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Bar Stool Economics by David R. Kamerschen, Ph.D.

> 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.
>
> For those who understand, no explanation is needed.
> For those who do not understand, no explanation is possible.