1 is that “rich” guy gets more BENEFITS from the GOVT, which is not (normally) true (unless the rich guy works for the Federal govt, in which case he is overpaid). Sorry dude, most rich people work their A$$E$ off! THEY EARN IT! YOUR ASSumption is that the rich guy and the poor guy both work just as hard, which is not likely.

      In 2, the guy getting “beat up” is an ANALOGY to how the wealthy get beat up by, say OBAMA, MSM, OWS protesters, etc. And of course your “facts” are wrong. The top 1% earn 19% of all income and pay 38% of all (federal) income taxes according to the IRS. Try checking your facts at http://www.irs.gov.

      Your final problem is that the rich guy, when he goes overseas, takes his wealth creating mentality with him. That 71% does not remain here, because it was never here to begin with. Wealth must be re-created every day, week, month, year. It is not a pie that you can divide up. If the farmer doesn’t plant his crop, no wealth is created for the farmer and no food is created for us. That food has to be grown every year.

      Frankly, after Obama crashes the system (which he is trying hard to do before the election), my HEARTLESS CONSERVATISM WILL ENJOY WATCHING THE STUPID UNPREPARED LAZY OXYGEN THIEVES STARVING.

  7. Tony M said

    The problem with increasing the income gap (as happens with tax cuts for the wealthy) is the wealthy do not SPEND the additional income. The economy grinds to a halt.

    • Tony Listi said

      The wealthy don’t just sit on their money. They do spend it, either on themselves or on others through charity or investment.

  8. Theano said

    Animal Monday et. al. are clearly correct. The plutocrats/oligarchs have pulled off an amazing coup. They have made capitalism into a quasi-religious belief and turned conservatives into defenders of the faith! I’ve heard a few journalists mention lately that it has become an “article of faith” among republicans that ‘we cannot raise the taxes of the rich’….you know…the ones who conservatives feel obligated to protect and serve!

    The song “Give ‘em the Old Razzle-Dazzle” [Chicago] was written with conservatives in mind!!

    On that note….please see: To Have and to Have Not by Michael Lind, June, 1995. Here’s an excerpt from a rare truth-teller…

    “…..beyond the blazing lights… in the corner offices (on Capitol Hill as well as at General Electric, The Walt Disney Company, and CBS News), people in expensive suits quietly continue to go about the work of shifting the center of gravity of wealth and power in the United States from the discounted many to the privileged few. …The American elites that subsidize and staff both the Republican and Democratic parties have steadfastly waged a generation-long class war against the middle and working classes. Now and then the television cameras catch a glimpse of what is going on, as they did last year during the NAFTA and GATT debates, when a Democratic President and a bipartisan majority in Congress collaborated in the sacrifice of American labor to the interests of American corporations and foreign capital. More recently, with a candor rare among politicians, House Speaker Newt Gingrich argued against raising the minimum wage in the United States—on the grounds that a higher minimum wage would handicap American workers in their competition with workers in Mexico.
    Yes, the pundits admit, economic and social inequality have been growing in the United States, with alarming results, but the ruling and possessing class cannot be blamed, because, well, there is no ruling and possessing class.
    The American oligarchy spares no pains in promoting the belief that it does not exist, but the success of its disappearing act depends on equally strenuous efforts on the part of an American public anxious to believe in egalitarian fictions and unwilling to see what is hidden in plain sight.

    • Luigi said

      Heaven forbid that the people who work harder and better should be able to enjoy any benefit.

      They should be happy to see the result of their enterprise being used to provide free beer and skittles for the other half of the population.

    • Phil said

      Please please please explain how taxing the job creators is a good thing? OK, maybe if unemployment were 3%. But really? You expect the economy to get better by TAKING CAPITAL from the job creators??

      Note – North Korea is the most equitable country in the world. The poorest of our poor look like millionaires to the average North Korean. If you want income equality, look at North Korea for a role model, and understand that is what it looks like… we will not be wealthy and equitable, as is imagined by the utopian socialists. We will look like North Korea.

  9. Greg said

    I can see the validity of all your points but they don’t address a single problem in my mind. I don’t believe the income should be taxed, that is inherently socialistic to begin with. Any man should have the freedom to work and earn 100% of his pay. Federal and Local government Income should come in the from of non-protectionists tariffs and excise taxes and used to pay for government services that bear the cost of consumer decisions. An example I would use would be taxes on cigarettes to pay for the costs that smokers and their unhealthy habits bear on government costs, or that property taxes go to pay for the services provided by police and firefighters to building and maintaining the public infrastructure. These taxes should then be applied to the local level, for instance a mans property tax in Arizona should go to fund those services in Arizona and not some state two states over.

    • Phil said

      Greg – good point, I agree. After all they had to amend the Constitution to include an income tax, and they did this by lying about who would be taxed (only the rich) and what the tax rate would be (very low).

      I would prefer a consumption tax to replace income and corporate taxes. Exclude necessities like unprepared food, toiletries, Rx drugs, etc. The the rich dude that buys the Rolex pays a huge tax compared to the poor dude that buys the Timex. AND companies would FLOCK here, so jobs would be plentiful!

  10. [...] happens when such people whinge about the tax cuts for the so-called rich’ is described in this anecdote that substitutes taxes for beer. While this data was collected in 2008, I would imagine the pie [...]

  11. [...] post by Whaleoil (via his tipline) which bares a lot of resemblance to the anecdote I referred to in a previous blog that substitutes taxes for beer: Does socialism work? Not if [...]

  12. [...] [...]

  13. […] Taxes and beer drinkers […]

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