Bar Stool Economics Options

[Robert]

I'm sure this overly simplified but at the same time reasonably accurate.
I though it was an interesting look at our tax system.








Our Tax System Explained: "Bar Stool Economics"

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, ladies and gentlemen, 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.

David R. Kamerschen, Ph.D.
Professor of Economics University of Georgia

[Genocide Junkie]

Hellster I think your assertion that the rich man would not put the money back into the economy in a meaningful way is at least in some part incorrect. Who do you think provides jobs for millions of the "poor" people? It's the "rich" people who invest in their own businesses etc. Much of this money goes to hiring new/more people, expanding, etc....I'm sure someone here smarter than me can say what I'm trying to say...

[Hellfighter]

Hellster I think your assertion that the rich man would not put the money back into the economy in a meaningful way is at least in some part incorrect. Who do you think provides jobs for millions of the "poor" people? It's the "rich" people who invest in their own businesses etc. Much of this money goes to hiring new/more people, expanding, etc....I'm sure someone here smarter than me can say what I'm trying to say...

Yes ol' chum , but what I'm talking about is the economic stimulus package.
From my shoddy calculations, a poor family would get just shy of $1000 the way the tax relief handout is set-up .... the modestly richer families would get $2000.
The goal of the handout is to get that money back in the economy fast while giving a break to those financially struggling -albeit a small break. Of course the spent money keeps existing businesses afloat which keeps producers and workers of the business employed and out out of the unemployment lines.

.... the rich won't be using that to expand/start a business. It's correct to assume a business owner, rich or poor [ lets not forget many business owners are poor and struggling to get by ] would reinvest some or all of that money back into their business that is having problems. A rich business owner with a thriving business would have no need to reinvest that 'bonus' money in the business nor wouldn't be spending it in the economy.
Being self employed myself, and from how I see it I know businesses aren't created by merely being rich and having money to do so, nor is it seemingly simple as the rich taking care of the poor -primarily, businesses are about making profits- whoever can be best employed for a role in the job; rich or poor employee is the least concern for the business owner-affording the best suited to make the job work seems to be the chief concern. Many paupers rise to riches by their own efforts and genius -they are the ones who create jobs for others too -that's who I know keeps the economy thriving .

The feasibility of the business is what has banks investing in it, or others with little means but a great idea pooling their resources and talents to start new ventures.... from my perspective. With enough means, the 'poor' can make their own start up businesses to get by themselves -'home businesses' are flourishing and though poor neighbourhood businesses struggle to exist- they get by.... until Walmart comes along and gobbles them up -> [I'm sure this'll start some fresh debate].

So while I understand your point about successful businesspeople developing further work opportunities for others, my point revolves around the tax relief package and the 'spare money' its supposed reinsert back in the economy with a strategic purpose in mind. My clear point is that the higher abundance of money should be going to the poor for they will be the ones spending all that 'spare' money. A lower portion of that relief package should go to the wealthier because they will not be spending it anyway- because someone is rich, I don't think we can assume they will invest the couple of grand they get in expanding a business already doing well. Primarily, that money is intended to be spent in the economy on stuff and services provided by businesses to keep thingsthriving -not really re-invested in a risk venture, ie a business- in the way that the money might not be productively spent - ie, the business might sink anyway and that 'new' money lost altogether.


This post has been edited by Hellfighter: 06/04/08 7:57pm

[HammaTime]

For the record, Kamerschen is on the record as saying he did not author the parable. Scopes did an investigation trying to ascertain the author, but failed to find the source. They did find one econ prof who uses it to stimulate discussion.

Which makes me think that maybe Robert should consider another career, you could be an econ professor!

Geno is advocating "trickle-down" as a means for economic salvation. Unfortunately, that economic theory has consistently been proven not to work, ever since about the time Ronald Reagan took his budget director, David Stockman to the woodshed. For those of you a bit hazy on history, Reagan was a huge advocate of trickle-down (give tax breaks to the rich and they sprinkle their largess among the downtrodden). Stockman was critical of his Commander-In-Chief because he wasn't living up to his promises to be fiscally responsible, and thus had to be taken to the woodshed. Sadly, Stockman was right. Reagan wasn't sticking with his policy and thus, their economic house of cards was collapsing.

The reason trickle-down and it variants are successful as political talking points is because EVERYONE thinks of themselves as being in the upperclass. Of course, that isn't true by a long shot, but that is what has given rise to this modern phenomena of poor people voting against their own economic interests. They've been tricked into thinking they are either rich, or they need to support the rich.

In the 1950's a firefighter or cop working the streets of Boston could afford a triple-decker in the city and many of them bought land and built homes around the lakes in Maine. There are entire communities that sprang up because a local precinct teamed up and all built camps near one another. Today, that local cop and firefighter relies on his or her wife for the second income. They can't afford to live in Boston, they most likely have to commute from the suburbs and forget about owning a second home. They are lucky if they can keep up with their bills.

Someone explain to me how our economic situation has changed so dramatically from the 50's. How have we gone from a time when a CEO made 10-15 times what the average worker earned. Today that disparity is reaching well over 1,000 times that of the average worker. I believe that average CEO pay has reached 10.8 million a year and the average worker is stuck at $29,544.

I sure would like one of you to correct me on this, but I'm starting to feel that we are being manipulated in ways that those beer drinker would never have imagined. Like a lot of us, I lost a ton of money when the bubble burst in the 90's. I saw an incredible amount of money vaporize out of the hands of average investors. For the first time in history, the general public had become part of the investment class. Well, those newly inducted members lost their shirt, and in many cases, their retirement. When people lose money, someone else makes money. My brother had gone short on ValueJet just a few weeks before one of their flights corkscrewed into the Everglades. He made an amazing amount of money as many investors lost their shirts. Who made money when the bubbles burst? Someone did, and something tells me it wasn't any of us.

Today we face soaring energy costs. I was complaining about my oil heat bill which had reached $420 for a month to heat my 2-bedroom condo. That's $4.20 per gallon of heating oil! Looking for sympathy, I spoke with my brother. The lakeside house he bought with the proceeds from the ValueJet crash hasn't been used this spring, but he got a bill for $2,800 which is what it cost him to simply keep the house warm enough so the pipes didn't freeze.

All of this tells me there is something dramatic happening here. Where is the money going that is pouring from our pockets. It isn't vaporizing like the fumes out of my empty gas tank. Someone is pocketing that money. Who is it??? If it is that rich prick at the end of the bar, kick his ass out the door. This bar isn't the kind of place he should be hanging out!!