Barstool Economics- Why Obama is so wrong

[Bojack1]

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 (poor) would pay nothing.
The second (poor) would pay nothing.
The third (poor) would pay nothing.
the fourth (poor) would pay nothing.
The fifth would pay $1.
The sixth would pay $3.
The sev enth 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 first would still pay nothing.
The second would still pay nothing.
The third would still pay nothing.
The fourth would still pay nothing.
The fifth man 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!’
‘Y eah, 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

[blackchipjim]

I give you an A+ for the analogy of the tax system. Few people really understand the core basis for tax code. blackchipjim

[shadroch]

I've recieved this by email about five times in the last two weeks. Usually from the same guys who forward "proof" that Obama is a secret muslim or that illegal mexicans are causing the housing crisis.
When you stop and think about it, the tenth man would be drinking in a private club, served by the sixth man, while the fifth man stands guard to keep the first four men outside where they belong.

[callipygian]

Everybody who posts this article should be also forced to say which of the 10 men they think they are, and then post their AGI so that we can look up where they really are.

Joe the Plumber obviously thinks he's the tenth man. But he's actually the 5th.

[ccl]

ill pretty much say im one of the first 4 paying nothing as im a lowly military man

chris

[callipygian]

Originally Posted by ccl

ill pretty much say im one of the first 4 paying nothing as im a lowly military man

Hey now, be proud of your job.

There are plenty of good reasons to vote for Obama, and plenty of bad reasons to vote for Obama. If you're voting for him, make sure your reasons are good. There are plenty of good reasons to vote against Obama, and plenty of bad reasons to vote against Obama. If you're voting against him, make sure your reasons are good.

I'm pretty sure that McCain would be better for the military than Obama would be. McCain has a great record of service and I think he has a very realistic view of the military - what they can do, what they can't do, what they need, what they don't need, etc. Obama's a crapshoot on that - not necessarily bad, but I would argue the Presidents who served in the active military make better military decisions as Presidents (compare Bush 43 with Bush 41, for instance).

[GeorgeD]

Originally Posted by blackchipjim

I give you an A+ for the analogy of the tax system. Few people really understand the core basis for tax code. blackchipjim

About 40% of US households have income of $40,000 or less. The average household size is about 1.5

The Federal Poverty level a family of 2 is $14,000.

A disabled person on SSI with no other income or assets gets a federal benefit of of about $650 a month ($7800 per year). If we assume medicaid is equal to medical insurance of $500 per month that's about the same as earning $13,800. You can maybe add $100 Food stamps to that.

If you think the 40th percentile of income (ie: the first 4 guys) gets any Government assistance, you are very confused.

The beer analogy would be more accurate if the first guy was free and the second half price.

What's in YOUR wallet?

[callipygian]

Originally Posted by GeorgeD

About 40% of US households have income of $40,000 or less. The average household size is about 1.5

The Federal Poverty level a family of 2 is $14,000.

A disabled person on SSI with no other income or assets gets a federal benefit of of about $650 a month ($7800 per year). If we assume medicaid is equal to medical insurance of $500 per month that's about the same as earning $13,800. You can maybe add $100 Food stamps to that.

If you think the 40th percentile of income (ie: the first 4 guys) gets any Government assistance, you are very confused.

Er ... none of these are exactly right. The 40th percentile of earners is going to be in the low $20,000's, not $40,000. The average household size is 2, not 1.5. Subtract out deductions for your family and the standard deduction, and then remove medical expenses and mortgage, and there's a lot of people who earn money but don't pay.

Contrary to the popular belief that people who don't pay taxes are slackers, non-paying filers (about 35% of total filers) are more married than paying filers, more likely to be single-earner (man works, woman stays at home) families, and usually have more kids than average (as Palin might put it, "real America"). The vast majority (98%) have earned income but their deductions and expenses reduce their tax burden to $0.

Not that making them pay would really help any. If we were to tax their gross income by 10%, it would raise about $40 billion, comparable to raising taxes on $200,000+ earners from 21% to 23%. Which is why, in a democracy, the rich will always pay proportionally more than the poor. It's a democratic inevitability.

[GeorgeD]

Originally Posted by callipygian

Er ... none of these are exactly right. The 40th percentile of earners is going to be in the low $20,000's, not $40,000. The average household size is 2, not 1.5. Subtract out deductions for your family and the standard deduction, and then remove medical expenses and mortgage, and there's a lot of people who earn money but don't pay.

Contrary to the popular belief that people who don't pay taxes are slackers, non-paying filers (about 35% of total filers) are more married than paying filers, more likely to be single-earner (man works, woman stays at home) families, and usually have more kids than average (as Palin might put it, "real America"). The vast majority (98%) have earned income but their deductions and expenses reduce their tax burden to $0.

Not that making them pay would really help any. If we were to tax their gross income by 10%, it would raise about $40 billion, comparable to raising taxes on $200,000+ earners from 21% to 23%. Which is why, in a democracy, the rich will always pay proportionally more than the poor. It's a democratic inevitability.

Census bureau reports:

"Real median household income in the United States climbed 1.3 percent between 2006 and 2007, reaching $50,233, according to a report released today by the U.S. Census Bureau. This is the third annual increase in real median household income."

"Meanwhile, the nation’s official poverty rate in 2007 was 12.5 percent, not statistically different from 2006. There were 37.3 million people in poverty in 2007, up from 36.5 million in 2006. The number of people without health insurance coverage declined from 47 million (15.8 percent) in 2006 to 45.7 million (15.3 percent) in 2007."

http://www.census.gov/Press-Release/...th/012528.html


As you say, many of those at or a bit above the poverty level don't pay income tax, but they do pay sales tax, and property tax either directly or through their rent.

How many people get some sort of "free ride"? I think we agree that a much smaller number than 40% get any kind of government handout, much less live completely "on the dole". Census bureau says 15% are at or below poverty, but some of them have income other than government benefits (working poor) There's no such thing as a free ride ... well, except for wall street bailouts that somehow can't be construed as "socialism". Maybe because they're paid to Capitalists

[callipygian]

Originally Posted by GeorgeD

"Real median household income in the United States climbed 1.3 percent between 2006 and 2007, reaching $50,233, according to a report released today by the U.S. Census Bureau. This is the third annual increase in real median household income."

I think I see the problem. I'm talking about adjusted gross income, you're talking about gross income.

Here are tax stats I'm using. $30,000 is 49th percentile, so the AGI is actually just over $30,000.

http://www.irs.gov/pub/irs-soi/06in12ms.xls

Originally Posted by GeorgeD

I think we agree that a much smaller number than 40% get any kind of government handout, much less live completely "on the dole".

I think the number of people who don't pay taxes is much larger than the number of people who actually get some sort of direct benefit from the government. You can figure out how many people are on, say, AFDC, and then subtract the people who are on AFDC and have a job, or take the number of non-working WIC receipients. The number is really small; if I had to guess, it'd be fractions of a percent. Most people on "welfare" in the United States use it to supplement their income, only a few use it as their whole income.

Listening to Republicans or conservatives talk, you'd think that 40% of the country squirts out babies and lines up once a month for a living; that's what I think we agree isn't true at all. I'm willing to grant 3 out of 10 people don't pay taxes at all, but they're not exactly drinking for free in the analogy - they're out working a second job to pay for their kid's college and not in the bar at all.