Beer economics...

A mate of mine sent me this, works quite nicely...

"THE TAX SYSTEM EXPLAINED IN BEER
Suppose that once a week, 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
And the tenth man (the richest) would pay £59.
So, that's what they decided to do. The ten men drank in the bar every week and seemed quite happy with the arrangement until, one day, the owner caused them a little problem. "Since you are all such good customers," he said, "I'm going to reduce the cost of your weekly 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? 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 not only would the first four men still be drinking for free but the fifth and sixth man would each end up being paid to drink his beer.
So, the bar owner suggested that it would be fairer to reduce each man's bill by a higher percentage. They decided to follow the principle of the tax system they had been using and he proceeded to work out the amounts he suggested that each should now pay.
And so, the fifth man, like the first four, now paid nothing (a 100% saving).
The sixth man now paid £2 instead of £3 (a 33% saving).
The seventh man now paid £5 instead of £7 (a 28% saving).
The eighth man now paid £9 instead of £12 (a 25% saving).
The ninth man now paid £14 instead of £18 (a 22% saving).
And the tenth man now paid £49 instead of £59 (a 16% saving).
Each of the last six was better off than before with the first four continuing to drink for free. But, once outside the bar, the men began to compare their savings. "I only got £1 out of the £20 saving," declared the sixth man. He pointed to the tenth man, "but he got £10"
"Yes, that's right," exclaimed the fifth man. "I only saved £1 too. It's unfair that he got ten times more benefit than me"
"That's true" shouted the seventh man. "Why should he get £10 back, when I only got £2? The wealthy get all the breaks"
"Wait a minute," yelled the first four men in unison, "We didn't get anything at all. This new tax system exploits the poor"
The nine men surrounded the tenth and beat him up.
The next week the tenth man didn't show up for drinks, so the nine sat down and had their 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 to pay for even half of the bill.
And that, boys and girls, journalists and government ministers, is how our tax system works. The people who already pay the highest taxes will naturally get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy and they just might not show up anymore. In fact, they might start drinking overseas, where the atmosphere is somewhat friendlier.
David R. Kamerschen, Ph.D.
Professor of Economics.
For those who understand, no explanation is needed.
For those who do not understand, no explanation is possible."

Although I'm was already aware how so few people actually have a net positive tax input it's still a good analogy.

I think it's over simplified. Not that I've looked at the stats, but just how significant to the overall revenue bucket, are the mega rich in terms of personal taxation?

My gut feeling - although I'd welcome stats on it, is that business / corporation tax, higher rate taxpayers (so hardly mega rich, then). and all the indirect means are very significant inputs to the pot.

I get the point, but how deos the wealth of the 10 men actually relate in reality?

gtRTSdh":c2fkf1xv said:

I get the point, but how deos the wealth of the 10 men actually relate in reality?

Click to expand...

Very few of us are net tax contributes. That means even though we may not get direct benefits we still use services such as schools, hospital, roads etc etc. That means if we had to pay for everything directly but didn't pay any tax, very few of us would actually pay less than our current tax bill. So it takes large corporation taxes and rich top tax band people to balance the books (or not balance as we currently do)
This article explains it a bit better
http://www.thisismoney.co.uk/money/news ... state.html
I don't recall what the percentages are.

Pretty sure there is a seperate tax for the roads, i think it is called Road Fund licence.
I'm also pretty sure that i pay Council tax which pays for my bins to be emptied and for nice policemen to keep me safe amongst other things.
I also pay tax on virtually every purchase i make from a shop, plus the nice man in Downing street also takes a big chunk of my wages. So please don't tell me most of us aren't contributing in a positve way because it simply isn't true.

I think everybody should pay what they are supposed to and that the big tax dodgers should be bought to task regardless of the outcome. If they all bugger off overseas and i have to pay an extra 5p in the pound i'm not going to be out on the streets

Easy_Rider":3jrwf193 said:

gtRTSdh":3jrwf193 said:

I get the point, but how deos the wealth of the 10 men actually relate in reality?

Click to expand...

Very few of us are net tax contributes. That means even though we may not get direct benefits we still use services such as schools, hospital, roads etc etc. That means if we had to pay for everything directly but didn't pay any tax, very few of us would actually pay less than our current tax bill. So it takes large corporation taxes and rich top tax band people to balance the books (or not balance as we currently do)
This article explains it a bit better
http://www.thisismoney.co.uk/money/news ... state.html
I don't recall what the percentages are.

Click to expand...

There's a big fallacy of the occluded middle in all of that - and big liberties being taking and assumed in the arguments made.

Probably the biggest number of higher rate taxpayers are nothing like mega rich - look at the top incomes in that table.

Going off an average month of direct taxation deductions in PAYE an NI, I've worked out my payments in direct taxation over 12 months are a few hundred shy of 20k - and whilst I'm probably a ways away from minimum wage, I'm hardly highly paid, nor mega rich. That's before you get to indirect taxation I'm paying, and in many cases, VAT on top of that. Are these articles considering any of that? The indirect taxation that probably cuts a lot harder at the lower end.

The people who you'd truly think of buggering off because of too much direct personal taxation are probably likely to be earning in the millions, and probably have mucho assistance by reasonably well paid accountants to minimise how much of their "income" actual goes to the tax-man. Something I very much expect is either not cost effective for, or they do not have the luxury of, for the occluded middle.

The reality is, it's rare, really, to see the super-rich directly affected by personal taxation - it tends to be Mr Average, in suburbia that takes the hit - after all, that's probably where the numbers are, in personal taxation.

Grannygrinder":28s1nmfc said:

Pretty sure there is a seperate tax for the roads, i think it is called Road Fund licence.
I'm also pretty sure that i pay Council tax which pays for my bins to be emptied and for nice policemen to keep me safe amongst other things.
I also pay tax on virtually every purchase i make from a shop, plus the nice man in Downing street also takes a big chunk of my wages. So please don't tell me most of us aren't contributing in a positve way because it simply isn't true.

I think everybody should pay what they are supposed to and that the big tax dodgers should be bought to task regardless of the outcome. If they all bugger off overseas and i have to pay an extra 5p in the pound i'm not going to be out on the streets

Click to expand...

Absolutely - the big flaw, in all of this - and it's not an accident, is that indirect taxation is rarely factored in. Governments knew what they were doing when that was no bandwagon too slow.

Much more of the very rich, have much more capability of avoiding personal taxation, compared with the average, Mr Average, of average, in suburbia, who just happens to be a higher rate taxpayer, because that's where it's at, these days.

You hardly need to be a high earner, or rich, to be paying tax at the highest rate, these days.

Well the article does say it factors direct and indirect taxes. And it does say that it's very general. Factors like having kids makes a huge difference. Yes we pay for services but if we paid for the actual service cost at point of use it could be a much higher bill compared to just paying taxes on an average income together with indirect tax contributions.

While it can be argued that the article is untrue, what can be argued to be a worrying trend is the shift in net contributors, this is most probably a result of the higher cost in services (salary increase, insurance increase, h&s costs, energy costs etc)

Easy_Rider":3sk8i4cy said:

Well the article does say it factors direct and indirect taxes. And it does say that it's very general. Factors like having kids makes a huge difference. Yes we pay for services but if we paid for the actual service cost at point of use it could be a much higher bill compared to just paying taxes on an average income together with indirect tax contributions.

While it can be argued that the article is untrue, what can be argued to be a worrying trend is the shift in net contributors, this is most probably a result of the higher cost in services (salary increase, insurance increase, h&s costs, energy costs etc)

Click to expand...

I'd argue that the article misrepresents, somewhat, the reality, in favour of a certain, economic standpoint.

I think the reality is, if we were to convert all indirect taxation - or at least the significant components that have been shifted from direct taxation, in recent decades, then the supposed under contribution of medium and lower incomes wouldn't look, perhaps, quite as low.

The reality is, these sort of articles and perspective, talk about the really rich, potentially being discouraged and buggering off to more favourable climates - yet doesn't truly include them in a meaningful way in the stats.