“Progressive” taxation

September 14, 2016 at 3:47 pm | Posted in Uncategorized | Leave a comment

When discussions of who subsidises who via the taxation system, I always give my students this example….. and ask them who we should thank for supporting those in need?

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. “Since you are all such good customers”, he said, “I’m going to reduce the cost of your daily beer by $20”. Drinks for the ten now cost just $80.

The group still wanted to pay their bill the way we pay our taxes so the first four men were unaffected. They would still drink for free. But what about the other six men – the paying customers? How could they divide the $20 windfall so that everyone would get his “fair share?”

They realized that $20 divided by six is $3.33. But if they subtracted that from everybody’s share, then the fifth man and the sixth man would each end up being paid to drink his beer. So, the bar owner suggested that it would be fair to reduce each man’s bill by roughly the same amount, and he proceeded to work out the amounts each should pay.

And so:

The fifth man, like the first four, now paid nothing (100% savings).
The sixth now paid $2 instead of $3 (33%savings).
The seventh now pay $5 instead of $7 (28%savings).
The eighth now paid $9 instead of $12 (25% savings).
The ninth now paid $14 instead of $18 (22% savings).
The tenth now paid $49 instead of $59 (16% savings).
Each of the six was better off than before. And the first four continued to drink for free. But once outside the restaurant, the men began to compare their savings. “I only got a dollar out of the $20,” declared the sixth man. He pointed to the tenth man, “but he got $10!” “Yeah, that’s right,” exclaimed the fifth man. “I only saved a dollar, too. It’s unfair that he got ten times more than I!” “That’s true!!” shouted the seventh man. “Why should he get $10 back when I got only two? The wealthy get all the breaks!” “Wait a minute,” yelled the first four men in unison. “We didn’t get anything at all. The system exploits the poor!” The nine men surrounded the tenth (rich) man 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, journalists and college professors, is how our tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start drinking overseas where the atmosphere is somewhat friendlier.

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




Odd news from around the world

Scuba diver finds wedding ring lost at sea for 37 years off Benidorm and tracks down the couple who lost it: “A scuba diver who found a wedding ring off the coast of Benidorm will soon reunite it with its owner after it spent 37 years lost at sea. Spanish diver Jessica Niso said the ring was covered in sediment and almost looked as though it was part of the sea bed but for a tiny sparkle when she spotted it. After cleaning it up, she found an inscription noting the wedding day of February 17 1979 and began her quest to find the owner, posting a message on Facebook. A few weeks ago, Agustín and Juani Aliaga got in touch and Juani, who lost her ring while swimming off the coast of Benidorm 37 years ago, will now be reunited with it. ‘It was a pleasant surprise. More than the material value, the most important thing is symbolic and emotional, as it is the ring that we were married with,’ she told Heraldo newspaper.

Controversial Knickers: “Residents in a sleepy village have become embroiled in a bizarre row – over a pair of frilly knickers. The inoffensive underwear was hung out to dry on a washing line by grandmother Rozamund Perrin, 65, who lives opposite a primary school in Stokeinteignhead, Devon. But the pair were promptly whipped off the line by the unnamed resident who then posted them back through her letterbox with an angry, handwritten note. The knicker nicker, wrote: ‘It is total inapropiate (sic) for this type of garment to be displayed opposite the village primary school. ‘There are members of this community that would welcome a halting of this.’ An image of the offending knickers – and the accompanying letter – were posted by Ms Perrin’s daughter Charlotte Wilkinson on Facebook. In the post a shocked Ms Wilkinson labelled the as-yet unnamed villager a ‘prude.'”

Man finds a giant venomous sea snake slithering along an Australian beach: “Tourists can regularly spot birds, fish and even ride camels across Broome’s iconic Cable Beach – but one local got more than he bargained for. Musician Tonchi McIntosh got up close and personal with a huge olive sea snake during an early-morning walk on Tuesday. In a video posted to social media, Mr McIntosh got very close to the reptile as it waiting for a big enough swell to ride back out to sea at about 5.30am. The scaly predator did not seem to mind a camera being poked in its face, placidly relaxing on the sand looking at home with human presence. Once a big enough wave came in the snake swam through the shallow water back out into the Indian Ocean. The snake appeared to be at least two metres long, making it particularly big for the variety that usually grows to only half that size.

Boeing tests ‘blended wing’ plane that could take to the skies in 10 years: “In just ten years, a plane that flies using a radical hybrid wing shaped body could become a reality. A scale version of the ‘Blended Wing Body’ (BWB) aircraft is currently being tested at a Nasa facility. The triangle-shaped plane, that could one day be used by the US military, is reminiscent of spy planes and designed to cut through the air more efficiently. Many of Boeing’s advanced vehicle concepts centre around a blended wing body design. A blended wing body does not look like a conventional airplane. Instead of the usual tube and wing design, it’s shaped more like a triangle where the wings are, in essence, merged into the body. Another difference is that it does not have a tail. The main drawback to the blended wing body concept is that it lacks control surfaces and conventional stabilising surfaces such as a tail making it unstable and difficult to control”

Perfectly-preserved road that led Roman soldiers to London from the coast is found after 2,000 years: “Between 43 and 410 AD, the Roman army created 2,000 miles (3,200km) of surfaced roads across the UK. Now a snapshot of this part of history has been discovered, in the form of a pristine section of Roman road dating back almost 2,000 years. The road was stumbled upon during building work in the centre of Rochester, and is now on display. The Roman Army created highways during the four centuries Britain was under the rule of the Roman Empire. The main aim of the roads were to speed up military supplies and troops. Many of the roads laid down by the Romans continued to be used for centuries after the Romans left Britain, and some remain part of the UK’s national road network even now.

And don’t forget to catch up with all the Strange Justice before you go.

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