November 20, 2008
Beeronomics – Entrepreneurs Learn The Tax System Through Beer
I’m going to share with you a great analogy to how the American Tax System works.
This is best I have ever seen this described. Make sure you pay close attention because it’s a good lesson why it’s important to be an Entrepreneur and more importantly why you should be wealthy. This guy is a genius and we could use more people like him.
Written by: David R. Kamerschen, Ph.D.
Professor of Economics, University of Georgia.
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% or 0% 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.
I hope you enjoyed the lesson in Beeronomics…
I couldn’t have said it any better. One things for sure either we better get educated about who we elect to keep taxes down or we’re all going to have to sober up!
Go ahead right now and leave a comment below. I would really like your thoughts on what you just learned.
To Your Success,
Andy Fuehl
© Copyright 2008 - Andy Fuehl - All Rights Reserved
Recent Comments:
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Comments on Beeronomics – Entrepreneurs Learn The Tax System Through Beer »
Jeff Fagin
@ 11:17 am
Hi Andy,
What a fun post to read. I could just see all of the guys crying in their beer when the wealthy one wasn’t there anymore.
We will all be at the mercy of the tax laws forever. No one will ever be happy about them. But compared to Canada, Americans don’t know what real taxes are!
I teach my clients how to legally create a tax free retirement income and avoid the whole problem. Given our current economic conditions, it’s safe to say that in the future, higher tax rates for everyone will be coming. The key will be in making sure your income isn’t taxable!
Great story Andy.
Jeff
Superdave
@ 10:48 pm
Along these lines, I hear the most complaints from the people that work for an hourly wage. And, the bitterness of the complaining comes from the lowest paid people.
We’ve ALL learned that Knowledge is Power from a very young age. Think back to saturday morning cartoons, and the commercials by Schoolhouse Rock. Yes, those commercials.
What we weren’t taught was how to APPLY that knowledge.
All the smarts in the world don’t amount to a cup of beans if you don’t know how to put the knowledge to work for you.
How does this apply to the Beernomics?
The wealthiest people learned first how to make money. Then they learned how to protect their wealth from the prying fingers of Government under the guise of taxes.
Now, we all pay taxes in one way or another. Taxes on fuel, food, real estate, clothing, and so forth. Frankly, I don’t mind helping pay for schools, police, fire, streets, and other things that make it possible for me to help people with my company, keep my family safe, entertain me from time to time, and helping people that can’t help themselves.
What I take substantial issue with is the people that are quite able to be productive, yet choose to milk the system.
People on welfare that drive BMW’s and have huge bigscreen TV’s, multiple Xbox type units, and enough jewelry to sink the titanic again. That chaps my hide.
People that whine about “I don’t make enough to live, so raise the minimum wage!”
The minimum wage wasn’t INTENDED to be a living wage. It’s INTENDED to make sure that sweatshops and their ilk had to pay something that was reasonable.
The wealthiest people porting their wealth overseas does a couple things as I see them. First, it takes a lot of money out of America’s coffers, and second, it improves the wealth of nations other than our own.
I feel like we’re sliding towards socialism, and it saddens me greatly.
I think back to the days when companies took care of their people, thanked them for their service to the company, and people worked all their lives for the same company, then their kids did it too.
I keep the Rolex my dad gave me for my 30th birthday as a constant reminder of the disloyalty of american business. On the back of the watch is inscribed my dad’s name, and the date of his “retirement”. But, it wasn’t a retirement at all - it was a “You can retire or we can lay you off. What’s your preference?”.
So, I own my business, I run it as best I can, I take care of my people as best I am able, and do what I can to keep people buying my goods over the imported crap from the big box stores.
I figure that eventually, we’ll rotate back around to the days when the people in the store knew your name, people waved as tehy drove down the street, and the biggest worry anyone had was what the local gossip was telling others.
Tax Masters
@ 12:30 pm
Isn’t that the truth!!! I heard an interesting interview with Arthur Laffer, famous for the “Laffer curve” on this very subject. In the Carter administration when taxes were 70%+, the rich just simply structured themselves outside the US in more friendly tax nations. And it’s happening now as well, where in Eastern European countries, as an example, have FLAT tax rates of 19% for businesses and business owners and their economies are growing right now, despite the downturn. Coincidence? You be the judge…
Todd
@ 12:02 pm
That was great!
Now, how about some practical and real life advice on taxes!
Thank you.
-Todd