Barstool Tax Policy

What do you think of this parable about taxes and tax cuts? Is it a fair representation of how things work?

**Note to mods: I’m pasting the whole thing here since there appear to be no settled author of the piece. If that’s still against the rules let me know and I’ll delete it.

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.

The first part assumes that everyone shares in the benefits of wealth equally. It’s not so: the upper-middle class are the ones that have the most to lose, relatively speaking, from a lack of stable society.

The second part assumes that it is possible to opt out of society. While that might be the case in some places, it’s hard to do in America, with some of the lowest taxes in the civilized world.

While under an increased taxation regime, there would certainly be those that stopped working as hard on purpose out of a sense of spite, in general, the truly rich would not stop working any harder if they had to pay 60% rates rather than 50%. If they stopped working it would not only hurt society, many times, but also themselves, so in the real world it would be the pettiness of a few that would lead to any purported decrease in productivity (barring loss of productivity due to suboptimal decisions designed to increase write-offs which is another thing entirely.) In the real world, taxation is not equal to getting beat up.

You left out a few parts like the 2nd through 6th paying 9% of what’s in their wallet for social security, the 5th through 6th paying a higher marginal rather than the 7th through 8th because of the cap on social security, the fact that the majority of the money in the 9th and 10th persons wallet comes from capital gains so that they only pay half the price on the bill.

Then of course the lower price of the drinks don’t cover the costs, so all of them pass off the debt to their children.

It is disingenuous to complain that richer folks get more benefit from a tax cut, but it is also dishonest say that a tax cut benefits the “middle class” when it only returns a token amount and the real people who benefit are the wealthy. I’ve been man 2 through 9 in your analogy by the way, and I don’t think we are over taxed. I certainly see no reason why money made from capital gains should be taxed at a lower rate than that made by a factory worker.

It would be better if the scenario actually reflected how the tax cuts of 2001 impacted who pays taxes in America, as opposed to just implied that the example has something to do with real life. Using CBO data, here’s how the bar bill would be split by percentage (you can do the dollar calculations if you wish):

Poorest two men: 1.1% --> .90%
Next two men: 4.8% --> 4.8%
Next two men: 9.8% --> 10.2%
Next two men: 17.4% --> 19.1%
Richest two men: 66.7% --> 64.8

Cite 1.
Cite two

So, the reduction in the bill is not equally distributed among the patrons. The richest not only pay less because of the cut in the bill, their new share of the bill makes others (particularly men 7 and 8) pay a bigger share of the (admittedly reduced) bill than they did before. And, of course, it’s just nonsense that the poorest five people don’t contribute anything to the bill.