Economic Debate: Who is Getting the Better End of the Deal, the Rich or the Poor?

I recently engaged in a debate with some friends on facebook about politics and the like. When talking economic policy, a friend of mine shared this story:

Bar Stool Economics

Suppose that every day, ten men go out for beer and
the bill for all ten comes to $100 and 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.” so 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 paid $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 $50 instead of $59 (16% savings).

Each of the six was better off than before. And the first four continued to rink 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 $9!” “Yeah, that’s right,” exclaimed the fifth man. “I only saved a dollar, too. It’s unfair that he got nine times more than I!” “That’s true!!” shouted the seventh man, “Why should he get $9 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.

David R. Kamerschen, Ph.D.
Professor of Economics
University of Georgia

My friend isn’t Kamerschen, but was merely quoting him. Humorous, yes. But I would counter with this:

I’m not asking to pay nothing. I am for an across-the-board, fair rate. Tax us all 25% with no deductions.  At the same time, the wealthy can afford a bigger chunk without as much pain as the poor man. And what of the fact that the poor and the wealthy get the beer, but how about those middle guys still pay for the beer but don’t get to drink it? There’s welfare for the lower guys, and oil and business tax breaks for the big guys, but the middle is already suffering, and on top of that, let’s cut benefits for public servants, like teachers? Not to mention, under current Republican plans, not only are the middle getting screwed, but they want to cut the help for the poor with no penalty whatsoever for the rich. So the breakdown may be that each man pays 25% of their earnings for the tab, but the four poorest each get to drink maybe a fourth of a beer, the next few in the middle get some drops, or none at all, and the richest at the other end are enjoying multiple beers and laughing at the rest of us.

Isn’t that a more realistic breakdown? I can’t afford to keep living in this hole, not able to afford gas and food while the rich make record profits on Wall Street and at the pump. Those who have made their money in other ways, such as celebrities, often offer to pay more, knowing they aren’t suffering like those of us being asked for more and more that we can’t afford. You don’t hear the greedy people getting government help to amass even greater fortunes making the same offers.

I am for a fair economic policy. We do not have one. Until we do, quit asking the people at the bottom to support the people at the top. We just can’t take any more.