Anil Samtani

• 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

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

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 paid \$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

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. /SPAN

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.

Economics that we all understand.................

• 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

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

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 paid \$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

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. /SPAN

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.

Economics that we all understand.................