Bar Stool Economics

Big Don

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This has been around for a while:
Bar Stool Economics

Suppose that every day, ten men go out for beer and the bill for all ten comes to $100. If they paid their bill the way we pay our taxes, it would go something like this:

The first four men (the poorest) would pay nothing.
The fifth would pay $1.
The sixth would pay $3.
The seventh would pay $7.
The eighth would pay $12.
The ninth would pay $18.
The tenth man (the richest) would pay $59.

So, that's what they decided to do. 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 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.
 

Shuto

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The only problem with this story is that they pay their bill every night. Our Federal govt does not pay as it goes but chooses to borrow a portion of what it spends almost every year, at least since FDR was Pres.

Of course, that wasn't the point the story teller was trying to illustrate.
 
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Big Don

Big Don

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The only problem with this story is that they pay their bill every night. Our Federal govt does not pay as it goes but chooses to borrow a portion of what it spends almost every year, at least since FDR was Pres.

Of course, that wasn't the point the story teller was trying to illustrate.
But, the drinkers represent the taxpayers, who do indeed pay every year.
 

michaeledward

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The only problem with this story is that they pay their bill every night. Our Federal govt does not pay as it goes but chooses to borrow a portion of what it spends almost every year, at least since FDR was Pres.

I think I recall some other years where the Federal government actually did pay for the things it consumed. FDR was way before my time. But I seem to recall it happened during years that I can actually, well, sort of remember.

Mental hic-cup here ... who was it?

Budget surplus .... hmmm... damn, can't remember right now.
 

michaeledward

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But, the drinkers represent the taxpayers, who do indeed pay every year.

And, of course, your example leaves out the 'payroll taxes'. Every person on the list pays those. Except, again, they don't all pay equally.

The guy at the top of your list, pays the least amount in those taxes.
And, the second guy, he also pays less. The four guys at the bottom of your list, well, they pay huge portions of their income to those taxes.

It's curious ... how sometimes, the payroll taxes don't count. And other times, payroll taxes do count. I guess it all depends upon which point you are trying to attack.
 

Archangel M

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Myth of the Clinton Budget Surplus

While not defending the increase of the federal debt under President Bush, it is aggravating seeing Clinton's record promoted as having generated a surplus. It never happened. There was never a surplus and the cold hard facts support that position. In fact, far from a $360 billion reduction in the national debt in FY1998-FY2000, there was an increase of $281 billion.

Verifying this is as simple as accessing the U.S. Treasury website where the national debt is updated daily and a history of the debt since January 1993 can be obtained. Considering the government's fiscal year ends on the last day of September each year, and considering Clinton's budget proposal in 1993 took effect in October 1993 and concluded September 1994 (FY1994), here's the national debt at the end of each year of Clinton Budgets:
 

michaeledward

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Strange ... in the article. ... the author seems to intentionally confuse the idea of a budget surplus, and the national debt. He then makes his points on the nationtional debt.

It appears to be the same thing that Big Don does when he chooses, in the original post, to not consider payroll taxes, taxes. Because if he does, his argument falls apart. But, in other arguments, the arguments will include the payroll taxes, to show that government is the problem.

What is even more amazing ... and this is pointed out in the linked article ... is that some attack the actions of President Clinton, which seems to be supporting the positions of Presidents Bush.

While not defending the increase of the federal debt under President Bush

... well, except everything presented ignores the facts under President Bush.


Moral of the Story ... never trust governance to people who do not believe in governance. They just take the tools of governance, and use them to transfer power and wealth to their friends.
 
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Big Don

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And, of course, your example leaves out the 'payroll taxes'. Every person on the list pays those. Except, again, they don't all pay equally.

The guy at the top of your list, pays the least amount in those taxes.
And, the second guy, he also pays less. The four guys at the bottom of your list, well, they pay huge portions of their income to those taxes.

It's curious ... how sometimes, the payroll taxes don't count. And other times, payroll taxes do count. I guess it all depends upon which point you are trying to attack.
Gee, because they, merely by filing their taxes in a timely manner get all they paid in, and possibly MORE back? With a child and the EIC, a person who earned 14K and paid a total of 1200 in payroll taxes would be entitled to a federal refund of FOUR THOUSAND DOLLARS, how is stealing from the rich to enrich the poor just?
 
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Big Don

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That the rich shoulder the vast majority of the tax burden in the US is unquestioned. That some would punish hard work and success is sad at best.
 
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Big Don

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Strange ... in the article. ... the author seems to intentionally confuse the idea of a budget surplus, and the national debt. He then makes his points on the nationtional debt.

It appears to be the same thing that Big Don does when he chooses, in the original post, to not consider payroll taxes, taxes. Because if he does, his argument falls apart.
Falls apart? Not at all, the four poorest receive ALL their payroll taxes back when they file their return, this is not true of the tenth man.
But, in other arguments, the arguments will include the payroll taxes, to show that government is the problem.

What is even more amazing ... and this is pointed out in the linked article ... is that some attack the actions of President Clinton, which seems to be supporting the positions of Presidents Bush.



... well, except everything presented ignores the facts under President Bush.
Gee, reading this, you'd think conservatives haven't attacked President Bush for 7 years for NOT cutting taxes AND spending. That simply isn't true.
 

michaeledward

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the four poorest receive ALL their payroll taxes back when they file their return

Big Don, you apparently are unfamiliary with the term 'Payroll tax'.

This is the money taken by the government on your paycheck labelled 'FICA' or 'Social Security' and "Medicare Tax'. No one receives this money back when they file a return.

The Social Security tax is approximately 7.2 % of your wages.
The Medicare tax is approximately 1.8% of your wages.

The richest man, incidentally, only pays these taxes on the first 90,000 dollars (or so) of his income.
 

fireman00

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The story is a good illustration of how the wealthy impact our economy.

My uncle does custom woodwork for high end boats and custom cabinetry he sees a down turn every time rich folks feel the pinch and they start to tighten up the purse stings. Sames goes for boat building on the east and west coast. There is a definite trickle down effect when they are over-taxed.
 

michaeledward

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fireman00 .. you are certainly correct.

A former customer of mine does boat work. He too reports that luxury items do suffer a bit when the economy is in the dolldrums; whether those dolldrums are created by taxes, or the shrinking dollar, or the loss of jobs to overseas markets. But, boats, and high end woodworking are luxury items. And, because they are luxury items, the economic base that supports them, is rather small, and probably not a huge driver in our economy. Even if it does hurt your uncle, and my former client.

And, I don't know how many of those high end boat owners are hanging out on a bar stool down at O'Malley's pub.
 

Marginal

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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.
They do that already.
 

Ray

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This is the money taken by the government on your paycheck labelled 'FICA' or 'Social Security' and "Medicare Tax'. No one receives this money back when they file a return.

The Social Security tax is approximately 7.2 % of your wages.
The Medicare tax is approximately 1.8% of your wages.

The richest man, incidentally, only pays these taxes on the first 90,000 dollars (or so) of his income.
Some people have been known to argue that social security tax does return to the payee should he/she live long enough to retire. Medicare is also used to help persons who have retired and has been argued to return to the payee.

On the one hand, the social programs could be done away with. On the other hand, not everyone can make it without them...not everyone has the ability to put away for a rainy day and even then, some get deluged instead of sprinkled upon.

It should be noted that some who pay these taxes never collect them back because they earn too much after retirement age.
 

crushing

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Strange ... in the article. ... the author seems to intentionally confuse the idea of a budget surplus, and the national debt. He then makes his points on the nationtional debt.

Maybe that is because the budget deficits or surpluses are tied to the national debt. When the government spends more than it takes in in a year it creates a deficit. That deficit contributes to the national debt. There hasn't been one fiscal year since the 1960s where the debt has decreased.

Then there is the difference between a budgets and actuals. The Republican congress in the 90s along with their partner in the Whitehouse played a bit of a shell game to give the appearance of a surplus, or at least a budget surplus. But, those budget surpluses did not turn into real surpluses as shown by the continued dramatic increases in the national debt throughout the 1990s.
 

michaeledward

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Crushing ... I doubt we will convince each other of our points. I'm certain we can each throw graphs up that prove our points.

While I can accept an argument that a positive budget may not yield a reduction in debt ~ perhaps due to the interest on that multi-decade debt ~ it is still greater amounts of money flowing into the government coffers, than is flowing out in a specific time period.

http://dark-wraith.com/2005/12/treasury-secretary-calls-clinton.html

The fact is, listening to the fiscal advice of someone purporting that the current Bush administrations policies are better than, as good as, or even nearly equal to the fiscal positions of the Clinton administration is lunacy.

I don't believe it was a shell game. I believe the economy under President Clinton (and the Gingrich congress) was significantly better than what the Bush administration has done for us. Of course, Bush doesn't believe in government, except for what he can take from it (and when I say 'it', I mean us, the taxpayers).
 

michaeledward

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Some people have been known to argue that social security tax does return to the payee should he/she live long enough to retire. Medicare is also used to help persons who have retired and has been argued to return to the payee.

On the one hand, the social programs could be done away with. On the other hand, not everyone can make it without them...not everyone has the ability to put away for a rainy day and even then, some get deluged instead of sprinkled upon.

It should be noted that some who pay these taxes never collect them back because they earn too much after retirement age.

More imploring, eh?
 
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