How The Tax System Works In The Version Of Beer

[Monkey]

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 ball.

"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 men would 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 realised 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 a higher percentage the poorer he was, to follow the principle of the tax system they had been using, and he proceeded to work out the amounts he suggested that each should now pay.

And so the fifth man, like the first four, now paid nothing (100% saving).

The sixth now paid £2 instead of £3 (33% saving).

The seventh now paid £5 instead of £7 (28% saving).

The eighth now paid £9 instead of £12 (25% saving).

The ninth now paid £14 instead of £18 (22% saving).

The tenth now paid £49 instead of £59 (16% saving).

Each of the six was better off than before. And the first four continued to drink for free. But, once outside the bar, the men began to compare their savings.

"I only got a pound out of the £20 saving," 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 pound too. It's unfair that he got ten times more benefit than me!"

"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. This new tax 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 their 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 government ministers, is how our tax system works.

The people who already pay the highest taxes will naturally 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.

David R. Kamerschen, Ph.D.

Professor of Economics.

For those who understand, no explanation is needed.

For those who do not understand, no explanation is possible

Yes its overly simplistic, and that the idea i beleive. but its wrong. i cant see where though. our UK tax system doesnt work that simply so to be thats the first stumbling block.

[interestrateripoff]

To be fair it's all b0110ck, because the rich person would have an accountant ensuring he didn't pay anything at all and he'd be drinking free with the first 4.

[TheCountOfNowhere]

F**K That, I don't want any beer. I am forced to buy the beer for others even though I dont want to attend.

That's how the tax system works in the UK.

[RufflesTheGuineaPig]

Yes its overly simplistic, and that the idea i beleive. but its wrong. i cant see where though. our UK tax system doesnt work that simply so to be thats the first stumbling block.

The bit you are missing is the tenth man wouldn't be able to go out at all if the other guys weren't going out with him, because as a wealthy man walking alone random strangers would kick the living shit out of him and steal his wallet.

It's also important to remember that the wealthy man has his money because of the work of others. No-one actually does "work" with a value of millions of pounds. The question would need to be asked how the wealthy man came to have so much money in the first place... it's unlikely he gained it through truly honest means... most likely he gamed a rigged system for his own advantage.

[Dorkins]

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.

Like all good magic, the trick happened before you even realised it had started.

The top 10% of income tax payers do pay a high proportion of all income tax receipts, but then the economy has been arranged to crush the real incomes of lower earners via inflation in the cost of living, international trade with low wage economies and immigration of low skill immigrants. Meanwhile the incomes of many higher earners are protected by government subsidies and legal monopolies.

And don't forget the huge tax avoidance and evasion taking place at the top. Those trillions being held in offshore tax havens didn't reach their current owners via PAYE.

[Dorkins]

By the way, here's a bit of the backstory of this chain letter:

http://www.snopes.com/business/taxes/howtaxes.asp

Seems to have been going since at least 2001, and occasionally the authorship changes to another person who didn't actually write it.

[opt_out]

Why is the landlord cutting the price of their beers when he is in debt up to his neck and borrowing more every month?

[gadget]

The bit you are missing is the tenth man wouldn't be able to go out at all if the other guys weren't going out with him, because as a wealthy man walking alone random strangers would kick the living shit out of him and steal his wallet.

Also they left out the reason the rich man was rich.

He owned the brewery.

And now no one can afford as much beer he's no longer rich (because he leveraged up using his banking contacts) The brewery gets repossessed, he finds himself poor in the new country with no healthcare or social security (seeing as it doesn't tax) and he dies a lonely death festering in his own waste....

Edited April 11, 2013 by gadget

[tomwatkins]

Like all good magic, the trick happened before you even realised it had started.

The top 10% of income tax payers do pay a high proportion of all income tax receipts, but then the economy has been arranged to crush the real incomes of lower earners via inflation in the cost of living, international trade with low wage economies and immigration of low skill immigrants. Meanwhile the incomes of many higher earners are protected by government subsidies and legal monopolies.

And don't forget the huge tax avoidance and evasion taking place at the top. Those trillions being held in offshore tax havens didn't reach their current owners via PAYE.

LVT anybody?

[DeepLurker]

F**K That, I don't want any beer. I am forced to buy the beer for others even though I dont want can't afford to attend.

That's how the tax system works in the UK.

I feel pretty much the same, apart from the couple of words that I changed

[TheCountOfNowhere]

I feel pretty much the same, apart from the couple of words that I changed

[sleepless]

Not sure how, but seems to fit.

The Experiment- Part 1

5 monkeys are locked in a cage, a banana was hung from the ceiling and a ladder was placed right underneath it.

As predicted, immediately, one of the monkeys would race towards the ladder, to grab the banana. However, as soon as he would start to climb, the researcher would spray the monkey with ice-cold water.

but here's the kicker- In addition, he would also spray the other four monkeys…

When a second monkey tried to climb the ladder, the researcher would, again, spray the monkey with ice-cold water, As well as the other four watching monkeys;

This was repeated again and again until they learned their lesson

Climbing equals scary cold water for EVERYONE so No One Climbs the ladder.

The Experiment- Part 2

Once the 5 monkeys knew the drill, the researcher replaced one of the monkeys with a new inexperienced one. As predicted, the new monkey spots the banana, and goes for the ladder. BUT, the other four monkeys, knowing the drill, jumped on the new monkey and beat him up. The beat up new guy thus Learns- NO going for the ladder and No Banana Period- without even knowing why! and also without ever being sprayed with water!

These actions get repeated with 3 more times, with a new monkey each time and ASTONISHINGLY each new monkey- who had never received the cold-water Spray himself (and didn't even know anything about it), would Join the beating up of the New guy.

This is a classic example of Mob Mentality- bystanders and outsiders uninvolved with the fight- join in 'just because'.

When the researcher replaced a third monkey, the same thing happened; likewise for the fourth until, eventually, all the monkeys had been replaced and none of the original ones are left in the cage (that had been sprayed by water).

The Experiment- Part 3

Again, a new monkey was introduced into the cage. It ran toward the ladder only to get beaten up by the others. The monkey turns with a curious face asking "why do you beat me up when I try to get the banana?"

The other four monkeys stopped and looked at each other puzzled (None of them had been sprayed and so they really had no clue why the new guy can't get the banana) but it didn't matter, it was too late, the rules had been set. And So, although they didn't know WHY, they beat up the monkey just because " that's the way we do things around here"…

[Eddie_George]

Like all good magic, the trick happened before you even realised it had started.

The top 10% of income tax payers do pay a high proportion of all income tax receipts, but then the economy has been arranged to crush the real incomes of lower earners via inflation in the cost of living, international trade with low wage economies and immigration of low skill immigrants. Meanwhile the incomes of many higher earners are protected by government subsidies and legal monopolies.

And don't forget the huge tax avoidance and evasion taking place at the top. Those trillions being held in offshore tax havens didn't reach their current owners via PAYE.

This.

[winkie]

The rich man would borrow the money and buy himself a pub.....paying £1 wages.

[TheCountOfNowhere]

The rich man would borrow the money and buy himself a pub.....paying £1 wages.

You make a good point...The rich man in this scenario is the man controlling the commodity and how the rules are applied.

The other hidden man also will do well, this man being the one who provides the finance for the rich commodity owner to put a such a stranglehold on the item he is selling he is able to set the rules.

What we have here is a corrupt system where the initial obvious system hides what's really going on and the idiots stood in the bar are so drunk they don't see the bloody obvious.

As I said before, I don't want the beer, so I am sober enough to see through the charade.

The people in the bar would be better off a) not drinking, making their own drinks.

Or maybe I'm over thinking it....

Edited April 11, 2013 by TheCountOfNowhere

[Lewis Gordon Pugh]

The two men at the bottom pay nothing

The men in the middle pay everything

The man at the top pays nothing, and owns the pub so takes all the money from the other men. He also owns their housing, leases them their cars, sells them their food, but gives them free peanuts on the bar to make it look like he is paying his fare share. He also owns the enforcers that make sure the middle men pay up.

[disenfranchised]

If this was ACTUALLY like the UK tax system, you'd also have 4 people all notionally have the same gross income, all paying different amounts....

The company director on PAYE would pay £10

The owner of the pub decides to join in the drinking - he'll pay £11

(£5 for his share of the beer (income tax), £3 in corporation tax on the profits he made from it, £2 in business rates (for the pub they are sitting in) and £1 as a national insurance employers contribution to the government for the pleasure of giving the Landlord a job)

The financial services IT contractor would pay £7

(He'll claim the cost of the taxi to get there on expenses, and pay his stay at home wife up to the limit of her tax free allowance to be his 'assistant')

The financial services Management Consultant will pay £1

He will bill the companies he works for via an offshore company, and pay a token amount of UK tax. The offshore company will use a combination of Trust Law and 'forgiven loans' to return most of it to him tax free, whilst keeping about 15% for themselves in fees

This is partly why the economy is FUBAR. I sit next to guy at work who does the bottom one - I think he told me about it to impress me. I told him he is an immoral weasel and no better than the idle benefit claimants he profuses to loathe. We have agreed to disagree on matters moral and economic!

[R K]

Tax them too much, attack them for being wealthy, and they just may not show up anymore.

Taxation is only a lifetstyle choice for the rich.

Where did he go? Cyprus? Luxembourg? London?

[Guest_GradualCringe_*]

Taxation is only a lifetstyle choice for the rich.

Where did he go? Cyprus? Luxembourg? London?

It doesn't have to be this way if we could get past the one dimensional dogma between tax rates, tax revenue, and tax burden i.e. high tax rates mean greater tax revenue, and punitive higher rates of tax mean the burden falls on the richest.

Judging from the frustration you express in your comments even you seem to realise there is something wrong with this axiom aswell, although you seem to think even heavier punishment, punitive tax rates, and loss of freedom, will improve matters.

People will pay for things if they feel it benefits them to do so (it's why people voluntarily and spontaneously trade with each other, without the need for one to force the other to cough up).

Here's some history that always seems conveniently forgotten when discussing matters of government fiscal policy:

Mellon plan

Mellon came into office with a goal of reducing the huge federal debt from World War I. To do this, he needed to increase the federal revenue and cut spending. He believed that if the tax rates were too high, then the people would try to avoid paying them. He observed that as tax rates had increased during the first part of the 20th century, investors moved to avoid the highest rates—by choosing tax-free municipal bonds, for instance. As Mellon wrote in 1924:[6]

"The history of taxation shows that taxes which are inherently excessive are not paid. The high rates inevitably put pressure upon the taxpayer to withdraw his capital from productive business.

If the rates were set more reasonably, taxpayers would have less incentive to avoid paying. His theory was that by lowering the tax rates across the board, he could increase the overall tax revenue."

Andrew Mellon's plan had four main points:

- Cut the top income tax rate from 77 to 24 percent - predicting that large fortunes would be put back into the economy.

- Cut taxes on low incomes from 4 to 1/2 percent - tax policy "must lessen, so far as possible, the burden of taxation on those least able to bear it."

- Reduce the Federal Estate tax - large income taxes tempted the wealthy to shift their fortunes into tax-exempt shelters.

- Efficiency in government - lower tax rates meant few tax returns to process by few government workers, cutting the actual size of paper bills to fit into wallets saved expenses in paper and ink.

Mellon believed that the income tax should remain progressive, but with lower rates than those enacted during World War I. He thought that the top income earners would only willingly pay their taxes if rates were 25% or lower. Mellon proposed tax rate cuts, which Congress enacted in the Revenue Acts of 1921, 1924, and 1926. The top marginal tax rate was cut from 73% to 58% in 1922, 50% in 1923, 46% in 1924, 25% in 1925, and 24% in 1929. Rates in lower brackets were also cut substantially, relieving burdens on the middle-class, working-class, and poor households.

By 1926 65% of the income tax revenue came from incomes $300,000 and higher, when five years prior, less than 20% did. During this same period, the overall tax burden on those that earned less than $10,000 dropped from $155 million to $32.5 million.

Mellon also championed preferential treatment for "earned" income relative to "unearned" income. As he argued in his 1924 book, Taxation: The People's Business[8]

"The fairness of taxing more lightly income from wages, salaries or from investments is beyond question. In the first case, the income is uncertain and limited in duration; sickness or death destroys it and old age diminishes it; in the other, the source of income continues; the income may be disposed of during a man’s life and it descends to his heirs. Surely we can afford to make a distinction between the people whose only capital is their mettle and physical energy and the people whose income is derived from investments. Such a distinction would mean much to millions of American workers and would be an added inspiration to the man who must provide a competence during his few productive years to care for himself and his family when his earnings capacity is at an end."

Mellon's policies helped reduce the overall public debt (the national debt skyrocketed from $1.5 billion in 1916 to $24 billion in 1919 because of World War I obligations) from $33 billion in 1919 to about $16 billion in 1929.

[Diver Dan]

.

Edited April 11, 2013 by Diver Dan