Bar Stool Economics: Simple Guide to the American System of Taxation and Distribution

Here is a very simple illustration of the current tax system in America...worth a look!

Suppose that every day, ten men go out for a 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 $1.00
The sixth would pay $3.00
The seventh would pay $7.00
The eighth would pay $12.00
The ninth would pay $18.00
The tenth man (the richest) would pay $59.00

So that’s what they decided to do. The men drank in the bar every day and seemed quite happy with arraignment, until one day, the owner threw them a curve.

So that’s what they decided to do. The men drank in the bar every day and seemed quite happy with arraignment, until one day, the owner threw them a curve.

“Since you are all such good customers, he said, I’m going to reduce the cost of your daily beer by $20.00." Drinks for the ten men now cost just $80.00

The group still wanted to pay their bill the way we pay our taxes so the first four men were unaffected. They would still drink for free. But what about the other six men – the paying customers? How could they divide the $20 windfall so that everyone would get there “fair share?” They realized that $ 20.00 divided by six is $3.33. But if they subtracted that from everybody’s share, then the fifth man and the sixth man would each end up being paid to drink his beer. So, the bar owner suggested that it would be fair to reduce each man’s bill by roughly the same amount, and he proceeded to work out the amounts each should pay!

And so:

The fifth man like the first four, now paid nothing ( 100% savings).
The sixth now paid $2 instead of $3 (33% savings).
The seventh now pay $5 instead of $7 (28% savings).
The eighth now paid $9 instead of 12 (25% savings).
The ninth now paid 14 instead of 18 (22% savings).
The tenth now paid $49 instead of $59 (16% savings).

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

“I only got a dollar out of the $20“ declared the sixth man. He pointed to the tenth man, “but he got $10!”

“Yeah, that’s right, shouted the seventh man. “why should he get $10 back when I got only two? The wealthy get all the breaks!”

“Wait a minute,” yelled the first four men in union. “ We didn’t I get anything at all. The system exploits the poor!”

The nine men surrounded the tenth and beat him up.

The next night the tenth man didn’t show up for drinks, so the nine sat down and had beers without him. But when it came time to pay the bill, they discovered something important. They didn’t have enough money between all of them for even half of the bill!

And that, boys and girls, journalist and college professors, is how our tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start drinking overseas where the atmosphere is somewhat friendlier.

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America’s progressive tax system already takes from the haves and gives to the have-nots. Why the big push by Obama to further demonize the wealthy? Better yet, why do so many American’s still believe the lie that the wealthy aren’t paying their fare share??



We can all agree that corporations should not be allowed to skate on taxes. My question is how did "corporations" somehow become “rich people”?? After all, isn’t it Obama who said corporations are not people??



It was also Obama who recently suggested “If you have a business, you didn’t build that”.



This statement was meant to further discredit the wealthy while making the less fortunate feel entitled to some of the wealthy people’s money. After all, they didn’t earn that money, we all did.

This entire issue is an obvious attempt to further polarize the American people and pit us against each other. Taxes are ALWAYS used as a political football and a distraction topic during election cycles yet many still take the bait. When is this going to stop? American’s don’t need to be taxed more; not the middle class and not the wealthy. What do you think is going to happen when the wealthy take their money and spend it elsewhere and the middle class turn poor carrying the extra tax burdon??

The man/woman that owns a business down the street isn't the problem. Your boss driving his/her new Mercedes isn't the problem. The doctor driving his new boat isn't the problem. Those people currently pay the majority of the taxes already!!

I have a novel idea ……. HEY, DC, STOP SPENDING SO MUCH MONEY and PASS A BALANCED BUDGET AMENDMENT and stop taking bribes to screw the rest of us! The real crooks and tax evaders are not people making over $250,000 but rather the elitist multibillionaires who control DC and the worlds largest corporations. Unfortunately many Americans can't tell the difference.

You left out the corporations that pay 0.00.

should add them to the top as they probably are richer than most of the "men" you listed.
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I wanted to add is the simplistic "narrative" they push for their agendas is a key part of the problem... they dumb problems down to such a level that the general populous just accepts their BS.

Originally posted by benrl
You left out the corporations that pay 0.00.

should add them to the top as they probably are richer than most of the "men" you listed.

edit on 26-7-2012 by benrl because: (no reason given)

I said corporations should not be allowed to skate. I also pointed out that it was our POTUS who said ‘corporations are not people’.

It seems you missed the point of my thread anyway. When did "corporations" become "the rich"? Why are wealthy American's being demonized rather than the corporations who skate on taxes?

reply to post by seabag


The laws of the land state otherwise.

Simple as that, doesn't matter what the Presidents opinion is, checks and balances.

Need an amendment to change that, Soooo put them back in your equation.

Btw, Im for zero income taxes and for a flat retail tax, Im also for honest arguments not based on the party line.

Those who pay no taxes are just about the majority now... so previously if you campaigned on raising taxes you would get laughed out of the country. Now you can campaign on raising taxes and you have just about the majority.

Originally posted by benrl
reply to post by seabag

 

The laws of the land state otherwise.

Simple as that, doesn't matter what the Presidents opinion is, checks and balances.

Need an amendment to change that, Soooo put them back in your equation.

Btw, Im for zero income taxes and for a flat retail tax, Im also for honest arguments not based on the party line.

I've heard that anology before and I think it is a decent one. I don't think this is part of any "Party line" nor do I think it lets corporations off the hook, just a simple example of why our progressive income tax system is wrong and dysfunctional.

Originally posted by benrl
reply to post by seabag

 

The laws of the land state otherwise.

Simple as that, doesn't matter what the Presidents opinion is, checks and balances.

Need an amendment to change that, Soooo put them back in your equation.

Obama makes comments like “the rich don’t pay their fare share” when in reality that is completely FALSE and the OP illustrates that point. People on the left keep demonizing rich people and many bozos on the street drink that Kool Aid.

Why not demonize the corrupt bureaucrats in DC who allow corporations to skate rather than demonizing wealthy American citizens??

The answer is because it’s the crooks in DC who are raping the system through crony capitalism. Blaming this robbery on “rich people” is simply a diversion tactic. The people pointing the fingers ARE THE GUILTY ONES!

Btw, Im for zero income taxes and for a flat retail tax, Im also for honest arguments not based on the party line.

I'm down for that solution for individuals....that is fair. However, I do believe corporations should pay tax. It's BS that many are allowed to skate. My point was all the unfair finger pointing going on. The wrong people are being demonized.

reply to post by jjkenobi

Those who pay no taxes are just about the majority now... so previously if you campaigned on raising taxes you would get laughed out of the country. Now you can campaign on raising taxes and you have just about the majority.

Exactly right!!

It’s a witch hunt, really! If you pay no taxes why not cry out for raising taxes on the evil rich people when the people paying no taxes know damn well it won’t negatively affect them anyway? Hell, if anything it will benefit them through redistribution (at least that’s what many think).

It appears our country has more ‘takers’ than ‘givers’ these days. What happens when the ‘givers’ leave?? Who will be there to wipe the ‘takers’ butts?

The poor that don't pay taxes start out that way. They begin with no skin in the game, and they don't have to ante up. The rich that don't pay taxes start out at 35% in the hole, and use built in mechanisms in the tax code to bring their effective tax rates down to 0%.

Before anyone talks about raising taxes or the rich not paying their fair share, the loopholes need to be closed so that those rich are paying what they're supposed to first. THEN we can see if we need to raise (unlikely) or even lower (probably) the tax rates.

That's all assuming, of course, that we keep the wholly unconstitutional personal income tax and don't move to a wholly fair and equal Fair Tax, which will raise more revenue than any progressive tax system ever could.

/TOA

reply to post by benrl

I wanted to add is the simplistic "narrative" they push for their agendas is a key part of the problem... they dumb problems down to such a level that the general populous just accepts their BS.

I agree….many people believe the rich don’t pay their “fair share” because that’s what they hear. The reality is that it’s “corporations” NOT paying their fair share. The “rich” actually pay MORE than their fair share. This is nothing more than an attempt by progressives to demonize the wealthy and push their distributive agenda forward; and people are falling for it…AGAIN!

Many corporations are not paying taxes: TRUE

In a recent report by the Citizens for Tax Justice (CTJ) and the Institute on Taxation and Economic Policy, 26 of 30 Fortune 500 companies examined had negative income tax rates on profits made in the U.S. between 2008 and 2011 (h/t Think Progress).

The findings may seem contradictory with recent news that the U.S. has the highest corporate tax rate among developed nations at 39.2 percent. But due to loopholes in the tax code and federal tax subsidies, very few companies actually end up paying the full "statutory" rate.

As it stands now, the actual tax rate corporations pay, called the "effective" tax rate, is at 12.1 percent of profits, the lowest level it's been since 1972, Think Progress reports. Likewise, tax revenue as a percentage of gross domestic product is at lows not seen since the 1940s, according to CTJ.

Due to these tax breaks, companies such as General Electric, Boeing and Verizon made more money after taxes from 2008 to 2011 than they did before filing them, according to the report. The 30 companies in the report made almost $6.5 billion on their taxes over the same time period. Conversely, if they had paid a tax rate of just 35 percent during that time, they would have provided the federal government with $78.3 billion in corporate tax revenue.

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Many rich people are not paying taxes: FALSE

Top earners are the target for new tax increases, but the federal income tax system is already highly progressive. The top 10 percent of income earners paid 71 percent of all federal income taxes in 2009 though they earned 43 percent of all income. The bottom 50 percent paid 2 percent of income taxes but earned 13 percent of total income. About half of tax filers paid no federal income tax at all.

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reply to post by The Old American

The poor that don't pay taxes start out that way. They begin with no skin in the game, and they don't have to ante up. The rich that don't pay taxes start out at 35% in the hole, and use built in mechanisms in the tax code to bring their effective tax rates down to 0%.

Before anyone talks about raising taxes or the rich not paying their fair share, the loopholes need to be closed so that those rich are paying what they're supposed to first. THEN we can see if we need to raise (unlikely) or even lower (probably) the tax rates.

That's all assuming, of course, that we keep the wholly unconstitutional personal income tax and don't move to a wholly fair and equal Fair Tax, which will raise more revenue than any progressive tax system ever could.

Very well said…your entire post!

The actual “1%” at the top control the corporations and our government; these are the people who don't pay taxes. Yet Obama defines the “wealthy” as anyone making over $250,000.

Let’s be honest, the taxation they speak of will not affect the true “1%” at all but will only serve to further enslave everyone else. The people bypassing the taxation system are the scum who control our so-called politicians and they won't be affected by these new taxes at all, so what purpose will it serve??

No tax increases! CLOSE THE LOOPHOLES and throw the bums in DC out. The crony capitalists on BOTH sides of the isle need to go or nothing will change!

Originally posted by The Old American

That's all assuming, of course, that we keep the wholly unconstitutional personal income tax and don't move to a wholly fair and equal Fair Tax, which will raise more revenue than any progressive tax system ever could.

I say No Taxes, period.

We pay Taxes, and our entire infrastructure, is STILL crap.....

reply to post by sonnny1

I say No Taxes, period.

We pay Taxes, and our entire infrastructure, is STILL crap.....

If we paid absolutely no taxes then we’d have no federal government at all, so what would…..wait a minute……uhmmm……..no taxes = no federal government……YA, great idea, Sonnny!

No Taxes!!!!

reply to post by seabag


Perfect analogy, thanks for sharing!

S & F to you!!!

reply to post by seabag


The beer/bar analogy is a bad one and doesn't really represent how income and the progressive tax system work.

The poorest guy in the bar, would only get 1 beer free and wouldn't be able to buy any more. While the richest guy would subsidize the cost of the poorest guy's 1st and only beer, but would be in a position to buy more beers and get totally wasted, as the poorest guy sits there all night with hardly even a buzz.

In real life, the poorest guy's 1st beer is equal to living in a slum and getting food, clothes, shelter, and limited entertainment. The rich guy lives in a mansion and has far greater freedom. Just to clarify, the poorest guy is the working poor (minimum wage worker) and not someone on welfare.

The analogy is bad because it paints a picture that both the poor and rich have the same quality of living (only 1 beer), when that's not how income and taxation work at all.

reply to post by MaryStillToe

The beer/bar analogy is a bad one and doesn't really represent how income and the progressive tax system work.

The poorest guy in the bar, would only get 1 beer free and wouldn't be able to buy any more. While the richest guy would subsidize the cost of the poorest guy's 1st and only beer, but would be in a position to buy more beers and get totally wasted, as the poorest guy sits there all night with hardly even a buzz.

In real life, the poorest guy's 1st beer is equal to living in a slum and getting food, clothes, shelter, and limited entertainment. The rich guylives in a mansion and has far greater freedom. Just to clarify, the poorest guy is the working poor (minimum wage worker) and not someone on welfare.

The analogy is bad because it paints a picture that both the poor and rich have the same quality of living (only 1 beer), when that's not how income and taxation work at all.

I see your point but the part about the “return” is spot on.

Everyone cries about the return the wealthy get while failing to acknowledge that the top 10% of wage earners pay 71% of all the taxes; obviously they get a bigger return.

Nobody says that the poor have the same standard of living as the wealthy but one must keep in mind that (sticking with the analogy) many people drink for free while the minority foots the bill!!!

I have a friend with 9 kids that makes @$20,000 a year (seriously) and gets over $14,000 back every year, yet he pays no taxes! How does one deserve a "tax refund" when they pay no "tax"?? How is it a refund??

This is simply wealth redistribution....admit it.

Your personal standard of living is your own responsibility.

reply to post by seabag


BS, because they are taking more from their workers and consumers.

They treat their workers like they treat products: buy cheap and sell high. Consumers don't get fair deals on their purchases either.

Profit is the "tip" the extra that the business feels entitled to charge after they charge (get paid) for all the other expenses. They say profit is "necessary" so the 'business can grow.' Grow? At whose expense? The CEO gets paid, all the employees get paid. The utilities and raw materials, are all paid for. The profit is the extra money they ask for, as an entitlement so their business can grow. It has to come from somewhere, and it comes from the workers and the consumers. The workers' services are always valued at more than what they are paid. (Business wins.) And, the final price tag is always set such that the business can profit again, when it's sold.

In the end, after years and years of this, businesses end up so wealthy, that they can control parts of the economy and the government. This is exactly how the rich get richer and the rest get poorer. They siphon off extra from their employees and from the consumers. That's where they got the money from.

Don't dare let them complain about what they pay, because they essentially ripped off everyone they do business with.

Take an example: a Wall Street banker makes big bucks, but he only makes 10% or so on each deal he makes. The rest goes to the firm he works for. He makes a lot of money, but his firm makes 9 times that amount, which is way more than it needs to cover its operating costs. They feel entitled to take so much more of what this man offers to them, because they are the ones offering the job to him. It pays well, but it pays them much much much more.

When this is out businesses operate, you better believe I don't feel bad for them having to PAY BACK what they TOOK from people in the first place. Maybe if people got paid what they were worth, they wouldn't have to take tax dollars to survive in the first place.

If you and your friend decided to start a business and you each would do the same exact job, you would know you were being ripped off if your friend said he or she would take 30% extra cut. Well, with different margins (%), that is exactly what businesses do.

It is not secret where they got their money from, who they exploit, and thus who they owe that money back to.

The CEO might only get paid a certain percent, but he also owns part of the company, so any money "donated" or "tipped" into the business, enriches him and the shareholders, so he's actually getting paid a lot more than his fixed percent.

Not at all fooled by this. I used to wonder why it was so unfair, despite how much big businesses are taxed, but now I've realized how they work, and why most people shouldn't feel guilty for taking back what was taken from them. "Nobody forces them to buy the products." Try living without doing business with businesses. Try making money. Impossible. Everyone is doing it (trying to profit), but the big businesses are the biggest exploiters of all, by far. The banks are the worst, because they profit just based on an imaginary set of rules they created. They make 'money' just by having 'money.'

Corporations pay not taxes eh?

Half of this country who are not corporations pays zero income tax or has any tax liability, and gets refunds.

50 million on welfare do not pay income tax
70 million on SS pays taxes? Considering the average SS check is 1000 bucks a month so there is 120 million people getting paid by tax revenue instead of paying tax revenue.

reply to post by daynight42

BS, because they are taking more from their workers and consumers.

They treat their workers like they treat products: buy cheap and sell high. Consumers don't get fair deals on their purchases either.

What’s BS??

People are not corporations; Obama said so.

You don’t know the difference between corporations and so-called “rich people”.

In the end, after years and years of this, businesses end up so wealthy, that they can control parts of the economy and the government. This is exactly how the rich get richer and the rest get poorer. They siphon off extra from their employees and from the consumers. That's where they got the money from.

You’re talking about the REAL “1%” and NOT the “rich people” Obama and the left seek to rape. You don’t know the difference. You obviously didn’t read the thread…its only one page, dude. The people you hate and are describing aren't the people making $250,000 a year...though you may hate them too!

The people you're describing are the richest of the rich....

For your information, people making $250,000 a year (the starting point for Obama class warfare) aren't the people who own all the wealth, they're the people paying 71% of the taxes while the REAL rich pay next to nothing.

I urge you to do your homework and make the distinction.

reply to post by seabag


If your problem with my post is that I didn't clarify as to who I felt were "the rich," all you had to do was ask. The rich would be the people who own the corporations that profit the most. I could have said the rich included corporations, but those things are nothing without the men and women profiting and running them. It doesn't help to identify a faceless 'thing' that has no power on its own. It's the people behind it. Anyhow...

I am against swindling people, but I realize the need to get rid of the biggest swindlers first.

I read the "story" portion of your post, and it seemed to me like you were in favor of having the wealthy (including the wealthiest, aka as you term them, the 1%) keep even more than they already do. It was never earned fair and square in the first place, is what I'm saying. With for-profit businesses, it never is. The business (owned by a small number of people) seeks to hoard the money made by the business at the expense of everyone else, so they can get bigger and bigger. It reminds me of a drug addict to who can't get enough. These people are addicted to getting free stuff, and they want more and more freebies, and they use their power to get it.