Tax the rich

Professor of Economics, University of Georgia

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.

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

For those who understand, no explanation is needed.
For those who do not understand, no explanation is possible.

I didn’t have to read the article, Don.

I know what the article is about just by reading the title and speed reading. You have missed the point here. Private equity groups should not be taxed at the same rate as a regular corporation because they serve a different function. What Adam said is basically that PEGs make billions and therefore should be taxed like other corporations that make billions. But that does not make any sense. PEGs should be taxed, but not at the same rate as a corporation.

But like Adam said, “We’re all becoming tax experts now.” My opinion is just as valuable as any tax attorney’s opinion.

This is another one of those cases where people do not READ the story before making a comment! Mel, Yadgyu, and D, if you would have read the article instead of just the headline before you made a comment like this, then you would not look like the idiots you are. This article is about how private equity groups are making billions of dollars in profit and pay very little in taxes.

I get a kick out of the statement “Tax the Rich”. The biggest problem I have with this statement is how one defines “RICH”. Is a retired widow who has a couple of million in the bank rich? It depends on which side of that number your bank account equates. Should you tax her at the same rate as say Paris Hilton? Give me a flat tax or consumption tax with no loopholes and no deductions. Eliminate corporate and business taxes and allow the price of goods and service to drop. Only then will our politician be true representatives of the people and not to special interest groups.

Well put, Mel.

The notion of taxing the rich more is a loser’s game. As soon as a way of taxing the rich comes about, the rich are busy hiring lawyers and accountants to find loopholes in the law. The rich have the resources and time to do so. Even if the rich were taxed more, the government would end up squandering the money on unnecessary and underperforming programs. The rich people are vilified by the poor and middle class until the poor and middle class become rich.

Success is measured by how much money you have, but if you have too much you become evil. That’s baloney.

“Tax the Rich!” What an unbelievable stupid thing to say or want. It sounds good and, I guess, it plays well with your readers. I am not anywhere near being rich but I cannot see what this will accomplish. If you taxed all the people that make more than one million dollars 100% of all their income, what percentage of the National Debt do you think that would represent? When did the rich (and “rich” is a relative term) become the bad guys? Try thinking a little deeper then this and maybe you will attain somewhat more credibility.