Farmhand - Stanford GSB 2008

An insiders view of the Stanford GSB class of 2008

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Location: Stanford, United States

hitching a ride across the galaxy with my towel

Monday, October 06, 2008

Tax System Explanation with Beer

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 beers 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 very 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 DO get the most benefit from a tax reduction. They also PAY more than the rest. 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.

 

7 Comments:

Blogger JeevSingh said...

very nice...

12:49 AM  
Anonymous Anonymous said...

Actually, I would describe our tax current policy under Bush as the richest man gets the full $20 rebate and the other men get none.

Deadhedge

5:30 PM  
Anonymous Anonymous said...

Deadhedge. You should stop reading simple tax information like this. You are obviously far too stupid to understand the point of it.

8:41 AM  
Anonymous Anonymous said...

The economic policy would involve giving the richest man the full $20 debate on the theory that he'll then buy better beer for everyone and improve everyone's situation.

Deadhedge

8:56 PM  
Blogger Thibs (webmaster) said...

From absolute value, to relative, and back again...people use logical thinking in different ways, to justify there own wants and to reach their own objectives. This little story reminds us, in a quite entertaining manner, that a decision may be served by logic, but that in a context where logic is a multi-functional tool and is used a such under the same denomination of "logic", then the approach automatically discredits itself. ^^

With regards to taxes, I'm more of a right-wing guy, but being French, I'm not sure I have enough perspective on the US tax issues to formulate an educated opinion on the subject...

Anyways, thanks for the little story! :)

8:27 AM  
Anonymous Anonymous said...

1。那混合物是更缓慢的 ... 但是 Lexus 的即将到来混合版本 ' 将是比气体气体更快的唯一的版本如好地有多马力。不要自夸速度,但是我被吸引轮流开送行为 90,是警察给我一次休息。
2。那不是很
... 只是通过在城市乘公交车往返我储蓄过来 $ 5000/yr 与我的以前的汽车,吉普车切诺基相比。超过 5 年,会是 $ 更不用说会进一步增强我的储蓄的最近的比率远足的 20K。这样除非你是在你的父母的地产上吸的一个浪费的儿子,你的声明是一束公牛。

2:48 PM  
Anonymous Anonymous said...

3. 45 (90 r/t)
45mpg 天是 2 我的车上> 8 加>>比。那每天是 6 >仑的一笔>蓄, 120 月, 1440 每年者 5040 (根 3.5 元/) ... 加上它发表 1/10th CO2。多愚蠢是它不要骑一个,去算进今天和年龄。
4.缺少了解 ... 是真的,实际上我个人这样那样喜欢它我可能享受所有鼓励;税,合伙用车,免费停车米, prius 业主之间的秘密的信号,等等;这样自私地说那我真地在那里在享受在所有气体汽车业主上的所有权那没有一个想法多少我这辆汽车有的嬉戏。我 junked 我的 SL,郊区对我的 Prius ... 你应该也。

2:49 PM  

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