Liberalism for Dummies

Our Tax System Explained:

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 got”

“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, ladies and gentlemen, 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.

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

17 Responses to “Liberalism for Dummies”

  1. Kevin Jackson says:

    Jim,

    I’m a huge fan. Your writing is lucid and fun! Perhaps I can send you a few musings, and you can decide if you’d like a guest blogger.

    If you find me at linked in, you can see my answers to some political questions on Obama for some content. Keep in mind that those are not my true edited blogs, but you can get an idea of my writings.

    Keep up the good work…

    Kevin

  2. Bruce says:

    Two years ago my wife and I hit a new tax bracket. I had just started a new job after retiring from the Army. I got the salary I asked for from my new employer and my wife transferred to a interior design store in our new area. We have no children at home anymore so that tax break is gone. We did buy a house but have very little in investments and savings (the military is notorious about letting you save money and then sending you somewhere else where you end up spending the saved money to get back on your feet). The a year and a half passes and I was doing my taxes with Turbotax and everything was really fine. The figure at the top right kept growing in nice green numbers. Then I added in my military retirement pay. Suddenly the figure turns to an ugly bloody, red shade and startings increasing, not only in negative dollars but in speed. In one year I had gone from a refund to owing the IRS, what seemed to us, an incredible amount. As I mentioned, we didn’t the savings to pay in full so I made payments over an eight month period. Last year our tax burden was lower because we had the medical deduction. Anyone who has ever had to use that deduction knows full well just how much money has to come out of pocket to be able to take it. This year, however, I have made a lot more money due to overtime at work and business trips. I’m dreading the the tax bill I will owe. Am I rich? No, by anyone’s standards. Together we make over $120,000 a year. That is middle-class. My tax burden is much and my tax bill is great. Should the rich shoulder more of the load? Yes. They have the means. Should the lower class be given all the tax breaks just because their income or lack of income is, in a word, taxing to them? Yes. I don’t have an answer to this issue. I’m simply saying that I’ve been on both sides.

    Sorry about the novella.

    Bruce

  3. Americanus says:

    Jim,
    I’m in nearly the same boat as Bruce, for the exact same reasons. And I too have been on both sides with our family; he’s right, the military does not make it easy.

    The difference is we took some very risky chances along the way and started a side-business. During a lot of my deployments, my wife worked her ass off and upon my return, we both sacrificed a lot of other free time working to build it up — we were focused on the future and are trying to use our examples to teach our kids the financial IQ skills they will need – and coming from lower class backgrounds ourselves, to be honest a lot of the time we are actually learning right along with them. While others were at the beach for the summer, we worked; and our kids were right there with us. I pulled my day shift at post and hit the books at night. We swapped off parental and familial duties as required – when I rolled out, we cut back and hired help for the kids when needed. In short, we sacrificed time, money, and a hell of a lot of effort – and just after my own retirement, just at the point where our efforts have dug us out of our initial investment and turning a real profit, now comes the slap in the face; welcome to the land of being the 10th man, and getting beat up.

    We were frugal and saved. We bought our house on a low FIXED rate because we put 20% down – even though all our friends said we were financially naive for not leveraging more (a couple of which who are now living in apartments, having lost their own over-leveraged houses). Our cars we did not buy until we had the scratch to negotiate cash sales (and they were mid-level non-luxury practical sedans). We give 10% of our income in tithes to our community-involved church. In short, we did everything right. And now this new farce.

    For the record, we are not the Lear Jet set portrayed by the “One” and it was a total familial effort for us to clear 250K this year for the first time; only to see our efforts rewarded with higher taxes. Ironically, we employee 3 others in my wife’s business – and while they usually go home at 5, we normally are policing up the battlefield still until 8 or 9 and often weekends, with the wife answering calls at all hours and days. Most all of our “profits” go back into the business in an effort to expand, hire more workers, pay better benefits, etc.

    But unlike Bruce, I don’t say there isn’t an answer. The answer is not to tolerate government THEFT.

    Stealing from the sweat of someone else’s brow, like the example of 9 of the above drinkers, because you were too lazy, inept, or just were not willing to take the risks associated with great reward is UNACCEPTABLE. It is class warfare plain and simple. And in the end, it teaches the wrong value to our kids; why work hard? Bitch loud and blame the ‘other’ guy long enough and the government will correct things for you.

    Why not just cut all the bureaucracy and just start jackin’ the “rich” at the ATM instead while we are making our night deposits? (Oh, did I mention we are strong supporters of the 2nd amendment…..just in case readers here get any ideas or take that last comment as a business idea.)

    Jim, good for you! Great way to turn an old conundrum (the $20 division) into a darkly humorous explanation of our current tax system. At this time, our bracket is looking to move from 28% to 50% if the “O” moves us back to Clintonian times – about an 22% increase.

    But that’s okay, we’ll just be saving the 22% increase through a 25% overhead reduction in my wife’s small business; by saying good-bye and good luck to the exemplar ‘sixth or seventh man’ (haven’t decided exactly which yet) from your analogy. Of course, that means the other 2 employees get to enjoy the liberal utopia of sharing the burden – since in the end, the work will still have to be done, but now with just less. Multiply us as small business owners by thousands, and each facing nearly the same choices – and the other two better not damn well bitch or they will find their asses out on the street too, with someone more thankful for a good job right now taking their place for less pay and benefits; for a well set and run business, a recession is an employer’s market.

    Bottomline, up until the “O” we were the 8th or 9th man, but working hard to be the 10th. Now, with redefinition by the libs, we are the 10th – overnight. So, with our new-found “wealth” we will now hire a shark CPA – and like your example above, we the ‘new’ 10th man will not be showing up for drinks anymore. Hope the sixth or seventh man isn’t thirsty……..

  4. Buzz says:

    Jim,
    Thanks for the truth and the laugh. Somehow, all Americans must read this. I know that MSM would never print it.
    I am not rich by any stretch of the imagination, but the socialists in power must be reined in somehow. Otherwise I will have to move as I will never call my neighbor Commrad.
    Please keep up your good work!

    Buzz

  5. ahansen says:

    Good title–a simplistic explanation for the un-nuanced mindset.

    Here’s one for the John Galtians:
    The United States economy is like a poker game where the chips have become concentrated in fewer and fewer hands, and where the other fellows can stay in the game only by borrowing. When their credit runs out the game will stop.

    –Marriner Eccles
    Chairman of the FED 1934-1948

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  8. Ed Gallagher says:

    Who is John Galt????????????????

  9. A-sm-aa says:

    Jim,

    I need to make a history essay concerning Liberalism. I’m not American, however, and I myst say that I actually don’t understand this explanation (I get it, I’m dumber than dumb -_-”). But, could you please explain it in another way, if it isn’t too much asked?

    • CatoTheElder says:

      A-sm-aa,

      This article is about American liberalism, which is the opposite of classical liberalism. If you’re trying to learn about classical liberalism, it’s no wonder that you don’t understand this article. Google FA Hayek and check out mises.org if you’re interested in classical liberalism.

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  12. William says:

    The problem with this is that the middle 5-7 would really be the ones paying the most money if it’s a percentage of their income. The wealthiest 10th man would really pay next to nothing.
    I mean, if you wanted to make it accurate.

  13. Mr Fnortner says:

    The explanation is good but leaves out an important element: the patrons consume the beer and the proprietor has a legitimate claim on their money. To make the example more true to the American way, the ten would be walking by the bar only to be stopped and denied passage until they paid $100 for the beer of a handful of unknown drunks inside the bar. They would still be offered the $20 break, and the fight would still break out, but the thieving proprietor and his freeloading customers wouldn’t be involved. The fact that the ten may drink a beer or two on their own time, or even in this establishment, doesn’t make the highway robbery any more legitimate, nor does the fact that the richest guy is a gazillionaire. The proprietor and his drunken customers do not have any moral claim on the wealth of the ten passersby.

  14. Jim Byrd says:

    The solution is 9-9-9 and if they are in vote them out.

  15. jerry says:

    Change “Beer” for “Water” and you get a different story, don’t you?

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