How US tax system works

Together with How markets work this is one of the funniest things I have stumbled upon online lately. Enjoy!

Bar Stool Economics (via WiseBread)

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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51 Responses to “How US tax system works”

  1. 1 eddie Feb 22nd, 2008 at 12:06 am

    the rich are not being over taxed regardless of how you choose to spin it. after 8 years of bush who destroyed the surplus and doubled the national debt, republicans are still calling for more tax cuts, even during this time of very costly war.your greed and irresponsibility is astounding. once the world shifts away from the dollar as the preferred business currency, our chickens will be coming home to roost. this nation is already far too dependent on countries to finance our debt. when does patriotism triumph over greed?

  2. 2 danl Feb 22nd, 2008 at 12:57 am

    Facile argument. Taxes don’t pay for beer. They pay for things like infrastructure, defense and keeping in place a government that hires hacks like you to persuade the rest of us that getting screwed in the ass by the rich man really does feel good.

  3. 3 Travis Feb 22nd, 2008 at 1:41 am

    Huh…that’s a lot more complicated than what my friends and I would do.
    If President Bartender decided to reduce prices to the point where our weekly habit is $80 as opposed to $100. that sounds like to me. So we would each reduce our usual portion by twenty per cent, getting this:

    1 : $47.20 = $11.80 savings
    2 : $14.40 = $3.60 savings
    3 : $9.60 = $2.40 savings
    4 : $5.60 = $1.40 savings
    5 : $2.40 = $.60 savings
    6 : $.80 = $.20 savings
    Deadbeats 7-10 : $0 = no savings

    …which means everyone gets a fair percentage, each according to his original payout. Any resentment of the rich is unjustified here, because everyone is giving and receiving according to their needs. But here’s the deal: your calculation above comes out to $79, not $80. But maybe Joe Taxbreak is a forgiving guy.

    Of course, that dollar has to come from somewhere; the Bartender in Chief is already running a $20 a night deficit, and $21 dollars may be too much. Where does he get it. If Mr. Numero Uno’s slummy friends get the idea that ol’ Joe is just saving it up to dump on them later–or maybe even going under the table with Numero Uno who’s expensive patronage is obviously more important, giving him special discounts, helping him out to keep things afloat–they might be a bit resentful, maybe even fearful. Numero Uno seems to have a lot of power here.

    Seems to me that the Hypothetical Gang should realize that maybe they could get rid of the Big Shot–let him fly off to wherever and drink coconut rum–and they can drink for a bit less, $45 or $50 a night. Yeah, the United Bar is going to half to tighten up a bit, do with a little less…but how drunk do we need to get, if we live in fear of this abandonment. Maybe Numero Uno will miss us, and we can all be friends again, realizing what a nice place this is, and how it doesn’t have to be about binging, but socializing and throwing darts and…

    The metaphor just broke down. Good day to you, sir!

  4. 4 julian Feb 22nd, 2008 at 4:58 am

    forget the beer analogy because it’s old and incorrect. it ignores the fact that the tenth man makes his money from doing business in the local market. if he decides to move overseas, he will be giving up most of his customers.

    that’s why most businesses in america won’t move overseas just because someone gets rid of all the tax cuts for big businesses; they simply cannot afford to give up the american market. the basic economics will tell you that they won’t give up their business in america until they start losing money, for which taxation is rarely the cause as much as bad business decisions and the good ol’ competitions are.

    and there’s really very little to complain about paying taxes when 1.) it’s your basic responsibility as a citizen or a corporation, 2.) the government ensures your property rights and the market safety and fairness so that you don’t get robbed and killed and lose everything you own overnight, 3.) you CERTAINLY can afford to pay. really? your kids will starve if you make only $10 million instead of that $20 million you could pocket, had there been no tax to pay?

  5. 5 Deezer Feb 22nd, 2008 at 6:22 am

    And that, among many other reasons is why we need the FairTax:

  6. 6 Ivebenup Feb 22nd, 2008 at 8:00 am

    How very simple, and how very unfair to the richest fellow. I wonder why it is the bartender did such a thing? There must have been a reason, right? A good Capitalist wouldn’t have any reason to give up money that is already in hand and being given without complaint. The bartender has responsibilities too. There is rent for the bar, utilities to run it, cost of the beer, glasses and misc. dishes, cleaning and maintenance, wages for employees, etc. not to mention turning enough profit to provide for him and his family to live. All of this comes from the mark up on the beer he sells. The bartender has not reduced the cost of running the bar by 20% so the outcome would be that the bills couldn’t be payed and the business would go into debt. The beer would change from micro brew to keystone light. The big screen tv would be sold to foreign interests for the $$. The dart board and pool table would become a drain on the company, so it would be outsourced to “improve the quality of playing the game and save the bar money”. Wow, that sounds like a great place to have a beer after work. Maybe the bartender thought that if he put money in the pocket of #1 number one would invest that money in business. The kind of business where $10 would create jobs for 4-5 friends and pay them enough so that they could buy their own beer. then his business would flourish.
    Or maybe #1 convinced him that is what would happen.

    Sound logic either way.

  7. 7 Sean Feb 22nd, 2008 at 9:26 am


    You’re assuming he moves physically. The author of the post could be saying he just stops paying the looters.

  8. 8 julian Feb 22nd, 2008 at 12:47 pm

    Sean, that’s why this analogy is bad. Why would there be a gang that foots the beer bill according to their income in the first place?

    If this really is about the US tax system as the author suggests, then #10 who “just stops paying the looters” is breaking the law.

    … and this “big businesses will just move overseas if you raise taxes/don’t cut taxes” argument is ages old already so I think the author did mean physically moving.

  9. 9 Steve Feb 22nd, 2008 at 1:40 pm

    I see why they were being overcharged…

    How can “the same amount” as in “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” come to (minus) $1(33%)/$2(28%)/$3(25%)/$4(22%)/$10(16%)?

    I’d go to a different bar.

  10. 10 Alex Feb 22nd, 2008 at 3:55 pm

    I am trying to figure out why a lot of the negative comments seem to be directed to the author of the blog. He just said this story made him laugh, he did not say this is what he believes or how the rest of you should feel about our tax system.

    I do think it’s a funny analogy, not accurate but funny nonetheless. The other thing that I thought from reading the few negative comments is that those are the guys drinking the beer for free and still complaining.

    I am personally in the middle class, and in my opinion the middle class is the one America abuses the most. We don’t get shit for free but we still have to pay for the deadbeats on welfare.

  11. 11 Yan Feb 22nd, 2008 at 4:16 pm

    Thanks, Alex. I should have made a disclosure that I don’t fully endorse or support this analogy. It is an oversimplified example which nonetheless has merit. All too often we don’t see the complete picture (with economy or other things) and complain when we get a seemingly unfair treatment.

  12. 12 julian Feb 22nd, 2008 at 4:18 pm

    Alex, when we say “author”, we are talking about that Professor of Economics, as the blog owner simply reproduced it on his blog.

    I am a business owner and I pay a lot of tax. I come from low-middle class background and I don’t actually remember getting much of that free beer even then, except for maybe the subsidised state college education that would’ve cost a lot more without the federal and state funding.

    I paid tax even as a poor student working part-time jobs. The tax bracket described by this beer analogy, where the low income worker pays no tax at all, exists in Sweden and not in America, which is another reason I say this beer analogy for the US tax system is incorrect.

  13. 13 Rebecca Vanderbilt Feb 22nd, 2008 at 5:51 pm

    This completely ignores the fact that the 10th person makes $50million a year vs the first four that makes $2,000 a year. So the so-called PH.d forgot to include that as part of the story. What a shame.

  14. 14 Rebecca Vanderbilt Feb 22nd, 2008 at 5:53 pm

    And one more thing, the guy making $50million a year has figured out a way to steal from the others to pay for “his” gambling debt he incurred.

  15. 15 Logan Feb 22nd, 2008 at 9:54 pm

    I have to agree with Alex. I think it is a good analogy. Also, Rebecca, you are right. The devil man #10 who was magically appointed to a high paying job is just down right evil. Who cares that he may have had to work his ass off. Really, the people who never really tried as hard, or who went into careers that they did have to work hard for but still don’t pay much are the people being cheated. It is down right unfair that a person only making $2,000 a year isn’t allowed to take a couple thousand from the man making $50 million a year. Its not as thought it is his money, or that he worked for it. Ha really the 10th man should be killed. He is a thief… Why don’t some of you stop making ignorant claims are actually investigate the topic.

  16. 16 julian Feb 22nd, 2008 at 11:13 pm

    Being rich is no crime. Tax evasion is though.

  17. 17 Lance Feb 23rd, 2008 at 1:38 pm

    Contrary to Internet folklore, Dr. Kamerschen is NOT the author of that piece.

  18. 18 Kevin @ Change Your Tree Mar 12th, 2008 at 9:42 pm

    Awesome, I love it!

    What liberals don’t understand is that paying your “fair share” of taxes is not the same as suffering the same tax “burden”.

    Liberals say the rich aren’t paying their fair share, when they really mean they aren’t sharing the same burden.

    But the tax system is not designed to burden people equally, it’s designed to raise revenue for the government. Liberals invented the idea of tax burden as a class warfare tactic.

    The fact is, the top 50% of wage earners pay over 95% of the tax bill. I think that’s beyond their fair share, regardless of the burden it places on them.

    The more you try to burden someone, the less they’re going to want to participate. And I’ve never gotten a job from a poor person, so I’m not about to drive all the rich out of this country with silly “I’m a victim” games.

  19. 19 John Mar 13th, 2008 at 3:18 pm

    While this is clearly meant to be an amusing analogy, it does contain a number of simple and significant truths. Like that the wealthy — who are always portrayed as ogres by the left — pay a disproportionate share of the taxes in this country. And that tax rebates do (and should) go disproportionately to those who paid the most in the first place. And that when that happens, people will still whine about how unfair it is.

    Like one comment implied above, this does not address whether it’s a good idea to give a tax rebate in the first place. But hey, maybe these people will take their extra 20 bucks and buy a few more beers, and the bartender will actually make more. That IS what happens when people get tax rebates.

  20. 20 BobS Mar 13th, 2008 at 6:18 pm

    “I am personally in the middle class, and in my opinion the middle class is the one America abuses the most. We don’t get shit for free but we still have to pay for the deadbeats on welfare.”


    Perhaps the dumbest statement made here. I worked for 30 years with people who were down and out. And these weren’t “deadbeats” either – they were hard-working people hammered with a disability.

    Boneheads like the above poster came to me every day due to some devastating work-related injury, and usually after getting a good screwing by the employer and the Workman’s Comp system. Ignorant, uneducated and good little Republicans that they are, they always expect that there will be all types of financial assistance waiting to bail them out. After all, that’s what their “conservative” heroes have led them to believe. Then they discover that there isn’t squat, and they squeal to the heavens. But do they blame the ones who lied to them? Hell no! They blame the government for not being there for them.

    People who think like the guy who posted this ignorant comment despise any kind of government assistance – unless they need it themselves. I worked with their kind every day for decades. They continually go out and vote against their own interests. They ridicule people who come up short due to accident, injury, or the birth-lottery. Yet they are always the ones who are the most demanding when they end up on the short end.

    Idiots. And they vote.

  21. 21 BobS Mar 13th, 2008 at 6:50 pm

    “I’ve never gotten a job from a poor person, so I’m not about to drive all the rich out of this country with silly “I’m a victim” games.”


    No, you’re more than likely getting your jobs from some fourth or fifth generation turd who inherited Daddy’s money… a guy who has had everything handed to him on a silver platter… a guy who has probably lived a very easy life.

    This country is going to the dogs because so much of the nation’s wealth is in the hands of shiftless, worthless offspring that are two, three or more generations removed from the self-made men who created the wealth. Bush is the epitome of the problem.

    Such lightweight inheritors are a danger to the well-being of the country, and the only solution is to initiate a very aggressive inheritance tax. Allow every child to inherit say… $500,000 (perhaps 2 million for a disabled child); take 100% of the rest. Distribute the proceeds to:

    1)promising, hard-working students to be used for education – contingent on performance and with the curriculum based on actual economic need

    2) young people with solid business proposals.

    Under such a system the worthless offspring of the wealthy would have to fend for themselves, while the best and brightest from each generation would carry this nation forward like the powerhouse this country should be.

    “I’m not about to drive all the rich out of this country”…

    Wow… a pathetic comment. And why would you say that? Because you NEED them? Pfft. This is becoming a country of slow-witted weaklings, dependents, sycophants and suck-ups who are more concerned about coddling the inheriting class than about their own well-being.

  22. 22 tommy Mar 13th, 2008 at 8:45 pm

    Hey this stuff doesn’t pay for anything, income tax doesn’t go back to pay for anything in this country the IRS is its own entity.

  23. 23 Josh Mar 23rd, 2008 at 12:51 am

    John is the only one who has gotten the point. That being that people take information out of context and compare apples to oranges all the time.

  24. 24 Jack Mar 23rd, 2008 at 7:26 am

    Though I know it wasn’t the point of the original post, nor of some of the replies, was that nobody seemed to address what originates so many of these issues in the first place… the price of beer.

    Or, beyond the analogy, the price of government. And subsequently, the price of so much else that’s connected to poor governance (such as oil thanks the political mess in the Middle East; such as milk, eggs, wheat, and everything else, thanks to the mismanagement of the dollar by the Fed; and so on).

    We expect bartenders to charge us for our drinks. But if they overcharged, we might go somewhere else and they would go out of business. If they wasted their money, paying 10 times normal cost for, say, renovating the bathrooms or the dancefloor, they might also go out of business. If bar security was so persistently intrusive, you couldn’t enjoy yourself, customers would ultimately go elsewhere.

    Yet, our government charges us — all of us — for wars it shouldn’t be in and can’t win, for social programs that might have good intentions but are so mismanaged they threaten to strand more people than they protect, for the protection of so called “freedoms” they themselves regularly infringe. And all while decimating the value of the dollars we need to save if we have any hope of getting buy when the government machine fails to be there for us.

    Yes, the breakdown of how taxes are paid. But shouldn’t we be just as concerned — or even MORE concerned — about what we’re being asked to pay for in the first place?

  25. 25 Kevin @ Change Your Tree Mar 23rd, 2008 at 8:57 am


    Go smoke some pot a draw a few peace signs on a concrete wall somewhere; you’re too stupid to participate in this discussion.

  26. 26 MARY Mar 23rd, 2008 at 9:55 am

    It always astonishes me how angry the liberal point of view is explained. Every post made by people wanting higher taxes and more entitlements is full of rage and insults.
    eddie: “your greed and irresponsibility is astounding.”
    danl: hacks like you to persuade the rest of us that getting screwed in the ass by the rich man really does feel good.”
    bobs: “Boneheads like the above poster”, “Ignorant, uneducated and good little Republicans that they are”
    “Idiots. And they vote.” “turd who inherited Daddy’s money”. “shiftless, worthless offspring”.
    Can someone tell me why they can’t explain themselves without debasing their opponents? It’s not only here, but on talk radio or television as well. I just don’t get why they have to insult to make a point. Maybe BobS can try it again, this time without name-calling. Or do you think, Bob, that it loses some “hot air”?

  27. 27 julian Mar 23rd, 2008 at 12:48 pm

    mary… are you saying the fox news is liberal?

    I didn’t like all those name callings by Bobs and I think it even hurts his argument despite having valid points. Insults in a debate accomplishes nothing.

    However, having a potty mouth and having invalid ideas are not the same thing. Don’t try to discredit everyone on the left side by pointing fingers are a few that resorted to insults, because that’s ad hominem and there are people making that same mistake on both sides.

    Jack, I understand what you are saying but in reality, government programs or government subsidiaries are necessary because some things are not best left in the invisible hand. California power outtage, walter reed army medical center, haliburton in iraq, are only a few of the examples where privatization brought extreme waste, inefficiency and corruption that we’ve never seen before.

    It’s true that overall government run programs are not as efficient as the S&P 500 companies, but free market does not solve all problems. Absolute necessities such as medical services or power and water utilities, when left to free market’s natural selection, leaves tens of millions of people unprotected, while providing superb service to those who can pay enough for the services to remain profitable.

    There is no need to nationalise all industries, but free-for-all privatisation will turn America into the richest country with its citizens living in third world conditions.

  28. 28 Jack Mar 23rd, 2008 at 4:55 pm


    I appreciate the level-headedness of your reply, but perhaps I’m missing something in my statement. Because the essential point appears to remain obscured.

    What I said was neither for nor against the idea of government programs in principle. It was not an argument for or against free market intervention in what some might traditionally consider public responsibilities.

    That is, indeed, a can of worms. And I had no interest in opening it. I am, rather, making the point that our government — in reality — has done a terrible job of delivering those services you ask them to deliver. And at a mind-boggling cost.

    So terrible, that to forgive their inefficiencies as “not quite S&P 500″ is way too generous. You cite several glaring examples — Walter Reed, the California Power Outage, Haliburton’s waste, — which, in my mind, illustrate exactly what I’m saying here.

    After all, who hired the free market to take over these responsibilities? If you hire an employee that’s not doing a good job, and you still keep him on and give him more money, is he solely at fault? Or are you also to blame, as a poor manager?

    In this case, our government is managing — or claiming too — and they are therefore culpable.

    Again, this isn’t a debate I’m raising about the virtues of free markets vs. public works. Valid as that discussion may be, there’s no time for it right now. Because — in reality — the government we have ALREADY charged with our care, the care of our vets, the management of our power infrastructure, the strings on our public purse… are frankly f**ing it up.

    I’m not asking you to agree that everything needs to be privatized. I’m not even making that case myself. I’m just saying that it’s ridiculous that the public debate centers on whether the rich do or don’t deserve tax rebates… or whether liberals or conservatives are more cranky… when the most REAL issue of all is that, regardless of who’s in government, in recent years they’ve wasted a whole hell of a lot of money. They’ve burned it, given it away, inflated it, wasted it, and worse — all in the name of the claim that they’re doing those things that they clearly are not doing well.

    And nobody is calling them on it. Because we’re all here, caught up in arguing over the same things.

    You know, at Versailles, it’s said that Louis XIII (or maybe it was Louis XIV) dole out duplicate tasks to each of his royal underlings. Things like who would fetch the King’s combs, select his robes, etc. These were lords and barons. And they would bicker all day over who the king had sent to do the duty first. All so Louis could go about running France any which way he chose, without interference.

    We are also caught up in minutiae. I hope you’re getting what I’m saying. Forget the tax-cut argument, for a moment. Forget whether debating over how horrible Fox is or whether we should all be left or right. Forget fighting over which programs we should cut or keep. Wake up to the fact that, no matter what your bias, the government is gleefully robbing you blind. And before we do anything else, we should call them on it… from every side of the political spectrum.

  29. 29 Robin Mar 23rd, 2008 at 10:35 pm

    It’s about time that that atlas shrugged. Those of you who reserve your greatest animosity for those wealthier than you, ask yourselves: Did a poor man ever offer you a job? Did a poor man ever invest in the industries that make the things you desire, and the things you need, to survive? Did a poor man risk his fortunes to bring a new product on the market, depending only on your minds to perceive its value? Did a poor man build your home, manufacture your car, refine the oil and gasoline to run it? Did a vagabond provide you your TV, your iPod, the medicines you require? Can you even make for yourselves a simple pencil let alone a computer? Yet, you would expect to have these things while destroying all incentives to those who make it possible. You who cannot conceive of the difference in wealth created by the mind and wealth that is plundered imagine that wealth is a zero-sum game. That all wealth is static. So tell me, in what cave were all the Dells, BMW’s, Sony Plasmas and Lear jets kept until the wealthy found them? One man invents the wheel, the burden of all is forever lighter. One man discovers a cure for polio and expects to profit well for it. All from then on are freed of this horrible disease. One man discovers the nature of steel manufacturing, thereafter suspension bridges and skyscrapers are realized. All those minds made it possible to live far longer and healthier than ever before. Now slowly and purposely, you destroy his world. You tell him that he can no longer hire the competent only, he must consider other factors, past ethnic inequalities for one. He cannot build a factory where it suits him, it might impact the habitat of some obscure rodent, etc., etc. When those whom you called your exploiters are gone, driven out of business by your rules and your Democrat capitalism- haters and Republican appeaser politicians, and you’re picking the last berry off the last bush that no one is allowed to own, Don’t wonder long how it came to this.

  30. 30 julian Mar 23rd, 2008 at 11:13 pm

    Jack, while I agree with you that government can waste a lot of money due to its very own characteristics, e.g., public servants working not for the public interest but their own. it has been and is an acceptable, calculated waste in most countries, notably in western/northern Europe, as well as in America and Asia.

    The recent pandemic of criminal level of corruption and waste in American government, however, has a clear, documented source and it is reckless privatisation and deregulation of public services, mostly advocated and enforced by the Republican majority in congress and later, accelerated by the Republic presidency.

    I’m not saying government programs are very efficient, although they can be. But they are nevertheless necessary and while I can sympathise with your disappointment in them, I ask you to consider that in recent years, the US government has been dominated by people who won’t hesitate to benefit themselves through various tax cuts, privatisations, no-bid contracts and even wars. It works pretty well when it’s run by the right people.

  31. 31 julian Mar 24th, 2008 at 1:37 am

    Robin, how does someone build wealth? He has to hire people and do business with others. Walmart wouldn’t exist without the poor people willing to work for slightly above minimum wage and people who can only afford to shop at walmart. And unless he was born with a private army of his own, the government has to protect him from robbers and invaders and also from chaos and social unrest which is bad for most business. Thus, businesses and wealthy people do have responsibilities to the society.

    Considering all that, I don’t see how you can attribute all the merits in our civilisation to the wealthy and none to the rest of the society. That’s an extremely narrow view. Extremism is often wrong.

    And you make it sound like some bitter and jealous poor people are attacking the wealthy and trying to strip them of their wealth. It’s simply not true.

    I wouldn’t describe myself as being poor and I don’t see any reason to conclude that anybody on this thread, not just the left but anyone, is particularly poor.

    And I am simply promoting a very moderate idea(not some extreme communism) that a wealthy person can afford to pocket just 5 million dollars a year, instead of 6 or 7 million dollars he/she could pocket if the tax rate had been low or if there was a huge tax cut. That one or two million can do a lot to give everyone a fair chance to get education, medical service, etc, so that they may compete freely and fairly to climb up the social/economic ladder themselves.

    You shouldn’t have to work two jobs and still not be able to afford to go to school. No one has to die just because they are poor and can’t afford medical bills. Not when people in even less wealthy countries are getting free medical care. Not when our civilisation has evolved this much. We CAN afford this. We have been just simply choosing not to.

    I’m not saying take everything bill gates has and give it to homeless people so they can go buy ipods. I’m saying pay your taxes because it’s the law and we can make it less hard for those who start with nothing. Free education and free medical service won’t make any LAZY person rich. Lazy people will still be poor and those who really work hard will get the reward they deserve. And rich people will still get richer and even more so since a lot less of their workers will be sick and there will be a lot more of educated and skilled workers to hire. What’s wrong with that?

  32. 32 Jack Mar 24th, 2008 at 5:11 am


    I’m with you on some of your reply to Robin. At least in the sense that what Robin is missing is the integral part the less well-off majority plays in all those advances mentioned.

    Without the hard-working poor and middle-class, not only wouldn’t we have anyone working those factories, WalMarts, and more… but we wouldn’t have nearly as large a market to sell to either.

    To put it frankly in terms a capitalist would understand, If the poor are truly poor, so are the rest of us. While I’m sure the rich exercising their buying power matters a great deal, the buying power of the middle class has surely mattered more.

    With apologies for my second reference to French royalty in two posts, there is a sundial in the garden of the Musee de Cluny in Paris that reads “Rien sans nous” or “Not without us.” It was a message from the masses for King Louis that the aristocracy was nothing without the people.

    I’m also with you on the idea that it’s ridiculous that even the hard-working can no longer afford college… that pricy health insurance in America fails to cover pricier healthcare, which is a misnomer since the “care” is less than it could be for the majority of people… and I’ll add, it’s nuts that — unless you’re making $100K or higher, both parents in a household have to work to get by, yet full-time childcare will cost them around $20K per child.

    And sure, after reading Sinclair’s “The Jungle,” I’m glad the government was there to help end child labor and to hold the meat industry to a standard above letting rats fall into the sausage grinder. Not mention, it’s nice to know someone is supposed to be protecting our borders.

    I’m even with you on the fact that this past administration has been terrible for America. Worse, I believe, than any in our history. And time will prove that out for even the most stubborn of supporters.

    Likewise, I’d say to the post about “Democrat anti-capitalists” two words: Warren Buffett. Or two more: George Soros. And while we’re at it: Bill Gates or Steve Jobs. Every one of them happily made their fortunes on the back of the free market. But all have political views or have acted in ways well in tune with what might seem like the Democrat’s way of thinking. Massive charitable donations, vocal support for social causes, and more.

    But I don’t think, when it comes to figuring out wether or not governments deserve the money we give them, it’s enough to say that this current administration is some kind of money-wasting anomaly or that if only the money remained in the public sector instead of given over to privatization, it would somehow be better spent.

    I’m 42. Politicians have been terrible at managing money for as long as I can remember. And I’ve got a pretty good memory.

    I grew up in a major east coast city that, despite a high city wage tax and high property taxes, was famous for its potholes.

    I went to high school in that city that resolutely refused to leave the declining downtown community surrounding it. So I saw poverty first hand then (I was held up three times at both gun and knife point before I hit 16, on the way to school from the subway).

    These people in the neighborhood had no decent public school options, no access to good healthcare, and few employment options. Even though the tax money to pay for it was supposed to be there.

    Amtrak? Federal funds did nothing for it. Yet, Europe’s publicly funded trains are incredible. Our public schools? An abomination. And our publicly funded hospitals? You have to go to the third world to find worse.

    Is this because they don’t have cash? Sure, to some extent. Many of the individuals working in the public sector have very good and honorable intentions. Some of them are very smart too. Some even do their jobs efficiently.

    But, in the majority of cases, the money itself is poorly managed. And the higher up you go in the political chain, the worse that money-management becomes.

    Sure, there’s waste in every enterprise. Even the private ones. But here’s trouble with trying to fix America’s problems by throwing extra money at them (i.e. trying to talk the rich into pocketing $5 million instead of $6 million or $7 million: Giving them more cash to mismanage without forcing them to fix their mismanagement issues first, is like trying trying to “fix” the behavior of a spoiled child by increasing his allowance.

    That is, if you simply spend more money with the idea it will mean better public schools and hospitals — without forcing change in the way those systems work (or don’t work) — you won’t get better anything. You’ll just get richer administrators, politicians, and lobbyists.

    Again, Halliburton is a perfect example.

    It isn’t the disaster it is because its private. Private industry, even Halliburton itself, has done some amazing things. But in this case, they’re a disaster because they have operated with virtually no oversight. A morally bankrupt administration has funneled our money into their pockets. And for much of the last five years, we’ve allowed it. A majority of Americans — including those who provided the bulk of those tax revenues — openly celebrated it.

    That tide has changed, but only too slowly.

    However, I’d argue that the one thing that’s going to end the Haliburton scandal — and it’s nothing less — is NOT an argument for public vs. private projects. But a demand from the public that governments, both this one in particular and the ones of the future, think a hell of a lot harder about spending the money we fork over.

    That this administration has been especially wasteful can’t be denied. And anyone who pretends to be a capitalist should be shocked and disgusted by the level of that waste, too. But our whole system, going back to the 1960s or longer, has given up on fiscal responsibility. Simply because nobody demands they do otherwise, least of all the American voters.

    That we even allow politicians to campaign on emotionally charged side issues like gay marriage, stem cell research, abortion, or anything else… before demanding they clearly outline their plans for fixing the deeply flawed and troubled public budget… is morally repugnant.

    There is no issue more grave to the core of U.S. society than how its largest employer and draw on resources has spent the funds we’ve placed in its care.

    You make this statement:

    “You shouldn’t have to work two jobs and still not be able to afford to go to school. No one has to die just because they are poor and can’t afford medical bills. Not when people in even less wealthy countries are getting free medical care. Not when our civilisation has evolved this much. We CAN afford this. We have been just simply choosing not to.”

    Absolutely. The only place I imagine we disagree is in the shades of meaning behind that last sentence in your paragraph.

    When you say “we have been just simply choosing not to,” I’m guessing you mean that we’ve chosen not to open our purses to the people who need help. That may be the case. But if there’s a real failure of choice, I’m making the case that it happened not at the bank but in the voting booth. And in all those other venues where we’ve had the opportunity to make waste of the public resources shameful, but have chosen not to.

  33. 33 Jack Mar 24th, 2008 at 5:12 am

    Wow. That was a long post.

    Okay, I’m done. Thanks for letting me participate.

    I’ll read replies but spare you any more of mine.

  34. 34 MARY Mar 24th, 2008 at 8:27 am

    I think we can all agree that the person with $7 million can survive with $5 million, or the Gates and Jobs, etc. of the world can easily be generous. BUT, the tax rates for those people are the same for people earning $100,000.00-$200,000.00 who are also considered “wealthy”. it’s the small business owners, not the Halliburtons, that get hit the hardest. It’s the small business owner who, when their social security bills go up and up for their employees, and their health care and their state and federal taxes etc, will not be able to afford the new machinery, the new employee, the new advertising etc. to make their business thrive. I think we all agree that its disgusting when the CEO’s make $100 million dollars right before their company goes belly up. BUT, the government doesn’t distinguish between them and the dry cleaner, the plumber, the carpenter etc.
    The “little guy” is not really so “little” anymore, but they are still small enough to get some consideration instead of being blobbed together with the billionaires of this world. Believe it or not, the person earning $100,000.00-$200,000.00 isn’t the fat cat you might think he is. AND THEY ARE THE ONES THAT GET HIT THE HARDEST WITH THE TAX BURDEN, NOT THE MOVIE STARS AND/OR THE CEO’S OF OUR COUNTRY.

  35. 35 MARY Mar 24th, 2008 at 8:29 am


  36. 36 Alex Mar 24th, 2008 at 11:52 am

    Going back to the analogy in this blog post, the current tax rebate does not work in the same way at all. I just finished my taxes with Turbo tax and it told me that I will not be getting any rebate at all since we made “too much” last year.

  37. 37 Yan Mar 24th, 2008 at 2:09 pm

    LOL, same story here. My 2007 taxable income grew by 20% but my effective tax more than doubled. Where is that magic threshold when we become rich and start ripping the “taxation benefits”?

  38. 38 julian Mar 24th, 2008 at 11:16 pm

    You gotta be much much richer to see those benefits, I guess.

    Mary, if I understand you correctly, you are saying we need a tax reform that puts more burden on the very top of the wealthy(but not really that much) and much less on the middle class and maybe.. none for the low income earners. My thoughts exactly. And that’s how they do it in Sweden as far as I know. And they have a robust economy too, complete with a class of extremely wealthy as well.

    Jack, while reading your last post and at the beginning of this one, I kept thinking to myself “hey but that’s not entirely the fault of the system/governments. it’s the American government and Americans who don’t watch their government.” and what do you know, you made that point very clearly in this post. I agree 100%.

  39. 39 the webbed one Mar 25th, 2008 at 10:46 am

    I used to earn waaaay below the poverty level (mind you – was never on welfare because I don’t believe in entitlement programs for the able-bodied citizen). I got off my ass, learned a skill, became good at it, and now earn 5 times what I did 10 years ago.

    I do not feel it is remotely reasonable for me to pay a disproportionate amount of taxes simply because I chose to better myself when there are able bodied people paying NOTHING (and, in some cases, getting a “refund check” for more money then they paid in).

    I do not feel it is reasonable for people to get extra tax breaks for having children. Families with children use far more tax-funded resources (schools, roads, social programs, etc) than those without and we have to pay more in taxes than they do? Oh, it’s to help offset the cost of raising children? I love children and have one of my own, but you shouldn’t have them/more if you need an “offset” in the cost of raising them.

    I don’t think it reasonable for ANY of us to pay taxes into a system with a tax code so large and with so many rules, conditions, exceptions, and requirements that not even a qualified tax preparer can comprehend it all. That’s not “fair” to any of us.

    Regardless of whether the above analogy is accurate, our tax system is far beyond complicated. Whatever is determine should be paid by whom, it needs to be laid out in terms the average citizen (those without specialized training) is able to understand. THAT would be the first step toward reasonable.

  40. 40 Jayle Mar 26th, 2008 at 9:05 pm

    I think ALL of you are missing the point.

    If you add up the bill for each person after the the bar owner reduces the total amount to $80, you will find that everybody only pays $79.

    Where’d the extra dollar go?


    * 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).


    As far as I can tell, when the government gives a tax break, the government takes less money overall from everybody. Which is its intention.

    (Damn, am I sticking up for the government?)

  41. 41 Bob Apr 21st, 2008 at 11:36 am

    As good an example of basic economics as you’ll find on the Internet. And, about as many “get it” as you’d expect in any high-school Economics class. We’ve become a generation (or two) of whiners who want the proceeds of individual initiative without making any sacrifice to obtain them. Keep trying to pick the story apart and baying about how WRONG and UNFAIR it all is. Then move to Denmark, where cry-babies get a “better deal”. The guy with the biggest piece of the pie won’t miss you miscreants. He’s too busy taking risks so you can have entry-level jobs.

  42. 42 Brad taylor Oct 26th, 2008 at 11:39 pm

    Nice story, but if they really “paid their bill the way we pay our taxes”, it would go like this:

    The bill for all ten comes to $100.
    The first four men (the poorest) would pay 12.5% for SSI 8% for local sales and import taxes plus the landlord’s property taxes from their rent. It all adds up to about 25% of income even for the poorest.

    The next to the richest would pay about the same (25%), since only a small fraction of his income is spent retail, because his SSI tax caps at $85K and because he has access to tax planning.
    The richest pays even less since he shelters his income out of the country and all of it comes from rent and capital income such as dividends which do not pay into SSI.

    While the rich pay most of the income tax, capital gains and dividends, the poor pay the bulk of SSI, sales tax, property tax, gas tax and other miscellaneously taxes such as phone and utility taxes.

    The poor men order beans and bread, while the wealthier order steak. The richest one orders 5 courses and eats only a bit from each plate before sending it back nearly untouched.

    When the sit down to pay, the wealthiest proposes that since they should pay equally since they each pay an equal percentage of taxes. The poor men regret having to pay for the wealthy man’s expensive dinner and complain, but he says he has a brilliant solution.

    He pulls out a credit card. He says “this is a magic credit card. We can charge anything we want to it and it will never be cancelled.” When the poor complain that that is illogical, he says no it’s real and here is the secret why. “it’s not my card” he says, “it belongs to your kids”

    They agree that this is indeed a good plan and order a round of drinks ‘on the kids

  43. 43 David Oct 30th, 2008 at 8:44 pm

    maybe the poorest shouldn’t be out drinking? i have no problem with the rich paying more but we all need to live within our means.

  44. 44 david Oct 31st, 2008 at 5:12 am

    They spend much of their time overseas anyway, the wealthy become wealthy because the country showered them with the opportunity at the expense of the poor and middle class. They stay here to maintain control and prestige of the most powerful nation on earth and probably even tell themselves that they had a hand in creating it. This country is a safe haven for them or they would go somewhere else and good riddence.

  45. 45 Lance Oct 31st, 2008 at 8:49 am

    “No matter how rich you are, you can still only drink 17 to 18 liters of beer a day.”

    Anonymous German nobleman.

  46. 46 Wattssr60 Oct 31st, 2008 at 9:12 am

    I like the example but you forgot one tax payer that always pays more than there fare share…SINGLE Now no matter how much you make you will pay a LOT more in taxes. Why is this?

  47. 47 Jayle Nov 1st, 2008 at 9:25 am

    Because if you’re not shacking up with a woman and making babies you’re a godless heathen and you probably aren’t paying your tithe at church.

  48. 48 julian Nov 1st, 2008 at 9:55 am

    yeah, those evil single people.

  49. 49 Nick Adkins Nov 2nd, 2008 at 12:45 am

    this story is silly. this isn’t the way the American tax system works at all. this is just capitalist propaganda. in reality, the bottom four still pay sales tax on the beer, and more than likely grew up with less opportunity than 7-10. so i say make numbers 7-10 pay more towards the government that gave them the opportunity to get to where they are today.

  50. 50 Dreams Nov 12th, 2008 at 8:50 pm

    You forget to mention that the rich man has tax lawyers working for him to make sure that he never pays a dime in taxes to begin with.

  51. 51 acce245 Feb 5th, 2010 at 9:43 pm

    I think we also forgot that the 10th man makes and takes more than the other 9 combined. IT would be interesting to see how much each man makes, or is accountable for in the first place. I am guessing that $59 is a considerably smaller percentage of the wealth of #10 than the $18 is of the #9 and so forth. But this is just a guess. Most rich people donate more money in a year to charity to avoid taxes than most middle or lower class make in a lifetime. Keep that in mind too.

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