Stupid Mass Emails

Ken AshfordEconomy & Jobs & DeficitLeave a Comment

So, I received this:

The Tax System – Explained With Beer

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

What is particularly annoying about this email — and there are many things — is the pompous concluding paragraph:

And that, boys and girls, journalists and college professors, is how our tax system works.

No, it really doesn't work that way.  Sometimes when you over simplify an analogy, you render it essentially meaningless, if not entirely incorrect.  The email's explanation of the tax system is akin to saying "Gas makes the wheel in the car go around.  And that, boys and girls, journalists and college professors, is how the internal combustion engine works".

Yes, we have a progressive tax system, meaning that the people who make the most money pay the highest percentage of their income in taxes.  That is about the only thing about the above email that bears a resemblence to truth.  What is an abject lie (pulled out of the butt of the original author) are the tax rates — quite simply, he made them up in this analogy.  Also fabricated?  The notion that tax breaks are targeted equally among all ratepayers.  (Do you really think that 50% of all taxpayers pay no taxes at all?)

But the most laughable part is this:

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.

Ah, yes.  The "Going Galt" threat.  First of all, the richest man in the analogy above could very well be… wait for it… the owner of the bar.  And he's not likely to pull up stakes and go overseas — he's got a steady stream of paying customers.  Presumably, the same holds true for the richest man as well, and the secon richest man, etc.  It just won't happen.

This is the kind of email that absoultely makes no sense, except to people who are either stupid or predisposed to believing the premise.  A moment's reflection on the email's message would result in the whole thing crumbling as an economic allegory of our tax system.

But the email doesn't want anyone to reflect: those who "understand" it will understand it, those who think about it never will understand it.  So for God's sakes (the email tells us), don't think about this too much.