Bar Stool Economics

Photo: John Boston

Some of you may already have seen this anecdote as a circulating email. A Wise Bread reader recently posted it here, and I found it worthy of sharing.

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.
 

This is of course a light hearted way to poke fun at "the system", but still yet an interesting look at the North American tax system. It also observes how we can sometimes get caught up in our own worlds such that we lose sight of the forest through the trees.

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Guest's picture
Brian

How did the tenth man aquire his wealth in the first place? That's the base of the problem. Did he sell products made in a third world country? Did he pay his employees a fair rate? In almost every situation, the things that seem the easiest or have the best monetary faith are not benifitial to society long term.

Guest's picture
jared

You’re forgetting the other parts of the story. You are only looking at it from a consumption perspective. Let’s look at it from the other perspective.
Ten men walk into a bar:
1 is unemployed.
4 have blue collar jobs.
2 have white collar jobs.
1 works for some government agency.
1 is a small business owner.
1 is a banker and owns many international conglomerates.

They all pay different prices for their beer as you stated. Then the banker forecloses on the unemployed person because he can’t pay his mortgage. Next, he sees that his companies are paying too much for wages and fires 2 blue collar workers and outsources their jobs to China. You now 3 unemployed workers; so everyone chips in a little more to pay for beers for the unemployed. The other 2 blue collar workers are forced to take pay cuts because fewer people are buying their goods. Then the 2 white collar jobs take pay cuts and try to compete for the 2 blue collar jobs that are left. The banker now threatens more people with eviction for falling behind on their mortgage. The banker then convinces the middle 5 to borrow more money to pay more for their beers. Eventually everyone turns on the government worker because he is the only one left with a pension. It’s unfair that he still gets a pension. Never mind the fact that his contributions to his pension were spent by the state instead of being invested. He should have to suffer too. His job is outsourced as well. The banker has to evict more people from their houses. Seeing that it’s becoming a hostile bar and seeing that he is paying for 60% of everyone beer, he looks for an exit strategy.
9 men walk into a bar and can’t afford the beer. They leave. The small business owner closes his business because nobody can afford his beer.
Rich people pay higher taxes because they benefit from the system more. If they didn’t benefit from the system, they wouldn’t be rich.

Guest's picture
quantum_bulldog

Except for the small overlooked fact that it is the POOR who pay the tab in this country, while the rich drink for free. Why's the rich man busy dancin' while the poor man pays the band?

Guest's picture
NO

The story has so many flaws, that the moment I finished reading it, I immediately wanted to shoot myself in the head because I realized that this society no longer know how to reason or use logic, and has lost its ability to think critically about its own life and its surrounding environment.

First, anyone with a decent education will realize that tax system and budget do not work that way. You don't simply just cut %20 of taxes, and that if it did, the government will cut it proportionally. Also, if taxes were being cut, believe me, no one would be complaining.

Second, anyone with a decent education will realize that that's not how power relations work in society, and that 90% of people can't just simply beat up (literally, physically, political, metaphorically) 10% of the rich.

I'm aware that it's just merely a story to draw points to teach the reader a moral lesson; however, the lesson is horrifyingly retarded; like we should be somehow feel sympathetic towards the rich 1%? I'm sorry bud, I will not feel sympathetic towards people who make a billion dollars a year exploiting poor people of developing nations.

I'm also aware that the story is trying to attempt to teach us that when tax cuts are being made, it seems like the rich are getting more cuts because they make proportionally more.

I would agree but the story fails to take into account why people are unhappy in the first place.

HERE'S AN ACCURATE VERSION OF THE STORY:

The bartender comes up to the 10 customers and says "sorry guys, due to inflation and rising costs I'm afraid I'll have to raise the tab to $120". So, the first 9 friends begin calculating and each decides to pay proportionally more, even the first 4 (who did not have to pay before, start paying 50 cents).

However, when we get to the 10th friend he says "wait a minute, this is fucking bullshit. I already pay more than 40% of the bill why do I have to pay more? If it wasn't for me, this bar wouldn't even be running. So, if you want to continue coming to this bar and getting a drink, not only am I NOT going to pay more, I'm going to pay less from now on."

The 9 friends look at each other in confusion, they're filled with anger and want to beat this guy up but they can't. Because the 10th friend is powerful, his best friend is chief of police, his brother is a supreme court judge, his mother's friend's husbands are leaders of political parties, his dad is an army general. He can't be fucked with.

The 9 friends have no choice and do their best to pay off the extra $20 and more on its own.

What's worse is that soon after, the 7th and 8th friend start defending the 10th guy. With stories like "Bar Stool Story" they claim that it is "logical" that the 10th guy pay less or that we shouldn't be mad at him for paying less. While the rest shake their head in shame for 7th and 8th's stupidity and naive-ness, and for not realizing that the system is cheating them, too.

Guest's picture
Guest

Naivete has nothhing to do with it! They felt slighted because he got a bigger break, he pays more so there should be no argument! I would be one of the four who dod not pay anything because of my tax bracket! Even though their is an inflation in price there are not always an increase in wages and they would still pay nothing because of their tax bracket! I understand your point but I cannot totally agree with it.

Guest's picture
Bryan

What amazes me is that, in this nation founded upon the principle of "Equal Protection under the Law", anyone can contend with a straight face that it is "fair" to confiscate a higher PERCENTAGE of what one person earns than what they confiscate from any other person.

I started out with NOTHING...living in apartments that most of you wouldn't keep your dog in. Paid my own way through engineering school because, as a "white, Anglo-Saxon Protestant" I was told that I was completely ineligible for any form of educational financial assistance because I was not a minority of any sort. I paid for my entire schooling myself, working two and three jobs in addition to taking extra classes because anything over 12 credit hours per quarter was free, lived in a condemned building (I mean that literally) with my pregnant wife while working on my first, miserably salaried job.

We got through the near death of our third son, who had to have a bone marrow transplant as a baby ($800K in medical expenses) without any help except from the company for whom I worked....who was a "self-paying" insurer. No government help (they said that none of our medical expenses were deductible). Oh, and help from the Ronald McDonald House, where we stayed after all of our savings were gone. Today I go to McDonald's whenever I can, just to put money in the Ronald McDonald Charities box, even though I don't even like their food!

Now I work two jobs to pay the tuition payments for two of my sons to go to college at the same time. Why? Because my second son, who was nationally ranked as a college football prospect, was told, by three different schools, that he was not eligible for a Div ! scholarship because he was not a minority.

Now I'm told that I pay such an obscene percentage of my income in taxes while almost half the people in the United States don't pay a NET dime because I'm "rich"...what a crock of crap. My son's are not eligible for any student loans or scholarships because I "make too much money", their college expenses are not deductible for the same reason.

Every single free republic in all of history has been brought down by exactly the same principle....the 80/20 rule. In every society, 20% of the people do most or all of the work and pay most or all of the bills, while 80% contribute little or nothing while enjoying the same right to vote. The math is easy, and it always ends up that the 20% paying the bills get outvoted into being slaves to the non-contributors. Until either a revolt happens, or the one's that are doing all the work either stop working or take their labors elsewhere.

All the liberal preachy crap on here cannot change the facts of history, nor the inevitability of it happening again here.

Guest's picture
Finance Man

This only takes into account income taxes, does not look at consumption taxes which the poor & middle class pay a disproportionately proportion of (sales tax, rent-> property taxes)

As a whole the poor and middle class still pay disproportionately higher tax rates.

Guest's picture
Joe

Eight of the men, of course, consume 6% of the beer. The last man, poor creature, consumes 40% of the beer.

Guest's picture
Guest

They didn’t have enough money between all of them for even half of the bill! So they decided that the rich guy was a tool and stopped buying his stuff and his business went downhill fast. But the rich guy came back and apologised and all lived happily ever after.