I Make It Rain

I had a friend who posted an article on his Facebook about the American tax system explained through beer. Here it is and then my comments follow...

Tax System explained in Beer

Suppose that every day, ten men go out for beer and the bill for all ten guys 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.

I think there's a falacy in the logic of this article. It assumes that all of people's needs (the beer) are met by the bartender (the government). But that's not the economic model used in the capitalistic, free market United States. That's actually large-C Communism.

This article is actually a pretty sound illustration of why a tax break doesn't benefit the middle class. Despite paying taxes on a percentage basis, real world costs (food, housing, clothing, gas) are on a dollar for dollar basis. And the tax cut you describe gives the tenth man ten times the actual dollar for dollar benefit as the fifth man and provides no benefit for the first through fourth men.

Take college tuition for example. That is a flat cost. If you go to the University of Minnesota and are from Minnesota, you pay the same rate regardless of your ability to pay. So a middle class family who makes too much to qualify for financial aid has a penalty in sending their children to college. They have to choose on a dollar for dollar basis where their money would be better spent.

In my opinion, the great flaw in conservative fiscal policy is not giving tax breaks to the rich. Freeing money from the grandstanding whims of politicians (who gave $700B to Treasury to "I dunno. Fix the economy or somethin'," without oversight) is a good idea. Taxes can only benefit the people who are paying in, the citizens of the country. Investment capital can benefit anyone anywhere, especially in areas that are poised for rapid growth in the globalized economy aka The Third World. It is that the money doesn't end up being put in investments that benefit everyone.

The money is ending up emphasizing the investments over the capital. People are buying dot.com stock and mortgage-backed securities to get a healthy return for their portfolios because investing in government projects (in the form of bonds) have been money losers in the conservative fiscal world. There's no reason in the profit motive to do something that's altruistic.

Merck, for example, isn't going to do a whole lot of R&D on a new tuberculosis treatment in order to share that research with its competitors. It would be foolish to expect people to work hard, get ahead and then flush that advantage down the drain. But the Centers For Disease Control would.

So if you're saying that there should be tax breaks to free investment capital for use in the world economy, then I agree with you especially if that money is bringing basic needs to developing nations.

If you're saying that a tax break is a way to create wealth, I still need to be sold because it seems to me to be just moving water out of one bucket and into another.

If you're saying that the rich are going to take their ball and go home, I encourage you to tell me a better economy for the wealthy than the one we've got. You know that liberals have been waiting 40 years to say this...

Love it or leave it.