All right. So there’s an email circulating that makes a very bogus argument supporting Bush tax cuts for the wealthy, so I felt the need to refute a little bit. (Or a lot) It’s a lengthy read, but I tried to keep it entertaining. The pervasive email is first, with my comments in purple prose as usual, then I have a counter-metaphor right after, plus some comments.
Anyway, here’s the original email:
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.
(Quick Winlar note. I honestly have no idea if this scenario is accurate. I couldn't find any source to corroborate using such a simplistic breakdown. It’s certainly spin to some extent. The implication is that 40% of the US population pays no income tax, which my IRS auditor insists just isn’t true.)
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).
(Winlar note here. Yeah, I know. This comes out to $79) See below.)
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, ladies and gentlemen, 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.
(OK. Another jump in. This “The rich may get up and leave” argument always strikes me as an odd bluff, because quite frankly, where the heck are they really gonna go? England? Canada? If they don’t like the tax rate here, are they ever in for a shock! They’re going to go down to Mexico? South America? Then why are they so afraid of Mexico coming up here? I’ve never had this sufficiently explained.)
David R. Kamerschen, Ph.D. Professor of Economics University of Georgia
(Very important! This article was NOT written by David R. Kamerschen! He’s denied it. So have all the other PhD’s to whom it’s been accredited.
So apologies to him. Nobody knows who wrote this. Probably not a PhD or anyone who can add to 80.)
For those who understand, no explanation is needed.
For those who do not understand, no explanation is possible
(OK, and I’ll comment on this tagline as well real quick. It’s the equivalent of saying “If you don’t agree with me, you must be stupid.” Sure seems to close the door to any debate and subsequent education. Where does one even begin to enlighten such a closed-minded individual? Well, right here.)
Here’s a better story. (by Winlar)
10 guys go into a bar where beers are a buck a pop. That’s a really good price for beer. God bless America.
The first four guys have to work in the morning, so they each only have a tiny sip of beer. (about 5 thousandths of a beer, if you’re being scientific. Get your eye-dropper out and try this at home!)
The fifth and sixth have to drive, so they have 2.3 beers each. Probably more than they should, but they are large men and have full stomachs, so I guess it’s OK.
The seventh and eighth guys knock off an even 6 pack each.
The ninth guy slays a half-rack, plus half another beer.
Leaving the tenth guy to polish off… 70.88 beers. Which he does. It’s freakin’ amazing! Nobody needs that much beer, nobody should drink that much beer, and… good god, the dude just polished of seventy freakin’ beers!
So then it’s time to pay up the tab.
For some reason the 10th guy throws in 59 bucks. 83 cents a beer. Does he think he’s getting a discount for buying in bulk? I dunno.
The 9th guy pays 18 bucks. $1.44 a beer
The 7th and 8th guys pay a total 19 bucks $1.58 a beer
The 5th and 6th guys pay a total 4 bucks. 87 cents a beer.
The 1st through 4th guys had so little beer that their cost was incalculable. They do chip in for the tip though, and EVENLY SPLIT THE SALES TAX. This is important. These guys DO CHIP IN THEIR SHARE.
Now here’s the weird part. At this point, the bartender inexplicably gives them 20 dollars back, even though the bar tab was actually $103 and the group ALREADY OWES 400 DOLLARS, that they’ll likely just ask their children to pay. But I digress.
So they did some fuzzy math and determined that now they’d split it this way.
10th guy 49 bucks (69 cents a beer. Keep in mind that it’s DOLLAR beer night.)
9th guy 14 bucks (89 cents a beer)
7th and 8th paid 14 bucks total. (89 cents a beer)
5th and 6th 2 bucks (47 cents a beer)
1st through 4th continued to look on with unbridled sobriety.
(Again, yeah, this comes out to 79 bucks, but I’m not the idiot who did the original math in the first parable. Blame them.)
Wow! This was cool! Nobody was paying full price for beer! Sure, the beer had to be watered down, and fear that the beer would run out caused federal agents to wiretap the bar, and they tortured a couple guys for no real good reason, but I’d say it was a pretty good deal.
Except the 10th through 5th guy decided that it was unfair that the first four guys paid nothing. (Even though they actually did, in fact, pay something. I can’t stress this enough.)
“There’s 2 hundredths of a beer missing! (Even though it wasn’t) Why should I be paying for their endless sipping?” Slurred the 10th man. Again, how he is even able to stand at this point is a wonder. 70 freakin’ beers!!!
“We’ve been pouring your beer all night.” Replied the first four men. “I mean, without our pouring, you wouldn’t have been able to drink the 99.98 beers you all had tonight. Especially you and your 70 beers. We’ve been propping you up!” (Ah! Mystery solved!) “Who has time to drink when we’re so busy pouring? The only drops we get are the ones that ‘trickle down’ out of your glass!” (See how the author got ‘trickle down’ in there? That, my friends, is creativity and wit…) “It’s mostly backwash. Besides, we actually did chip in, it’s just that our total came to less than a cent, so…”
“Deadbeats! Everyone should kick in 10 bucks each! We’re all sitting in the same bar aren’t we? Fair is fair!” said one of them, probably not the 10th guy because, come on, how can he even do math at this point? Let’s say it was the 8th guy. He hasn’t done much so far.
“Yes! A flat tax-- er, payment system for our beer. Yeah. That’s it. Who cares how much you consumed! It’s the privilege of sitting in the bar you should pay for!” said, I dunno, the 7th guy?
“The privilege of watching you slam 70 beers?” Said guy 2.
“Yeah, love it or leave it!” said, let’s say the 6th guy.
“But we already paid a cover charge at the state and local level,” said guys one through 4, the metaphor starting to break down all over the place.
“Illegal immigrants!! It’s all the fault of illegal immigrants!” said… we’ll go with number 9 this time.
“My great grand-parents were born in this bar! I’m not going anywhere.” Shouted the 1st through 4th with a concerted voice, that, were this not just a metaphor, would be completely impossible for the segment of the populace they represent. Would that they could. Oh would that they could...
“There are no illegal immigrants in this metaphor!”
“It’s a bar! Who is washing the dishes then?”
“Good point,” everyone agreed.
Suddenly in a drunken rage, the 10th man jumped on a table. “Cheese sticks!” He screamed! “Cheese sticks! I must have some cheese sticks!”
And so they invaded Iraq.
So what have we learned?
One, we learned that the metaphor plays both ways. Sure, it’s unfair that one guy pays more than everyone else, but it’s also unfair the one guy HAS more than everyone else. And, if you gain nothing else from this parable, it’s that the wealthiest guy is paying less than a buck a beer. Much less after the tax cut.
And that’s if we honestly believe that the system really breaks down like that, but it doesn’t. Warren Buffett expressed outrage that his 60k a year secretary pays the same tax rate he does. He, who is worth in excess of 50 billion dollars. (He pays taxes on his salary of $46 million) A rate of 17.7 percent. The high end tax rate is supposed to be 35%, but I guess only suckers pay that. Kudos to Mr. Buffett for showing his outrage to this:
(At a $4600 a plate political fundraiser no less. Gee, there’s a level of political involvement we can all take part in! Much cheaper than the $35,000 needed just to get on the Republican ballot in ONE STATE. Yes. The more money you have, the more democracy you get. So let’s not take income disparity too lightly.)
And, lest anyone gripe about the 35% high end tax, did you know that in 1939 it was as high as 75%? That it soon after went to 91%? That it stayed there until 1964? But then again, that was different than now. There was a war on then… on two fronts… and… Do you see why I mentioned Iraq at the end? Well, anyway the point being is that the nation didn’t collapse. In fact we won a world war, became a superpower, and created network television! All despite Eisenhower’s socialist leanings.
This metaphor gets even worse when it’s a hundred guys in the bar. Then 1 guy (this time one percent of the US population.) drinks 38 beers while 40 guys share one fifth of a beer. The thought of sharing one fifth of a beer with forty guys makes me downright suicidal. One half the country has but 2.8% of the wealth.
And before I hear those arguments about “The wealthy deserve their money because they work harder than everyone else, and who are you to dispute what is clearly God’s will,” Let me just say “shut it!” That might have been true in hunter-gatherer societies, but we’re like 4 economic systems beyond that already. Yes, some of the wealthy are innovative industrious people, but others are Congressmen, television executives and Paris Hilton. There is no correlation between societal worth and income. Let’s stop relegating cops, fire fighters and school teachers to second-class citizenship because they simply aren’t greedy enough.
Lastly, I'm sure that someone will make the specious argument that I think everyone should make the same amount of money in this country. Uh, no. I'm no Communist, I'm no Socialist, I'm a Capitalist and THE PRICE OF A BEER IS A DOLLAR!!! The tab won't get paid if the people drinking the most are getting the biggest discount and paying less than cost. That's bad business plain and simple.
Other various problems I have with the “Bar Stool Economics” case. In no particular order:
-First off, the USA is not a bar. Germany, now there's a bar! (Italy btw is a bistro, Turkey is a great little out of the way place that nobody knows about, and Mozambique, oddly enough, is a Chinese take-out place.) America is more like a... gay rodeo for reasons I won't go into right here.
-The article focuses on only federal income taxes, not state and local taxes, property taxes, sales tax, etc. In the state of Washington, the poorest 20% pay 17.1% of their incomes in state taxes. The wealthiest 1% pays 3.6% of their incomes.
Plus, every time federal taxes are cut, states pick up the slack, so in this way the bottom 4 are indeed paying for that 20% cut.
And all of this egregiously leaves out the skewed rate of taxes on investment as opposed to earnings. http://www.ctj.org/pdf/earnpr.pdf
But I'm not going to spend a lot of time delving into the simplistic math of the original metaphor, as the original author (whoever that may be) didn't either.
-Again, the a general implication that 40 percent of the US population just sits around in a bar all day drinking and not paying for it. That's kind of insulting to... everybody. There should be some mention that the first guy is working 14 hours a day at minimum wage and really isn't able to join his friends too often. Yes my friends, most of the poor work:
-When the 10th guy pukes, who cleans it up? (hint: It isn't the 10th guy. Second hint: It isn't the 9th guy.)
-In this scenario, one guy owns 78.7% of all stocks, mutual funds, and retirement accounts.
-Imagine that the owner, the bartender and the 10th guy are all the same guy. They get to set the bar hours, decide what drinks are served, set the prices, gut the environment and go to war with other bars. Now the metaphor rings closer to reality...
-In a real bar, the bartender doesn't collect the bar tab, then turn around and give most of the money back to one of the guys. Lord knows I have waited for this to happen. But government (the bartender) does exactly that and most of the money goes to that tenth guy. (And when government borrows, it borrows from that tenth guy too. It then pays interest to that tenth guy.)
-No tip? We're such a cheap country...
-When angry bikers attack the bar, it's always the first four guys who put their asses on the line to defend the bar, while the 9th and 10th guy cower under a bar stool.
(This wasn't always the case, even as far as just a generation ago. All four famous Kennedy sons served in the military, none of the 30 Kennedy cousins have.) Is the blood of soldiers not negotiable currency in this bar?
-Don't forget that half the tab goes to paying the bouncer. That's what we're putting into defense. He keeps the guys from other bars from coming in and taking all the 10 guys' money. Hmm. Who benefits most from this?
-So, they beat up the 10th guy, then they can't pay the tab when he doesn't show? The flaw doesn't seem to be that they beat the guy up, but that they forgot to take his wallet. Easily corrected. (I mean, if they're going to equate an equitable tax structure with socialism, get it right!)
-America is spending too much time and money in the stinkin' bar. Liberals are just saying that it's time we spend more of both at home with the kids.
So there you have it. The nation's problems once again solved.
PS: Some links and thanks:
Thanks to everyone from these websites.
Keep fighting the good fight.
See you next week.