In my explanations of the Laffer Curve, I’ve shown evidence that high tax rates discourage productive behavior and boost the underground economy.
And if higher tax rates are sufficiently onerous, the resulting reductions in taxable income can completely offset the revenue-generating impact of higher tax rates. Indeed, this is what’s already happened with the “Snooki tax.”
And the same thing happens in reverse. If lower tax rates lead to a big enough increase in taxable income, the government actually collects more revenue – which is exactly what happened when the top tax rate was lowered in the 1980s.
I’ve also tried to explain, shifting from economics to philosophy, that confiscatory tax rates are unfair and immoral. And I’m glad to see that most Americans agree, with 75 percent of all people saying that nobody should ever face a tax rate of more than 30 percent.
Notwithstanding that polling data, though, I fear that many people don’t really understand the economics of taxation. So I’m happy to share this little story that periodically winds up in my inbox.
===============================================
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 ? How could they divide the $20 windfall so that everyone would get his fair share?
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 dollar 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 dollar 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.
===============================================
Very well done. Reminds me of the PC version of the story about the ant and the grasshopper, or perhaps the joke about using two cows to explain various economic and political systems.
And if you like those, you’ll appreciate this modern fable about bureaucracy, featuring an ant and a lion.
[…] and educational points about taxation. And they tend to be very popular. This story on “the tax system explained in beer” is my second-most-viewed post. And the “socialism in the classroom” example […]
[…] A good theory, until there’s nobody left to do the buying. […]
This is a sensible explanation. However, I find alcohol consumption to be distasteful.
Something similar to the cut in the analogy happened in my township. Over the past 20yrs what was farmland has become residential. What was 40 acres of pasture is now 20 $200k houses. On what was 20 acres of hay field, now stands 3 $300k mansions.
The budget for government services hasn’t changed though. We require $2mil, but the value of all the land increased. So they adjusted the rate per $1k of value so as to bring in the same reverse. This meant my property taxes dropped from $1400 per year to $800. In a more socialist area they would likely have just spent more and kept the rate the same.
Some people never seem to understand the purpose of analogies. First you need a subject that is neutral to everyone it’s presented to. Then it needs to be simplified to clearly teach a specific lesson. All this to help people see the forest from the trees, and that this analogy does.
The comments regarding commodities are incorrect. Since all government funding has budgetary restraints it actually makes what we receive from the government a commodity.
The comments that claim that the fixed price and quantity are not representative of reality are also incorrect. Most departments of government budget by proclaiming that they require the same as the previous year plus some for inflation. This is represented by the group using the same amount of beer each time. The cut in the analogy is just a discretionary cut of profits for the tavern (which they do to get loyal customers), but it could be that the bar actually got a deal from their supplier. However this is representative of when things come in under budget. Liberals and progovernment types think that money should stay in the government. Conservatives want the original payer to be refunded their portion that wasn’t used. This is what the bartender did.
To the commenter that asked, when has it ever happened that people revolted and ‘beat up’ the people who got more back?…
Well how about every time you hear “they need to pay their ‘fair’ share” for starters. ..though there are actual examples throughout history in every communist revolution.
I do not condone consumption of alcohol, however, this is a perfectly accurate way of describing our tax system. The richest pay more than low and middle income people. Perfect beers, there is nothing fair in a discriminatory tax system.
What this entirely misses is that commodity prices are the same regardless of your income: that beer cost X/pint regardless of your income. This is why progressive tax rates are fair. It’s not more complicated than that. The percentage you pay in tax may go up as you earn more, but you still become richer.
[…] stories that highlight the failure of socialism, redistributionism, and collectivism. “The Tax System Explained in Beer” and “Does Socialism Work? A Classroom Experiment” succinctly capture why it’s very […]
You know that other countries “overseas” have much higher tax rates, right? Also, your example doesn’t really work out, because it contains the assumption that all parties are fundamentally equal, and have an equal need and ability for goods and services. You are talking about a single commodity…beer, which is not a good example, because the government doesn’t *buy* beer on behalf of its citizenry. How about healthcare? That one actually works. Reducing taxes that find healthcare means that the poor drinkers on your analogy still get healthcare, but it also means that, because they do not have an ability to pay like your magnanimous Richie Riches who hang out with people poorer than them, they will probably receive substandard care. Guess what? The low-quality care they receive is going to likely lead to chronic health problems which, because they cannot pay, will be paid for by…your billionaires who already think they pay too much in taxes.
And please stop using the “I’m going to take my football and go home if I have to pay such high taxes” argument. It isn’t valid. People don’t acquire wealth because they like money (that is, in a nutshell why rich people tend to be incredibly cheap)…they acquire wealth because it brings status with it, and status matters a great deal in this nation. You are free to stop working at any time. Don’t try and tell people that your desire to work and work hard has anything to do with anything other than what *you* will get out of it.
Visit a third world country in your lifetime. I think it would ne instructive to see how people who don’t have it nearly as good as the poorest among us live.
Dan Mitchell, what you say makes perfect sense to me.
This has got to be the worst explanation of taxation I’ve ever read. We are all significantly more dumb because of it.
Robert Clark, income inequality will always exist in some form. Under Socialist economic models, we all go broke. Under Capitalist economic models we all get richer.
This analogy is so poor. First of all, the money that the rich pay is not to buy a commodity such as beer, but things such as roads, hospitals, welfare and schools that we all need. Secondly, when have people reacted in such a way to a tax deduction? Do poor people really get angry about tax deductions as their savings are less? Please give an example.
The point of progressive taxing is to reduce inequality, meaning you don’t end up with a small group of people having all the “stuff”. Having too much tax can have a negative effect on the economy, but this argument isn’t very representative of the truth.
Ken,
That’s what they did, and why they thought it was ok… until they left and reevaluated their personal savings and used angry mob socialist tactics to take from someone with more…
[…] Source: The Tax System Explained in Beer | International Liberty […]
[…] “The Tax System Explained in Beer” is the third-most-viewed post of all time, and “Does Socialism Work? A Classroom Experiment” is the fourth-most-viewed post. At the risk of oversimplifying, I think these columns are popular because they succinctly capture why it’s very shortsighted and misguided to have an economic system that punishes success and rewards sloth. […]
[…] “The Tax System Explained in Beer” is the third-most-viewed post of all time, and “Does Socialism Work? A Classroom Experiment” is the fourth-most-viewed post. At the risk of oversimplifying, I think these columns are popular because they succinctly capture why it’s very shortsighted and misguided to have an economic system that punishes success and rewards sloth. […]
[…] “The Tax System Explained in Beer” is the third-most-viewed post of all time, and “Does Socialism Work? A Classroom Experiment” is the fourth-most-viewed post. At the risk of oversimplifying, I think these columns are popular because they succinctly capture why it’s very shortsighted and misguided to have an economic system that punishes success and rewards sloth. […]
[…] “The Tax System Explained in Beer” is the third-most-viewed post of all time, and “Does Socialism Work? A Classroom Experiment” is the fourth-most-viewed post. At the risk of oversimplifying, I think these columns are popular because they succinctly capture why it’s very shortsighted and misguided to have an economic system that punishes success and rewards sloth. […]
[…] “The Tax System Explained in Beer” is the third-most-viewed post of all time, and “Does Socialism Work? A Classroom Experiment” is the fourth-most-viewed post. At the risk of oversimplifying, I think these columns are popular because they succinctly capture why it’s very shortsighted and misguided to have an economic system that punishes success and rewards sloth. […]
Why is the $20 reduction being dealt with at all? Shouldn’t they just use the same formula they used for the $100, but now use it for $80? The flaw in the example was the question “how do we divide up the $20”? That should not be done. Instead, it should just be “let’s recalculate our shares of the $80 bill, using the same formula we used before.” This would eliminate the idea of applying yet another formula for distributing rebates, which isn’t really necessary and makes the whole thing more complex than it needs to be. Besides, all the men were happy with the formula when it was applied to $100, so they would likely be very happy with the same formula used on $80.
[…] Venezuela is a real-world example of the famous parables about socialism in the classroom and buying beer with class-warfare taxation. Demagogic politicians don’t understand (or don’t care) that when you punish production and […]
[…] Venezuela is a real-world example of the famous parables about socialism in the classroom and buying beer with class-warfare taxation. Demagogic politicians don’t understand (or don’t care) that when you punish production and […]
[…] Venezuela is a real-world example of the famous parables about socialism in the classroom and buying beer with class-warfare taxation. Demagogic politicians don’t understand (or don’t care) that when you punish production […]
JC,
As you stated, the benefit is the infrastructure, not what they do with it. Let’s say two people have unlimited internet services. One uses it to run a business, the other facebooks, shops and orders pizza online. The internet is an infrastructure. Both used it equally, and received the benefits they wanted. One produced, one consumed. One profited, one spent. The lack of financial common sense of one isn’t the responsibility of the other. They both had equal opportunity yet made different choices, with different outcomes, wealth vs debt.
The same infrastructure you pointed out that helped your wealthy person create profits is utilized by others to receive goods and services, also travel abroad. I know many who financed vacation with credit card. These individuals utilize the infrastructure to lose money by choice.
There’s a difference between rich and wealthy. Rich have a high net worth. Wealth is a time measurement, how long can you maintain your standard of living without income generated by your own input. Wealthy have time and money.
Wealthy think different, they use their earned income to buy assets that generate positive cash flow. They continue until the assets out earn themselves, thus financial freedom. They let assets pay for lifestyle. Assets are taxed less so everything costs less with that money. This strategy is available to everyone, and is designed to push people to be business owners, adding to our national standard of living. Most employees spend their earned income on disposable liabilities(cars, electronics,etc.). This means they never have anything to show for their effort, and to work till they die.
In the beer analogy, while the 1-4 consume all their shares, until in a drunken stupor they fight over scraps. The tenth may invest a portion of his in the cute gal down the bar, potentially yielding dividends later.
[…] The second-most viewed post of all time is a parable about buying beer, which is actually a lesson about the dangers of so-called progressive taxation. And the third-most […]
[…] The second-most viewed post of all time is a parable about buying beer, which is actually a lesson about the dangers of so-called progressive taxation. And the third-most […]
In this Metaphor:
Bill = Taxes
Beer = Benefit
The Flaw is that benefits provided by taxes include infrastructure that makes commerce possible, which the 10th man and his greater wealth benefit more from than the other nine.
Example – 1st man uses roads and highways to transport himself and family only. 10th man uses roads and highways to bring goods to market through his enterprises that require the consumption by some of the nine other men in order for 10th man to have someone to sell goods to and labor from some of the nine other men to have goods to sell.
The greatest part of taxes go toward military spending. If the bill didn’t include securing overseas shipping lanes (energy, goods) and overseas holdings (which the 10th man has, and the first four probably do not, then the military budget would be much smaller, say detection and deterring defense.
In this metaphor, the 10th man is drinking more beer than the other nine. If he does not need all those beers (infrastructure and defense to make his wealth possible) or the other nine men laboring and/or consuming to contribute to his wealth, then he wouldn’t need to pay more of the bill (percentage wise). Though maybe with the proper metric of how much beer (infrastructure, defense, opportunity to sell to the largest market in the world, labor with which his product or service is possible) the 10th man receives compared to the bill (taxes) he pays, perhaps he is getting more beer than he pays for. The bottom 4 or 5 certainly are receiving more beer than they paid for by any metric.
And after the other nine attacked the 10th man, he was right to not show up for more beer. Though after a few days, another man realized how much beer was to be had (using good math and a correct metric) and took the 10th man’s place.
Or maybe the 9th man moved up!
The 10th guy seems like a really sharp fellow. Certainly if there were a bar where he could get more beer for less money, he would already be there. Maybe he is getting a good deal for the “one” beer he was receiving… Until he was attacked. That is a lousy left move, entitled to beer.
[…] The following article, written by Ron Adams, appeared in the February 23, 2002 issue of the Lakeshore News-Salmon Arm, British Columbia. The link I had to it no longer works and I have been unable to find it via internet search, A very similar story can be found at: Explaining the Tax System with Beer […]
[…] And the socialism-in-the-classroom example, which may or may not be an urban legend, makes a similar point. As does the famous parable about taxes and beer. […]
Thomas k,
You have it backwards, the beer is referring to public benefits. By this I mean every thing tax money funds. So the people who get the most “beer” are the first 4, those who work the gov’t, and those who contract for the gov’t. Which pretty much places some in every position 1-10… However, 1-4 all drink and only some in the 5-10 get more than a sip.
I have to love it when Atlas Shrugs. I could even get behind an impolite comment tossed off by him as he leaves.
[…] and educational points about economics. And they tend to be very popular. This story on “the tax system explained in beer” is my second-most-viewed post. And the “socialism in the classroom” example about the perils […]
[…] and educational points about economics. And they tend to be very popular. This story on “the tax system explained in beer” is my second-most-viewed post. And the “socialism in the classroom” example about the perils […]
The flaw in this argument is the assumption that all these men receive equal amounts of beer. What if the first four were given a sip. The Fifth paid for a pint. The sixth got a six pack. The seventh a 12 pack. The eighth man got a case. The ninth got a keg. The tenth man owned a brewery. Now why is that man paying only $59 for an entire brewery when I paid a dollar and only got a pint?
Life-aisi,
The entities you refer to do exist, and you are correct in your observation of their absence in the analogy. It isn’t the tenth guy though, as you surmise, the tenth man is just another schmuck like us all…the story is only discussing those who ARE paying for government spending, not those who are robbing them.
Those who you mention would be the banks. You see the thing many do not realize is our federal reserve is neither federal or much of a reserve. It’s privately owned and chartered by the government, the relationship is similar to how a person starts an LLC to shelter their personal life from their business risks. Though there is much misdirection, smoke & mirrors going on, the amount we pay in income tax is roughly what we are paying for use of the banks currency.
They are called federal reserve “NOTES”…notes are short term high interest loans, so it’s fitting that they are charging us interest for the possession and use of this legal tender. While they have everyone squabbling over which tax payers should pay, they are debasing the currency. When the fed talks of lowering the interest rate they are essentially increasing currency supply lowering its value, a gold standard can end their game.
The thing that needs addressing is first what are we paying for? Are we receiving it? Is it beneficial for everyone paying taxes? If it is not it should be relegated to either church & charity or private enterprise which will be paid by the end user. If it doesn’t fit those criteria, it was a waste of taxes scamming everyone.
Imagine if your household was going backwards with every paycheck. You look at your expenses and see mortgage, insurances, taxes, vehicle loans, grounds keeping, phones, internet, cable, utilities, recreational debt, security service, etc…then you also notice you are paying for your neighbors utilities, grounds keeping, vehicles, security, phones, and cable, all so they don’t devalue your estate. Now these particular neighbors are sec 8, they also do not pay taxes or insurance.
In this scenario if you were a liberal you would be fighting over who in your house is going to get an additional job.
A conservative approach is to say, first that the neighbors can pay for their own vehicle, and all the vehicles in question should be downgraded, you and the neighbors don’t need escalades. The grounds keeping can be done by the kids. The neighbors utilities and security are their responsibilities. Your phone, cable, and internet services are not necessities. And if you have recreational debts…it’s not time to play, sell them and earn them first. There are also countless other expenditures people commonly have like playing on bar leagues, pedicures/manicures, brand name clothing, etc that aren’t necessities.
To clarify my analogy, you and your spouse are the taxpayers, the kids are the poor and low income. The neighbors are foreign nations.
We need to cut back on developing other countries until we have a surplus. We supposedly do it so their problems don’t spill on to us. Which is like maintaining others property to retain your value, but what’s it matter if you’re in foreclosure.
The poor, like the kids, benefit from a place to live and food to eat. So they should contribute in ways in which can that would normally cost us more. Attach certain amounts of hours of community service to welfare and food stamps.
There is a lot of frivolous spending like the unnecessary items in my analogy. When you mention cutting taxes liberals instinctively ask, “you want good roads and schools don’t you?” This past year in a local community they spent over 100k on rusty steel bird sculptures. No one consulted the community or took bids, the city council just spent on things nobody wanted and few like. Yet the same municipality cut public bus services and curtailed snow removal and sand/salt operations because they were running out of funding. If they had spent it on road supplies and had people on the government dole administer it, 100k could have went a long way bettering transportation, rather than rusted roadside steel…
Your 10 man Beers story doesn’t account for the fact that the 10th guy owns the bar and Jacks the prices up to cover the 50 cent actual cost of his beer. He not only pays nothing he makes enormous profit on the deal. But he’s got the 7,8 & 9th guys convinced he’s really paying for everybody, when actually THEY are paying for Both Ends.
Fantastic post. Hard-To-Find a post of the quality.
Thank you
[…] our tax system is what it is. For those of you who refuse to accept this, why not have a look at this little analogy of how a proportional tax system works and then come back to read the […]
Unless you meant the costs rose in terms of currency devaluation, which the only cure for is a stable defined currency, an actual money. We haven’t had that since Nixon ended the gold standard. Then their could be an end to the debate on the debt ceiling, if we don’t have it don’t spend it. We couldn’t send checks to people based on an iou to the federal reserve.
My favorite analogy on this is, if you come home and your septic is backed up and is upto the ceiling do you…
Raise the ceiling…
Or shovel out the crap?
Jezbeach,
That would be the case if it wasn’t for the difference between how the analogy is applied and how you are altering it. The analogy assumes an unchanging bill based on a certain amount of expenditures decided upon by the group. What you are ascertaining is that the bill contains necessary expenses. But what our issue in our country is…the bartender is throwing on others drinks on our bill from other people in the bar without asking. We pay for a lot we don’t want, or need. Your version assumes that the cost rose. However, the expenses incurred weren’t from the people paying but others in the bar decided upon by the bartender.
The analogy is assuming the bartender is the government.
Which should be the expenses of general populous for their benefits. When that money goes for things that are not for their benefit the people paying have a right to be upset.
But now the pub has fallen on hard times and needs to charge £20 more for the beer or they’ll go out of business. But the rich man is arguing that it’s
unfair he should pay £10 more when the others only have to pay a little
more or nothing at all, and threatens to leave if they try to increase his bill even a bit, let alone what would be a fair increase.
Davide
The 10th man set up a business and created more wealth than the other ones. Therefore, he should enjoy the spoils of victory.
You only get out what you put in.
[…] sixth place, we get some 2012 lessons on how a story about beer can be used to explain the failures of class warfare tax […]
[…] P.P.S. If you’re interested, my three posts with the most views are the set of cartoons showing why welfare states collapse, a joke about California and Texas, and a story of how you can use beer to explain the tax system. […]
I find it interesting how definitions of terms change depending on philosophical beliefs…
When a conservative says that “the government/taxpayers paid/gave money to…”, they are referring to actually sending a check. Whether as compensation for a service or given based on someone’s opinion of worthy or needy.
When a liberal makes that statement it often means a taxpayer was allowed to keep profits the open market said they earned by the value they brought to society…how dare a taxpayers take taxpayers money by not paying money to themselves…
And somehow this insanely ridiculous liberal logic sells in the mainstream media to the very people whose money is up for grabs…
dear glandry,
Thanks for perfectly illustrating the symptoms of my previous points. Prices keep rising, yet “living” wages are difficult to find…why is this? You are also absolutely correct that there is more to the real world. You see the part I like about the story is it helps illuminate the truth about income taxes, which are all most people think about.
However, as you say there is more to the real world. In my state there is a 5.5% sales tax, so if you live paycheck to paycheck all your “take home” is taxed again. Then there is property tax, which 50% of pays for public schools whether your family utilizes them or not. Then gas/highway tax, registration fees, permit fees, license fees, mandated inspection fees, etc. You can see that even though in my case I am only working 8 of my 40 hrs to pay income tax, way more pays others taxes.
Now for the part the media and government doesn’t mention…let’s say somehow you keep 50% of your income after all your dues mandated by government (not likely). Everything that was taken from you is taken from others as well. That cheese you mention, from a grocery store with stockmen, cashier’s and management plus owner. It was delivered by a trucker, with a company and owner, from a cheese factory with employees and owner. The milk was trucked there by someone from a dairy farm. That farmer in the past relied upon his children to help manage the operations, sharing in bounty & bust. Now government wants the farmer to hire employees and subject him to all the extra overhead in that, in the name of safety.
All those involved in getting that cheese to someone hungry pay taxes with the money from it’s sale. So your money is taxed again & again. Above & beyond their overheads everyone expects to pull a living wage.
Trucking requires the transport company to pay upwards of 100k just to be in business because of government regs, before any equipment or operating expenses. This makes owner operator operations difficult to start, and induces monopolies because of economy of scale.
Grocers have seven figures leveraged before they open the door, and hope the community stays in existence.
The farmer has to hope that rain comes when needed and in the right amount, and temperatures stay mild. Or without feed he will reduce his herd. This may temporarily lower beef prices, but lower milk production raises prices.
A side note on this, if crop production fails, the increased dependence on biofuels means our both our food and energy are competing for limited resources. By the time there is shortage of a crop it’s too late to plant it elsewhere…the lack of foresight on this is inexcusable…relying on the weather has collapsed many a nation. Ours will be no different if crops are counted on for fuel….
All those businesses I mention because if there isn’t an incentive of increased reward there will be no-one to take the increased risks of business ownership. Would you take out millions in debt hoping if all goes well you might take home a cashier’s pay?
If the government involvement was limited, fees could be removed, decreased fees mean more entrepreneurs, which leads to competition in the market, inturn, If there were not those taxes, prices would come down with the overhead. Now with increased take home pay and lower prices you have living wages with out any change in gross.
As for your single mom example. I have the utmost respect and admiration for women who can manage being mom and bread winner alone, either is tough, both is unimaginable. I know women who hold down 3 jobs for this. I have been on a time card since I was 12, I’m 35 now. I took off 2 semesters for schooling, I made the excuse that since my class schedule was 7am- 5:30pm I couldn’t work…one of these women ended up with my schedule yet still worked at a convenience store, after close she cleaned a large office building and on Fri-sat she waitressed….I felt like the most worthless puke studying alongside her, I got a 56hr a week factory job halfway through 2nd semester and quit the excuses…
The food assistance programs are a hot button issue in my state as there is a temporary increase that is ending now. There are whining lefty liberal extremists all over the news saying that some families will lose $20/mo. What they fail to say is how much they receive, and for what. Those I know on these programs receive over $800. They have all offered me food, as they said that they could not possibly eat it all and they always end up tossing it. One still shops frugally because he knows that it’s not free, but his wife thinks he’s nuts and should spend it all. A girl my roommate was with was on food and rent assistance, and 3 fathers child support. She was irritated with the lack of snacks at my place and used her food card to buy over $100 worth of hostess, little debbie cakes, chips and cookies to keep at my place for her kids. I was floored, I knew with wick checks only certain nutritional foods could be purchased. After I learned how these other programs operate they lost my support…as for desperately looking for a job, that girl got one, on day three she walked off, telling me “you don’t understand…it was boring, they wanted to stay there all day!”…”I’ll just stay home, I get more money anyway…”
…unfortunately someone has to work, I’d rather the girl with 3 jobs get my $…
What a truly FUNNY story! If only real life was about things as frivolous as drinking beer. But it isn’t. For many Americans, real life is about day-to-day survival. And we don’t need to suppose fictional situations to understand that. Take a real example:
Every day, these families of four eat cheese sandwiches on white bread for lunch. Four sandwiches, each consisting of just two pieces of white bread and a single slice of cheese will cost $3.16 for the family’s noon meal.
• The single mother whose husband has abandoned her and their two pre-school aged children has .75/meal/person in food stamps to buy her meal, so she’ll have to cut back to a less luxurious meal sometime this month to make up for the .16 she’s short for this meal, or she’ll run out of food before the month ends;
• The father working full-time at a minimum wage job in a clothes factory to support his family of four will work 30 minutes today just to be able to afford his family’s lunch;
• The two-income, middle-class household ($53,000 combined income) will have about $20 of disposable income left over from just one hour of today’s income;
• The corporate executive, with an annual income at the very bottom ($344,000/year) of the top 1% in the United States will have about $160 in disposable income left over from just one of the hours he works today. That $160 is more than the factory worker will gross for three days’ work.
Unlike the beer drinkers in the funny story, the first two families aren’t very happy with this arrangement. The single mother prays for a job that will allow her to support her children and worries constantly about how she’ll feed her family. The father in the factory struggles to make ends meet and wonders if his children will ever go to college. But the two-income family and the corporate executive aren’t happy either. They hate cheese sandwiches and are anxious to get back to a good restaurant meal tomorrow.
And unlike the funny story, in the real world prices aren’t going down. The price of staples like bread and cheese are rising, faster than many other non-essentials. So how does a .10 rise in the price of a loaf of bread affect these families?
• The single mother falls even further behind on her meal allowance and the food runs out before the end of the month. The city’s food pantries were emptied weeks ago by the ever-increasing number of poor, hungry Americans unable to find living wage jobs. Her children are hungry, performing poorly in school, assuring they’ll have little chance of realizing the American Dream;
• The father now knows it will be cheese sandwiches for a long time to come. He prays the factory doesn’t lay him off and send his job overseas so the shareholders can get a higher rate of return. Maybe one of the kids might be able to afford some community college classes;
• The two-income family doesn’t even notice the small increase when they checkout at the neighborhood grocery;
• The corporate executive ponders whether it is time to move that clothes factory to South Korea. The walnut inlays on the corporate jet need refurbishing.
And that, boys and girls, journalists and college professors, is how the reality of our economy works. The people who have the highest incomes can most easily bear the costs of our great nation’s social compact. Tax them at the rates we did twelve years ago when we were running a budget surplus (and not slashing away at our social safety net), and their daily lives will be relatively unaffected. In fact, they might like having a balanced budget and a government that is reducing, instead of increasing its budget deficit. But the revenue generated will allow us as a nation to continue to “do for the least among us”.
[…] not mine, and many may have already seen it. But see if we can answer the questions at the end): The Tax System Explained in Beer | International Liberty Suppose that every day, ten men go out for beer and the bill for all ten comes to $100. If they […]
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[…] The Tax System Explained in Beer […]
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I thought about it and everyone might be right, the analogy did leave something out. At least one of the the first 4 poor not only drank for free, the bartender (government) paid them to spill beer.
I’ve lived around poverty and low income individuals my whole life, and I am close friends with many in that world. Many people who are just scraping by on up to upper classes honestly look confounded with disbelief when you speak of the shenanigans that go on in the life of the poor. They also never believe the extent of the problem, as they avoid the trappings that plague those almost underground communities. Those getting by without assistance can’t understand somebody living on assistance by choice.
Because of the ignorance of many well meaning hard working individuals who believe in giving back to the less fortunate the problems multiply unseen to them. Like feeding that stray cat in the neighborhood. Soon theres fifty cats wanting easy food…when not enough, tearing into garbages… which attracts rodents…which the well fed felines won’t chase…soon everything you’ve worked for is full of mouse nests and smells of cat excrement…
I don’t have an issue with those at the bottom not paying into the system, it’s the system that rewards them for doing the opposite of what is required to rise above their current conditions, that I loathe. There are those who can’t fend for themselves, this isn’t about them.
I know many who receive larger tax refunds than there gross wages, on top of all living expenses paid for. These are able bodied individuals with jobs who use government protections to miss work upto half the yr. Earning enough to qualify for somethings but not enough to disqualify them either. Never marrying, though in stable longterm relationships, because you get capped on benefits. Then there’s their 10 kids on meds paid for by us that they resell for side income.
Often kids raised in that life know only that life and pass its ways on from one generation to next. Some who get caught up in it just fell on hard times and through word of mouth find themselves on programs, then associating in a community of others similar and worse off. They pass knowledge of every loophole, but in the end can only rise so high, if they try to just work they lose all benefits and work 3 times as much for less take home. Thats why they end up trapped, and more go in, more get trapped, more go in…
One friend on programs was off work for over two yrs when our governor cut funding to his programs. After a month of whining and griping to everyone who’d listen, he went two blocks down the street and took a welding job for nearly $20/hr with 60hr wks. The job was there, he needed motivation to take it.
Forgot to respond to your core jobs comment. This is one area liberal politicians love to hold the knife to. Whenever you say cut taxes, they say “guess we’ll just have to cut police, fire, and schools, conservatives made us do it” Or “guess our roads and bridges are going to fall apart”. Even though there are plenty of areas to cut that have no value to the citizens of this country.
Like arming three separate nations militaries with everything including fighter jets, and these regimes all have publicly proclaimed their disdain for America in the past.
Promising to modernise the infrastructure of many third world nations that have a history of destroying everything we give them.
Or the billions figured into government contracts for campaign contributions, like ACORN.
Or government bailouts of dying businesses.
Or government bailouts of the banks who own the federal reserve and were authorized to print their own money figuratively (they don’t physically print money in this case, just increase supply on the books).
They cut the stuff that will cause the most squealing first so the voters will fear cuts and they don’t have change anything or take cuts that would affect them or their cronies. They know crime will increase, and unions will cause havoc, this is by design.
I feel law enforcement is a reasonable expenditure. However, as I’ve previously stated education has better alternatives these days, and enough choices to suit everyones lives. When it comes to fire protection, this is an individual community choice. For my area a voluntary dept was the best fit. We were served by a fulltime dept til 2005, when we got our own dept. Since then homeowners insurance was cut in half. Insurance companies will rate a good voluntary force the same as fulltime. I’m sure they researched before concluding that.
Highway budgets are routinely raided for social welfare programs. In my state, and i’m sure others, there’s even a clause that says a certain percentage of each highway project’s budget must include ‘culturally sensitive aesthetics’. One of projects could have repaved 20 more miles of needy roads, but we got turtle shapes along the road which can only be discerned aerially instead.
Davide
First, I don’t recall saying anything good about unions. I do think organized labor negotiating with their employers for the best fit benefit package for that given group is fine. Some performers can negotiate better packages on their own, but for avg workers a avg package is ok. The employer has a $ figure he can afford to pay and still succeed. Out of that comes everything an employee costs them wage, vacation, insurances, ss, etc. A union merely shuffles where the money goes in the package ratio wise. That’s all the good I’ve seen in almost 20yrs in them.
Public unions on the other hand negotiate with not their employer but with politicians. There are 1st, 2nd, & 3rd party purchases. 1 st are when you use your money to buy something you use, both cost and quality matter. 2nd are things you buy for others,like gifts, price is a concern but quality will often take a back seat depending on favoritism. A 3rd party purchase is something you won’t use bought with someone elses money, neither price, cost, or quality are a motivator. Nearly all government purchases are 3rd party which explains waste, fraud and corruption. They buy votes with our money. That’s why if public union want to bargain, final vote should be ratified by a referendum ballot.
I apologize for not being clear on the relationship of government jobs in the economy. When I stated “national economy” I was referring to national debt and trade deficits, not local exchanges. The average citizen doesn’t put much thought into the state of the national economy, like how most don’t know how anything on their car works until they break down. The nation’s cash flow matters immensely though. Just as a ticking from your engine compartment can turn from an otherwise functional vehicle to a car with a hole in the engine block on fire on an expressway instantly with a bang. Nations can and have collapsed over night from what is going on right now in ours. In the turmoil the citizens will cry for help and a charismatic leader will emerge offering hope and change if you allow them power and authority, this is how the names Napoleon and Hitler became known.
If I had to guess I’d say your family came from either a socialist or socialist leaning country, seeking the opportunity to own and succeed. Which it sounds as though you have, and I am grateful for this because that what America is about. You and your parents are leading by example. I’ve discussed this at length with immigrant business owners at leadership conventions. As one gal from Costa Rica, w ith a 33 employee business in Jersey, related to me, “opportunity is like water, the camel looks for water everywhere and cherishes it, the fish may not even know of waters existence until thrown on shore…if you were born here you are a fish”. A man from Iran told me how for nearly 30yrs he’s been the owner of a chain of restaurants. When he came here there was a regime change in Iran anyone who had served the former government, in his case military, were being rounded up and executed. His flight out was one of the last before there was a 2 yr shut down. Whenever he leaves America when he returns he actually kisses the ground on arrival. You can learn a lot from those who have seen the difference system of government makes personally.
That being said as much as I appreciate and welcome driven entrepreneurs to America, freeloaders looking for handouts can stay where that thinking caused the socialist cesspools they are in. Or those who come here wanting handouts and voting for more will turn this republic into what they are running from.
Whether someone gets a handout or earns a government check, it is still by definition living off the tax payers, and as this increases the closer to socialism we get. Why I proclaimed that a government employees salary doesn’t help our situation is because 100% of it came from taxes, only mabye 80% returns(directly from taxes they pay and taxes of the services they use). However when the private sector produces something, it can bring in new revenue rather than circulate tax money that bleeds out to foreign markets. Compounding the problem is that when the federal reserve says lowering the interest rate it’s increasing supply. So the government check spends at face value but once in circulation lowers the value of the money in everyone else’s pocket.
Did you ever think about the scam that is government employees paying taxes? If they were tax exempt we could pay them a third as much. Now property taxes you could just make an allowance of average market price in the area. If you want average then tax free, if you like finer living then pay the difference.
Lastly, the green movement, you touched on things I know well. I grew up in a construction household, my father was a general contractor in new residential, agricultural, and light commercial construction and remodeling. I spent just shy of a decade in high end window manufacturing. Now I’m currently 8 yrs into the commercial, industrial, and agricultural air movement movement industry.
As I eluded to in my rant about 3rd party purchases, cost and price are different, price is a one time deal cost is a lifetime measurement. If you are building new or in need of remodeling lower costs are a no brainer. I also think anything people can do to be more independent and rely less on others for survival is a commendable goal, like getting off the power grid. On these issues perhaps we may differ on motif slightly but not on concept. However, government stepping in and mandating changes I am 100% opposed. As I’ve previously this causes government approved monopoly in markets, giving privileges and subsidies to one business while stealing from others. They tax a coal plant(which raises utility rates) and then, as our president just did, hand the $7 billion to rebuild powerplants in Africa. Or they throw in pork that doesn’t pertain to the issue, like Harry Reid’s immigration bill that is in congress with $100 million allocated for las Vegas tourism.
All this is on a media induced farce that it is ‘manmade’ climate even though even the weather channels scientists, nasa, and petitions signed by 30,000 climatologists say it is all because solar cycles. Last year in fact they believe the levels of co2 (what all plant life requires for photosynthesis to produce o2) sheilded us from emp from a coronal mass ejection. Climate change has never been denied despite what environmentalists claim, just the manmade part.
Sulfur dioxide? Guess what, since they mandated scrubbers on coal plants farmers had sulfur deficiency so they dump it on the fields. As you said there is big money in going green, especially when it’s law, unfortunately the end consumers ends up paying.
Hi Phil,
Again, I believe you and I would agree on a multitude of topics. Just as you informed me of the negatives & positives of unionization, I’d like to inform you as to two separate topics you discussed since I’d say I’m very knowledgeable regarding the topics.
“Government doesn’t create jobs” – On the contrary, I’ll give you two examples. In the City of Oakland, CA, Mayor Jean Quan basically decided due to budget constraints to lower the police force from about 500 to 200-250. These officers lived within usually a 10-25 mile radius of the city, and hence not only quit but moved away. There went households with one individual earning $80k+/year. Those people no longer will buy local goods from local shops, etc. Along with that crime spiked DRAMATICALLY (see also: Camden, NJ). Cops, teachers, firefighters and other public service people can be considered “core” jobs…what is a “Core Job”? Well, if Microsoft decided to build/move a factory to your local part of town/city and bring 100 jobs, that doesn’t sound like its all that big of a deal does it?? However, consider that those 100 jobs are employees, and employees live in households with 2.5 people in them. Now, those “100 jobs” are equal to 250 people. Those people need hairdressers, groceries, movie tickets, they go out to eat at Applebees, etc. Not only do you gain the taxes from those simple “100 jobs”, but everything is compounded to a 4 or 6 ratio depending on the local market. I.e. For every 1 “core job” created in SF, an estimated 4-5 additional jobs are created.
Secondly, take into consideration UC Davis (near Sacramento, CA). A study was published (and please forgive my estimates, too lazy too Google it) that shown for ever $1 received in government ONLY grant money for research, another $50-55+ was created. Why? Well, give 10 scientists $100,000 for research. One guy finds a way to make a new product that surpasses all other products out there. More research and economies of scale make this product cheaper to the masses…now you have immense growth, new business, etc.
Government *CAN* create jobs if its done *PROPERLY*. The problem is, “PROPERLY” can so easily be corrupted it makes cynics out of everyone.
2nd topic.
“Green Movements” – Again, cynicism aside, I’ve heard every argument from both sides and seen every chart/graph/etc…When it comes to simple ROI, “greening” is one of the best investments that can be made. WALMART – Hopes to be at Net Zero in their stores by [2020?]. The US Military is installing enough green energy to power 50-100% of their bases depending on branch by 2030. Average home in California can make their investment back within 4-7 years. New commercial building construction adds an additional 2-5% cost while lowering utility bills by 50%+ in addition to improved air quality with study after study showing improved employee performance, fewer sick days, etc.
Is Walmart doing this to please the population, or for simple dollars and cents? (Perhaps both).
When was the last time you heard of the US Military being progressive? Do you think they would do this to save the planet or to save their payroll?
In what other world can you spend $15,000 and make 15-20% on your money and have ZERO investment risk??
What investor or contractor would spend an additional 2-5% build up costs to for a 10-25% ROI??
And the way I see it…Let’s say that 97% of all scientists are incorrect….that those 3% of scientists who do *NOT* believe in climate change (side note FACT: most of those 3% are funded through subsidiaries of oil companies!) are right.
Worst case. You create hundreds of thousands of jobs, make our air & water cleaner here and potentially globally (have you ever been to LA? Psh…try googling pictures of “Beijing Smog”!), save money in utilities by doing so AND people get sick less due to better quality buildings!
…whats the downside? (Again, avoiding the every-business-has-it corrupt part).
Sorry for all the typos on the last one between text predict and difficulty proofreading on my phone I hope it’s not too confusing.
I do acknowledge that powerful entities steal our money. Not in the manor liberals claim, when they say someone is paid by the taxpayers, often it’s that someone kept their earnings. They view all money as the communitys and you may only have what they feel allowable, assuming you don’t violate their irrational idealistic agendas. The real stealing comes from government programs and contracts, not tax breaks.
The issue of how large operations get privileges that small ones don’t, comes from regulating bodies that are put in place by public outcry about the given industry. They say “we need government oversight to watch these fat cats and big businesses”. Which places regulations that make getting into business more of a challenge. Then there is the revenue that needs to be generated to pay for the regulatory body in the form of certifications, licenses, registrations, permits, inspections, fines…. All this is a minor inconvenience for the big guys because of the economy of scale. The little guy or start up guy have all the natural challenges of entrepreneurship that kill 80% in the first 4yrs and another 80% of what is left by 10 yrs and now throw more at them… So whenever you hear about government stepping in on an industry, even if the big guys don’t get a free pass, you can rest assured the small guy will get pushed out and the big guy will increase market share making it more difficult to dethrone them. However, they won’t be a monopoly, big business like big government know a duopoly comforts the masses with the illusion(or delusion) of choice…. coke/Pepsi, republican/democrat, etc…
Currently we are being raped by the ‘green’ movements and the improvement of foreign infrastructures, both froth with dubious returns or value, and some just plain scams in the names of peace, goodwill and environmentalism…
Davide,
I’m no fan of lobbyists in general. I don’t like special laws for anyone, group or individual, I believe in absolute equality.
When an administration or congress finishes its term, how successful it was is rated by how many bills(laws) were passed. Do laws give or suppress freedom? Every year hundreds if not thousands of laws are passed, many tax related. As you stated, many times certain entities benefit from said taxes. Like your example of GE, which helped the presidents campaign immensely, not only in donation but also in media coverage in the outlets they own. The same with solarous which was never a functioning company. This goes on in both sides, like with Bushs defense contractors. They didn’t bid for the jobs they were chosen by favoritism, and were paid expenses plus 10% …so spend more make more, then donate.
However, this isn’t just large sums from single sources. I’ve been two separate unions over the course of almost two decades. Half of your dues go to local half to international. The international is a business that first and foremost is concerned about the interest of themselves and their legal right to dues, whether its members want them in their lives or not. They lobby with money they pilfered from members and say they are pushing beneficial protections for the workers when they really are focused on profits from dues. I have watched the international intentionally destroy a business where the workers were attempting to decertify their affiliation with them. They only can destroy they have no actual way to preserve jobs that every citizen in our country doesn’t legally possess. When diehard union supporters rant to me about big business donations to candidates, I ask them, so if someone earns money and supports someones ideology in government thats bad but stealing someones money giving it to a candidate is ok?…because I have never once have voted for someone the unions have backed…but my money has…
The only solution is to roll back legislation to about 1900 and really look at what we are paying for and if it doesn’t benefit everyone then it should be tossed.
I came up with an analogy for when on this subject. Take a family where mom and dad work and the kids do chores for an allowance. Mom & dad each earn $1000 and the bills are $1200 leaving $800 for maintaining or expanding the household standard of living. Out of the $800 comes allowances and recreational activities and perhaps remodeling and security measures. Now say one parent ends up unemployed there is now a $200 deficit. Having the kids chip in to pay the bills won’t help as their income comes from the household, and if they had been saving it wouldn’t last either. The only way is to balance what coming and going out.
In that scenario mom & dad are the private sector and the kids are the public sector. Public sector jobs can’t be figured in for paying taxes as their gross income comes from taxes, its like taxing the kids allowance it won’t help because revenue needs come from the outside. The same can be said for jobs created by government contract. Flat out, the government can not create jobs, none that help our national economy that is. In the analogy the kids keep the house clean and maintained, which adds to the standard of living. But if there is no money there is no allowance and either someone needs to go make money outside the house or all bills must be evaluated or there won’t be a house.
Many government jobs are in regulating bodies that hurt the economy, like if one of the familys bills was a debt on recreational equipment that costs money to use. There are whole agencies , departments and bureaus that if gone the economy would improve, and we wouldn’t be paying them either anymore. There other segments of government that while they may be nice to have when there is a surplus can’t be justified when there is deficit. There are church and charity organizations that provide help for those in need using volunteers and donations for every cause you can think of and they’d receive more if there were less taxes making money more available. When government does charity it takes $10 or more to get $1 to the needy.
But all we hear when you say lower taxes is “you want good roads, schools, police protection don’t you” from the left and from the right ” you want to be safe and secure don’t” as if these are all we pay for. I believe that stuff that stifles us should be gone, charity has it’s place and we do not need permanent positions for temporary jobs. We need our next generations educated but having them taught employees with employee mentalities who seeked a government job for security, and thus not knowing, understanding, but actually fearing the business world and everything that generates tax revenue is a poor choice for mentorship. Public teachers often times have went to public schools elementary through state university being trained by government employees to be government employees, to fear business love government and seek a false security that doesn’t exist. With so many options in education from online to homeschooling and private and parochial, if we were given tax allowances for seeking alternative education for children, parents would pull their children out of public and invest their money in alternatives. This would move the best educators from public to private by defunding public schools and creating new opportunities where the best get paid and worst move on. This would produce better education paid for by those who use it and would elevate a major tax burden.
Davide I still feel that what you are missing is that yes employees pay more % wise than businesses but the amount is often more because of permits, certifications, registrations, and other regulatory expenditures. The thing we should focused on instead of fighting over who is paying their fair share, is what are we paying for …..and why?
Hi Phil,
Much appreciated that you took the time to read everything I commented on…which is a lot! I don’t follow “party lines” and like to look at complex issues from all angles before I ever make an educated opinion/judgment – probably why you and I agree on many levels.
However, there is one thing I believe you failed to consider in your argument even though you’re likely very well aware of it – the ability of groups/individuals/lobbyist to “donate” *cough* legally bribe *cough* their own loopholes into government decisions.
I know many business owners…some small, some extremely large. The one thing I find most consistent is the *ABILITY* of the large & priviledged (or politically connected/active) groups to work the hell out of the system. For instance…
Parents – Owned business for nearly 35 years. 20ish employees. *EFFECTIVE* tax rate is probably around 40-45% on average, and they have a VERY good accountant, but they don’t have the time to learn and obtain every tax loophole in the code…and in some cases those loopholes don’t even exist!
Me – Accounted many weeks learning as much as I can about the tax code, and real estate is considered the 2nd friendliest tax business (depreciation, carried interest, write off every expense & loan, etc). As I’ve mentioned before, my average tax rate is under 10% for the last four years now.
Wealthy client of mine – History of banking knowledge. Makes 6 figures, is worth millions, and receives a tax refund b/ of his knowledge (and banking lobbyist “donations”/pressure to government officials), and yet he receives a *refund*. …yes, that’s right…a refund…
Don’t get me wrong, I understand the *INTENTION* of the tax code, but I’m sure you know as well as I do that even your sophisticated doctor or dentist or small business owner has a slim-to-none chance of working the system like other groups/professions that are better connected politically. GE paid $0 in taxes, my super savvy dentist pays at best 25%.
Fair & motivation are the INTENTIONS. Corrupt political process favor the top 1% and above, which is quite disheartening.
Davide,
I applaud you for your accomplishments in making what the majority feel is too risky, and that is the jump to asset based income vs wage. At first you sounded like one of those low information “occupy” crowd yelling about those evil 1%ers. But after reading everything you said I believe we are not too dissimilar.
You are factually correct, however I feel you are missing a big point in your own experience or perhaps glossing over it. You proved that anyone can come from wherever in life and use the tax system legally and not get financially sodomized, it doesn’t favor the ‘rich’, but rather smart business plans. This isn’t a class thing just an information/thinking issue, the info is there for all in books like the “cashflow quadrant”.
The way the system promotes business is better because if the majority would get persuaded into business rather than employment, ownership vs job mentality the country as a whole would be in better shape. The difference is leverage, a job is an exchange of time for money and there are only 24 hrs in a day so when you are at the top of your profession the market will bear only so much. An asset however utilizes a system which generates the income which takes your time out of the equation once up and running. This allows you time to generate more assets. So taxing the two needs be different because there is not direct input and reward relationship with an asset.
Most who criticize this analogy always rant about the 1%ers …the truth is the the people that they are referring to and their atrocities do exist, but they are more like the .0001%. This aristocracy that they want to pay their “fair share” are international globalists that can’t be touched by any one nations tax code. These individuals, families and corporations are not on the analogy though people say it’s the 10th guy or the bar owner…maybe the brewery though. The only ways to affect the control they have on us would be closing off our borders entirely, a world buyers revolt(we would all need to be debt free personally, and governmentally for either to work), or a world war with a complete collapse. I wouldn’t like to see any of that.
The tenth guy is actually the restaurant and store owners you know, or the physician that spent a quarter of his adult life going into a lifetime of educational debt to listen about your bunnions. They are your friends and neighbors who were willing to miss some instant gratification in life, have some long term vision and risk the present for their future. The beauty of the simple analogy is it is summing up the tax payers, not the handful of elites, but those actually paying, those who are being set against one another in class warfare. The majority can gain necessary perspective from this as it is true for those depicted in it, because if you remove the incentive to achieve then the risk isn’t worth the reward. When the juice isn’t worth the squeeze you will rely on others for the juice and place yourself at their mercy …I’m sure China will for a price…
[…] I’ve used a story about buddies sharing beer to illustrate the dangers of redistribution and class […]
The pub didn’t pay for your education, healthcare and god knows what else… Rubbish explanation, way too reductionistic.
Thank you for the good writeup. It if truth be told was once a amusement account it.
Glance complicated to more introduced agreeable from you!
However, how can we be in contact?
Hi Auri,
That’s quite a loaded question you placed there. Do I think all independent contractors are [“living the life”] or do I think being wealthy is wrong? Well…neither. That’s like asking if you would rather be a slave laborer and work 100+ hrs/week to have a job or if you would like to be a bum on the street and not work at all.
Im not generalizing that all independent contractors are wealthy or live a particular lifestyle. Im *absolutely* not saying that there’s anything wrong with being wealthy either. However, just because you’re wealthy, doesn’t mean you can “game/corrupt” the system like so many large corporations and some super-wealthy do.
Im giving the comparison that if you’re a non W2 employee the tax system is HEAVILY in your favor. For instance, do you think it’s “fair” that people who make $500k+/year can get a tax refund? I have one client who has done so 4 years and counting. Why? Because of his profession and how the tax system works in his favor. How is that justified??? Is it wrong that he takes advantage of the system? No. But don’t you think the system is just a little bit rigged? It absolutely is!
Also, I know quite a lot of “poor” people…I don’t here any of them complain while a solid 95% of them work 2-3 full time jobs. But how can you justify them paying 30% of their income PLUS sales tax PLUS social security tax PLUS all the other things…while others literally get refunds even when theyre massively profitable!?
In regards to my deductions, that’s just another example. If you like, feel free to ask your accountant if someone in my profession is allowed to do so. Believe me they are. As I mentioned, my accountant is a straight-shooter former IRS auditor. Everything done is completely legal. Yet another example of how its rigged.
In regards to the employer bearing the responsibility, you’re absolutely right. I *DO* believe the business owner SHOULD make more money (especially for their risk). My parents own a business with 15 employees and have been around for over 30 years. Some years they do quite well, other years they are a little in the red.
Keeping with my parents, I suggest you google “30 corporations that spent more lobbying Washington than they paid in income tax”. Ill give you the top 3.
General Electric – Profits $10.46b. Taxes Paid [REFUND of $4.7b]. Lobbying $84 mil.
PG&E – Profit $4.6b. Taxes Paid [REFUND of $1b]. Lobbying $79 mil.
Verizon – Profit $32.5b. Taxes Paid [REFUND $951 mil]. Lobbying $52 mil.
Now I ask. Is that “fair”? The wealthiest – literally the wealthiest – corporations received refunds in years that they made a PROFIT simply because they have high priced attorneys & accountants, off shore tax havens and legally bribe politicians to help re-write the tax code in their favor. Would my parents be “complainers” considering they WOULD be the “bottom 5 beer drinkers” when compared to other companies worldwide? Unless you make a solid $5 million/year, you as well would probably be considered a “bottom 5” individual.
Are you saying they SHOULDNT make any profit? Of course not. Is making $10.5 BILLION dollars and receiving a REFUND of nearly $5 billion “fair” in *ANY* way shape or form?
C’mon…I don’t care if you’re liberal or conservative or libertarian…that’s just flat out WRONG. It’s called “Crony Capitalism”. It exists. To pretend it doesn’t is like being an ostrich and sticking your head in the ground. I don’t complain and I began childhood as one of those 5 “complainers”. My parents are immigrants and they did as well. We’re doing just fine now – legally. I’m sure you can appreciate the hours and time and effort and *risk* you put into your own business. Are you against the wealthy because they’re wealthy? I’d imagine not.
Is it a whole different topic to be against crony capitalism in both the corporate *AND* individual level? Yes…and *THAT’S* what I’m against, and THAT’S the system we have had in place for quite some time under both Democratic & Republican leadership. [Frankly, they’re all sell-outs to whoever lines their pockets].
Davide
I disagree on your generalizations and how you compare to your specific lifestyle and work. There are variations and different factors on how each business run or making a profit. I am also an independent contractor. I carefully and under the advise of my accountant, only deduct those expenses related to my job that I can legitimally justify. I put a lot of hours, stress, money into my job with the objective to make a profit. If times are bad and do not make any money the government and noby pays for my beer. I also would not expect anyone to do it!!! Are you generalizating that all small businesses and independent contractors wealthy and have your lifestyle?. Or are you implying it is wrong to be wealthy and you should pay more. I think what we can do is asking people especially those who complain is to volunteer to pay more for what they perceive they should. If you feel you are not paying enough and you are deducting many expenses that are not fair; then you should make your own fair of payments. Please be careful how you make your comparisons and what you are talking about. Many of the things you shared that you get to deduct I will be afraid to even deduct because of being audited. Also if one is a W-2 employee then it is the employer who bears the overhead and payroll expenses of running a business that an independent contractor doesn’t have. Good Luck!
[…] only downside – as shown in this parable about beer and this great Chuck Asay cartoon – is that the scam only works so long as there are people […]
[…] Read more on: https://danieljmitchell.wordpress.com/2012/03/18/the-tax-system-explained-in-beer/ […]
[…] Heck, it’s also what we see in the PC version of The Little Red Hen. And the same theme can be found in the amusing anecdote that uses beer to explain the corrosive impact of a “progressive” tax system. […]
[…] Heck, it’s also what we see in the PC version of The Little Red Hen. And the same theme can be found in the amusing anecdote that uses beer to explain the corrosive impact of a “progressive” tax s…. […]
The story is flawed in the point that the end is not correct, as it assumes that the assets of the ten’th member diaspear. But what happen when the assets are distributed to the nine people? Also, assuming that the 10th person get’s his income from the other five who have income and not from extraterrestians, then those can save this. This just to say how over-simplification can lead to the contrary that was intended. i love the story, though
[…] do just that. Therefore, I’m including a link to one of this fellow’s blogs from last spring, The Tax System Explained in Beer. If you choose to read it, click on a few of his other archived links while you’re there; I spent […]
[…] this fable seems familiar, you may be thinking about the post that used beer to explain the tax system. And if you prefer your irony on the 5th-grade level instead of the 3rd-grade level, here’s a […]
I have no problem with the tax system. What ever. My question is this, why do I have to watch the tenth man on tv having fun? The tenth man should drink his beer in private along with the rest of us and mabey he wont get beat up so much.
I don’t know about the rest of you….but if I go out with friends that make significantly less money then I do…I gladly pay for the entire bill………I even insist on it.
I’ve seen this on a lot of right leaning sites and the big thing they leave out is that our country and economy is not a beer. For example these men are still getting the same amount of drinks but they are paying less. When it comes to our tax system the GOP likes to cut tax so that in a few years they can say what we can afford. Now imagine if the bar owner cut their tab but in a few weeks lower the amount of items they can get would that really be a gain?
So if they all paid the same it would be $10 each. An amount only 3 of them could afford. So they would then have to switch to the $10 a pitcher beer to make it even slightly manageable for everyone to afford their equal rate, and that would still be horribly debilitating on the budgets of 40% of the people pushing them further into poverty. And since we are not talking about beer we are talking about defense budget, federal regulators, roads, schools, law enforcement, government agencies, and public assistance programs that reduction in services would be 1/10 of what was offered before and now the bottom 40% need even more help because they high tax rate makes it so they can’t afford the basics to get by. Because at least 50% of the people are already making below the livable wage and increasing their tax debt is going take from the money they need for food, housing, gas etc and it is going to make it near impossible for them to even hold down the minimum wage jobs they have. Good by all the 1st world advantages we have.
Loved analogy! I’ve got to share.
[…] just read one by him explaining the tax system with an analogy of beer drinking. It was way too good not to share. It not only covers how the current tax system works, but […]
[…] previously shared the famous parable that uses beer drinking to explain the tax system and here’s a funny video of a comedian talking about taxes and […]
[…] only downside – as shown in this parable about beer and this great Chuck Asay cartoon – is that the scam only works so long as there are people […]
[…] The Tax System Explained in Beer 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… […]
[…] I picked this up at Dan Mitchell’s site. […]
[…] only downside – as shown in this parable about beer and this great Chuck Asay cartoon – is that the scam only works so long as there are people […]
I find it interesting that in the story, the rich person is the only one to understand percentages. Cheers to Davide to exposing the slant in the tax code. A different ending to the story could be what’s actually happening. The tenth takes his/hers savings and imports beer from a third world country where regulations and workers rights are minimal and putting the local pub out of business.
[…] And everyone seems to like this beer-centric explanation of the tax system. […]
[…] this fable seems familiar, you may be thinking about the post that used beer to explain the tax system. And if you prefer your irony on the 5th-grade level instead of the 3rd-grade level, here’s a […]
[…] How to explain the tax system with beer […]
[…] this fable seems familiar, you may be thinking about the post that used beer to explain the tax system. And if you prefer your irony on the 5th-grade level instead of the 3rd-grade level, here’s a […]
[…] The Tax System Explained in Beer […]
Weary,
In regards to where I learned what I know regarding my write offs, I took a seminar (twice, put on by two completely different CPA’s) which demonstarted what is fully legal. Before writting anything off, I ask my accountant who used to be an IRS auditor for nearly 10 years. He’s pretty much the most straight-arrow-legitamite accountant I’ve ever met which is why I stay with him.
Because I have a home AND an “office” office, literally once I leave my house I can write off everything with my car. I claim I use my car 90% for work – which is about what I do. 90% of repairs, tune ups, oil changes and gas. In OTHER businesses, yes you are correct, going TO work/office does NOT count. But, that’s one of the loopholes that exist for my benefit. Because that home office exists, yes I can legally write off my water, PG&E, etc bills as well as a remodel to my home (a portion of it, not the full thing). Ie. My home office accounts for roughly 10% of square footage, so I can write off 10% of a remodel and other bills at my tax rate. Again, I’m not the professional, I just go by what two others have told me and my accountant has ensured me is 100% legitamite. My broker HAS been audited and did pretty much the exact same write-offs I did and he came back clean as a whistle. (Note, I havent done any remodel, that was only an example).
As for the LLC, again whether it be a bonus/regular pay/etc, all taxes that are due are done. In regards to if the 1-3% employment tax has been applied is what I leave to my accountant.
My general point going back was that the system is flawed to favor those who are not W2/regular employees. Yes, if youre independant (i.e. contractor or real estate broker), yes you get a ton of write offs but there is a cost of doing business. But mathematically speaking, once youre income increases so does your return (due to low taxation) at an exponential rate.
Btw – I like the quote. It sounds like my life for the last few years! Haha
Of course, EVERYTHING you do isn’t legal, Davide, especially if you’re writing off a kitchen remodel, non-working “events”, or food for your family. As you boasted about writing off a lot of the stuff that the IRS will call you on in an instant. Only the work mileage on your vehicles is deductible and driving TO THE OFFICE is not considered part of your work mileage.
I’m retired now (thank you Obama), but as a new homes sub contractor and my wife working in real estate in the People’s Republic of California, I could write off a lot, but there is a lot I couldn’t write off without being shady about it and risking audit. Incidentally, I’m divorced now, but my wife used to go on and on about how her accountant was so much smarter than mine because he could write off this and write off that. Well . . . she got audited and hit with a huge tax bill with penalties and interest over several years, couldn’t pay it all in time, got her home liened, and worked on paying that off for many many years. I do understand, many of the EXPENDITURES one has when they are self-employed are legitimate costs of running a business (even including seminars at expensive resorts), but these aren’t costs the W-2 worker has either.
Forming an LLC to avoid the double taxation of the sole proprietor (being taxed as an individual as well as an employer) is fine, but the minute you are “awarded” a bonus. That’s income and the LLC has to pay employment taxes and YOU have to pay taxes on that income. Calling something a “BONUS” doesn’t negate the taxes owed on that bonus. The main advantage of an LLC is to LIMIT the LIABILITY your business exposure has on YOU and YOUR PERSONAL ASSETS. That’s its purpose.
I’ll close with an old axiom. “Become self-employed and you only have to work half days . . . and you get to pick which 12 hours”. 🙂
Bill,
I have no worries. IRS is fully aware of all my LLC’s, write offs, income, etc. Everything I do is 100% legal. Others before me have pushed laws to make them legal to my benefit at the expense of the 85%+ of people who are “regular W-9” employees. If that concept is too difficult to understand, I highly suggest speaking with an educated tax attorney/accountant and ask them if anything I mentioned is illegal.
Don’t worry Davide, the IRS will now find you now
[…] fable, then you can see if they’re ready for more advanced stories, such as the one about using beer to explain the tax system, the joke about using two cows to explain various economic and political […]
Brad – Absolutely not true. The beer example is cute, fun and tries to explain the tax system using a metaphor everyone can relate to. However, if you really look at how the tax system works, its HIGHLY skewed in favor of high net worth individuals.
…or to be more clear, it favors anyone who is *NOT* a W2 (aka regular employee).
In fact, Ill give you real life examples.
1-Cousin makes $100k. Works overtime. Has a wife, 2 kids, rents a house. Lives within his means (I’ve seen all his figures). Being an employee for a crane company, he pays nearly $35-40k in taxes BY HIMSELF AFTER WRITE OFFS (kids, day care, etc). That’s both state & federal. He also pays sales tax for all his food, gas, etc.
2-Myself. I make more than my cousin. I’m an “independant contractor”. I get around the self employment tax (14% in California) by making all checks payable to my LLC ($800/yr). Then I pay myself a “bonus” from this LLC, avoiding the 14% tax. But wait, there’s more! Because I’m in real estate, I get to write off *EVERY SINGLE THING at 35%+*. This includes gas, food, events, car, insurance, supplies, etc. In fact, since I have a computer at home (who doesnt), I also get to write off nearly 20-30% of EVERYTHING that is related to my home ON TOP of my taxes/insurance/interest from mortgage. If I spend $10,000 to rehab my kitchen, I get to write off 30% of it…at a 35% tax bracket, that means I make $1050 *FOR REMODELING MY KITCHEN!*
I once went to Florida with some friends and collectively we spent over $6000. I personally only spent about $1500. Because it was a “work” trip (I worked 4 hours a day for 2 days…big deal) I got to write off the full amount – $2100 credit ($6000 x 35%).
I spent $1500 and *SAVED* 2100 by going on vacation!?!?
3-I have a client who makes a large sum of money (nearly $400k). He is about to become a partner with his accounting firm. He will get a raise to at least $500k/yr. The reason hes MOST excited is b/ he’s currently paying 40%+ in taxes. The *INSTANT* he can change his W2 status to something else, he can write off EVERYTHING – vacations, gas, food, gifts, etc. All he has to do is claim that its “work related”…and its 100% legal.
Again, the tax system highly favors those who are NOT W2 employees.
If you add in the aspect of compounding interest, its very easy to see how wealthy individuals become wealthier much more rapidly than someone can raise their own net worth.
Davide, how does the tax code favor the rich, the first 4 paid nothing, zip, nada, goose egg, 0 seems it favors to poor, they get a free ride.
[…] favorite political jokes tend to be parables, such as using beer to explain the tax system, the PC version of the story about the ant and the grasshopper, the joke about using two cows to […]
I am sorry. But last week the government proved just how incompetent they truly are and how our futures are seriously in jeopardy.
The decision to NOT close post offices in a business that loses billions every year? How are they going to make the tough decisions about Medicare, S/S, and health insurance. We are screwed!
[…] favorite political jokes tend to be parables, such as using beer to explain the tax system, the PC version of the story about the ant and the grasshopper, the joke about using two cows to […]
[…] on March 18, 2012 at 8:46 am The Tax System Explained in Beer « International Liberty […]
Excellent view Suzanne.
Its interesting how a metaphor pointing out the RIDICULOUSNESS (is that a word?) of how those that PAY NO TAXES, somehow feel like they have something coming when a TAX CUT is declared and how that culture of ENTITLEMENT has and will continue to CHASE AWAY those that pay the bulk of the costs of running our great country.
And, ironically, that bottom UNTAXED 50% wouldn’t understand the metaphorical consequences of that 10th man going elsewhere. That’s the tragedy of this great metaphor.
What this story misses is that if this were really taxation and the government as we know it, the bar owner would refuse to cut his income. Therefore, it would be necessary to “pay” for the $20 bennie given the party of 10 by having the other customers pay for this benefit.
The other customers would complain and the bar owner would then say “If you change your behavior to please me and come in every day and bring 9 of your friends, you can all get the same benefit”.
Based on this incentive, 50% of the customers group themselves in to 10 member groups and come in each day with nine of their friends. Since they were coming in only four days a week, preferring to spend Friday nights with their families, this raises sales by 10%.
However, in order to make up the lost revenue, the price of a beer increases to $11.90.
“Hold on”, say the low income people paying this new rate who make up 20% of the population, this is unfair, we should receive a “credit” because we should not have to pay for the beer bennie of people richer than we are. The credit is granted, thus, decreasing the pool paying for the revenue loss. The unsubsidized price of a beer is now $13.38.
Result:
The middle class light beer drinking people now pay 3.38 more for their beer than the rich heavy drinkers. And 50% of the bars patrons who used to spend Fridays with their families have now been “incentivized” to be in the bar instead.
Hmm. Never read an article on anything like that. I’d love to see an economist (non-biased) write an article of why it could/couldnt work.. I agree its better to bite the bullet sooner vs. later – the problem is that politicians cant keep other peoples (aka lobbyists) money our of there pockets! If you ever come across an article please do post it – I’d love to see another viewpoint of how it would work!
However, I cant see it ever coming to fruitition no matter HOW good it looks on paper. Govnt would never let the IRS be gone – kind of the same argument with the war on drugs (employs too many people to end).
Not in favor of Herman Cain’s concept of a flat tax at all, for just the reasons you outlined (you’re quite well-schooled).
I was referring to a FLAT 22% on every purchase.*NO EXCEPTIONS*. That means all food, cars, rent, real estate, boats, jewelry, planes, whores WHATEVER will be taxed when purchased. Some call this a NATIONAL SALES TAX. With one slight aberration –
EVERYONE would get a check from the government at the end of the year for $6,600 (22% of $30,000) to reimburse them for a subsistence level of food, gas, rent, etc. This should quiet the “poor” argument and could also be adjusted for the State of your residence, to allow for more expensive living costs in some areas.
This tax eliminates the IRS, tax accountants, tax attorneys, the need for IRAs, 401Ks and other tax-dodging programs and schemes. This allows and promotes SAVING and INVESTMENT automatically, because WHAT YOU DON’T SPEND YOU KEEP.
I’m a Libertarian, a concerned American, and a staunch supporter of FISCALLY CONSERVATIVE principles. We’re going to have to bite the bullet sometimes . . . the sooner the better.
Weary – Correct, it must be reinvested into real estate (land, apartments, office, whatever) within a 180 time frame.
As for the Flat Tax (a la Herman Cain’s 999 plan), I actually agreed and thought it was a good idea. However, after reading quite a bit I found out it’ll actually be WORSE. I’ll try to explain why, but here’s a good article & graphic [http://www.harikari.com/politics/tax-policy-center-analyzes-cains-regressive-999-plan.html].
Take 3 people at different income levels. $30k, 100k and $1M.
$30k is SEVERLY hurt and pays almost 10% *MORE* in taxes. The primary reason behind this is b/ the $30k/yr person or family *HAS* to spend more on rent, food, gas, etc. ALL of that is TAXED, along with their income rate.
$100k is slightly hurt and pays almost 2% more…not that big a deal.
$1,000,000 is *LOVING* this plan!! Not only are they paying a flat tax of 9%, but they pay 9% on what they SPEND! Think about it. The $1m guy doesnt buy a large propotionate amount of food do they? Higher income individuals INVEST their money, mainly because they have more of it.
As I said, statistically a flat tax would never work. It has to be tiered for higher income individuals. Otherwise literally everything; Medicare, medicaide, social security, etc can go out the window. 70%+ of the population dont want ANYTHING changed about those programs – which I disagree. They should be reformed sooner vs. later.
Btw, as I said Im independant. I try to view non biased sources for this info. Economists & scientists in general are very anti-politics with there opinions…but not always.
in a 1031 exchange the proceeds of the sale MUST BE invested within a set period of time (don’t know what it is, sorry) in order to avoid taxation.
I’ll agree the TAX CODE is a joke. Especially for those who can’t pay accountants and tax attorneys a “bundle” to find all the loopholes. This is why I’m in favor of a FLAT TAX ON CONSUMPTION. I’m not smart enough to determine the %, but if everyone paid the same % with an allowance for those who are LEGITIMATELY poor, we’d all be able to experience the American dream without any bitterness one way or another. We’d also ALL be able to notice when the government spends more than it takes in and has to RAISE the % it is taxing us. That would be a real TAX REVOLT ! !
This also means, of course, in the “beer scenario” that 5 guys would have to pony up some loot, wouldn’t they? Now, what % of those 5 guys would squeal like a stuck pig if they had to do that? And, God forbid, pay consumption taxes on it as well ! !
Hal – Quite spiteful yes? Firstly, let me explain my position. I am the “10th guy” and have been for a good few years. My family being immigrants (legal, don’t worry) grew up in the 2nd-3rd guys condition. Just because someone is at the “top” doesn’t necessarily mean they’re more productive. Sure, some ABSOLUTELY are! And of course, there’s those on the “bottom” that are lazy, just as well as extremely productive (ever seen people in China bust their ass for 12 hour days 6 days/week? Look into Foxconn).
In regards to the “Has been giving [the other 9 people]”, do you actually know the tax code? I don’t mean that in a demeaning way, I mean genuinely. Have you SEEN how the tax code works? Its ENORMOUSLY in favor of wealthy individuals. Examples…
Investment real estate – Did you know you can sell a property for profit, and do a 1031 tax exchange and not pay a “SINGLE” dime in taxes *EVER*? Capital gains (15%) are irrelevant. Plus, there’s this additional thing called “accelerated depreciation” which practically triples to quadruples your tax write offs for about 2-7 years…in which case the property is sold and traded for something else to repeat at a nearly 15-20% effective tax rate (vs. 35% regular income rate).
Stocks? Dividends taxed at 15%. Ok…fair argument that its an investment. I’ll go along with that argument. But what about Hedge Fund managers. 15% too? Because the “manage” the stock? C’mon. It what world can you work 40+ hours and still be taxed at 15% for your *PRIMARY INCOME SOURCE*. Last time I checked, a factory worker, teacher and police officer get charged at least double that!
The tax code is *EXTREMELY SKEWED* to favor higher income individuals & companies.
So Hal, next time please bring actual facts and statistics to the argument. Maybe even charts? I love charts!! My point was that the example was flawed because it doesn’t tell the whole story. I bought my own beer and then some. But coming from a perspective of the other 9 people throughout the stages of my life, it becomes INCREASINGLY DIFFICULT to buy your own when the 10th guy is yanking your glass away from you. [Like my analogy there? I can do it too!]. Lets try watching the silly name calling too.
FYI – I do investment & commercial real estate for a living and have paid less than 10% effective tax rate for over 3 years. I’m not a Republican or a Democrat – I’m independent. I judge people individually, so no this is not based on political influence/opinion.
Allyson/Weary – My apologies on the “quit crying” part. I copy & pasted that from a debate with a friend online and it was in reference to what was in the discussion.
I just turned this into a graphic and posted it on my facebook page; it’s a great “lesson about fairness”.
Hey Davide,
It sounds like you’ve had too many free beers off the kindness of others. Maybe the tenth guys THUMB ~IS~ more productive than the other five. You moan and complain about what the tenth guy HAS and not give a thought about what the tenth guy HAS BEEN GIVING YOU for the last 30 years. Davide, buy your OWN DAMN BEER, or go look for another bar that doesn’t mind freeloaders and complainers. Ingrate.
Flawed ? ? ?
The 10th guy was more than happy to leave the payment arrangement the same way. He just didn’t appreciate getting BEAT UP for it.
Um, Davide? The tenth guy didn’t cry at all. In fact he found it quite fair that he was basically footing the bill of the lowest four (and then five) so they could all enjoy drinking together. Seems like he was quite the humanitarian… until they beat him up for “saving” more than they did.
(Quick Note) A) Not more than all 9 “combined”, just more than all 9 guys
This argument is completely flawed;
A) Nowhere does it talk about the 10th man being worth more than all 9 combined.
B) It also doesnt talk about how the 10th man’s income has went up nearly 300% while the other 9 men have only had an increase of about 5% over the last 30 years.
C) During that same 30 years productivity increased by 141% and corp profits increased by 100%, meaning its not b/ the other 9 guys arent working their asses off.
D) The taxes paid by that 10th guy is the lowest its been in over 50 years
E) Finally, did the beer story talk compare how the 10th guy controls more wealth now and the other 9 guy have less wealth in statistics not last seen since the mid 1920’s!?
Final omission from the beer story…
F) 1929 is important in our history. Its commonly remembered as the time where Wall St crashed and brought an end to the “Roaring 20’s”. Quickly followed by the “Great Depression” which lasted nearly 12 years and had unemployment ranges above 25-30%
Point – The 10th guy should quit crying about paying an additional $10. His *THUMB* literally is worth more than the bottom 5 guys combined who are busting their ass working to buy shoes so they can meet their friends at the bar.
#EducateYourself
#IndependentAnalysis
[…] The Tax System Explained in Beer « International Liberty […]
[…] Many of you have read this or variations of it but I thought it would be fun to read it again after I came across it on Dan Mitchell’s Site […]
Its old (the former example was with dinner), but so damn accurate and so to the point. Explains exactly the Bush tax cuts and the impact that had on the average person. I just can’t understand why this can’t be the first example taught in every school economics class throughout the country.
[…] https://danieljmitchell.wordpress.com/2012/03/18/the-tax-system-explained-in-beer/ […]
Let’s be a little more “fair”. How can we possibly expect government bureaucrats who have never worked as private citizens in the private economy to understand people who do? In the private economy, when increased endeavor gains nothing, people stop that extra push. If their work is not effective enough, they and/or their company go bankrupt. Government bureaucrats, and elected officials, without private sector experience, can never be laid off because their agency does not perform, witness the Departments of Education and of Energy. We are, in effect, asking a fish which running shoe would work best for us.
This calls to mind a Robert Heinlein quote favored by the good professor.
Now consider the situation where the men gather not to drink beer, but to build your house, your iPhone, build your car, your weekly accupuncture, find a cure for your eventual cancer etc., and you have a close parallel to economic activity.
Hence why you are one of my all-time favorites Dan!! Now THIS I can both understand AND explain. And I will happily do so with real live props of Guinness. Thank you for making this palatable!