The Beer Night Parable of Taxation

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The Tax System Explained in Beer

By David R. Kamerschen, Ph.D. (Economics) [Note: Authorship, as attributed by linked source, has been denied by Professor Kamerschen of the University of Georgia.]

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

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 ball. “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 men would 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 ? 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.


Click through to the original for how they split the savings and how that played out.

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