Friday, May 21, 2010

Tax system explained in beer

Can't be arsed commenting about the Budget as the day job is somewhat hectic.

Instead here's a wee story directed at folk who grizzle about "tax breaks for the rich" that need to be aware of the risk and repercussions of the nation's producers "Going Galt".
Every day, ten men go out for beer and the bill for all ten comes to $100.

They decided to pay the bill by apportioning the total cost of all the drinks in the same way that we, in NZ, pay our taxes.

This meant that:

the first four men (the 'poorest') would pay nothing.

the fifth man would pay $1.
the sixth man would pay $3.
the seventh man would pay $7.
the eighth man would pay $12.
the ninth man would pay $18.
the tenth man (the richest) would pay $59.

The ten men drank in the bar every day and seemed quite happy with this 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 of you will 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 a graduated price reduction based on what each man was currently paying, so that everyone would benefit. They all agreed that this was a good idea so he proceeded to work out the amounts each should pay:

the fifth man, like the first four, now paid nothing (100% savings).
the sixth man now paid $2 instead of $3 (33% savings).
the seventh man now paid $5 instead of $7 (28% savings).
the eighth man now paid $9 instead of $12 (25% savings).
the ninth man now paid $14 instead of $18 ( 22% savings).
the tenth man 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 they got 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 did!"

"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, this 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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