Don't Forget to Tip Your Bartender

I really love when my right wing friends send me emails about how liberals look at the world. I am not a liberal by any stretch of the imagination. In fact I tend to look at issues from all sides, which probably explains why I get a kick out of the one sided view of these emails.

This is one of my favorites as it explains our tax system. You have all probably seen this before, but here it is.

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. He said, "Since you are all such good customers, 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 $2? 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 any more. In fact, they might start drinking overseas where the atmosphere is somewhat friendlier.

There is only one problem with this scenario. They forgot about the bartender’s tip. The bartender wants a 15% tip on top of the bill. The bartender likes the tenth man best because, well, he can tip better than everyone else. So in order to help out the tenth man, the bartender decides to give him a break on his portion of the tip.

In order to do that, he would have to collect more from everyone else to make sure that the entire tip is accounted for. So he decides to charge a 25% tip to everyone and then refund 10% back afterwards. He knows that sixth and seventh man can’t afford to pay 25% tip, so he decides to give them a credit back on their tip as well. So he builds in the 25% tip for everyone and then applies his credits. It goes something like this:

• The sixth now pays $2.50. Being poor, this man gets a $.50 credit and pays nothing toward the tip (0% of the tip).
• The seventh now pays $6.25. This man can afford more, but still gets the $.50 credit and pays $.75 toward the tip (6% of the tip).
• The eighth now pays $11.25. This guy can afford his full share of the tip so he gets no credit and pays $2.25 toward the tip (18% of the tip).
• The ninth now paid $17.50. This guy also can afford the tip, so he gets no credit and pays $3.50 toward the tip (29% of the tip).
• The tenth now paid $61.25. Since this guy is the best tipper, the bartender kicks him back the largest amount ($6.75), and so he ends up paying only $5.50 toward the tip (45% of the tip).

Now many of you will say that the tenth man paid most of the tip, but if you look closely, you will notice that he originally paid 59% of the bill, but only 45% of the tip. Where as the ninth man paid 18% of the original bill and 29% of the tip…and so on.

In the end the bartender still gets his 15%, but it is mainly paid for by the eighth and ninth guy. Now, this is really how our tax system works. The poor pay very little, the rich pay a lot, but in turn get all the tax breaks and if you happen to be somewhere in the middle, well then, you get to pay for all of the tax breaks and credits that the bartender (Congress) come up with.

You see the first example was not really our tax system. It is an example of a flat tax system, which we do not use in this country. BUT WE SHOULD! Then everyone would pay their fair share and would receive their fair share of any surplus. It would also eliminate the need for us all to file taxes and then we wouldn't need an IRS group the size of a small country or a tax code the size of the Encyclopedia Britannica (and that really would reduce the size of government). There would be no tax breaks, credits or shelters and more importantly there would be no more politicking over who can cut our taxes the most, when neither of them can anyway.