No matter how long it takes, I will fight for equality. I want to explain why bar stool economics shows why a progressive tax system is wrong. The best system for taxation equality is providing a flat tax above a certain poverty level or income level so that everybody pays something to support our country.
If the poverty level is $20,000 for a family of four, let’s keep federal taxes low to nothing since there are already state taxes, social security taxes, and medicare taxes to pay.
However, we should probably encourage further education on why it’s probably not a good idea to have any more children if one is having difficulty taking care of themselves, despite the misplaced policy of a $1,000 child tax credit for certain income earners and below.
Perhaps the flat tax income threshold is at $33,000, the halfway point between the top and bottom 50%. After $33,000, everybody pays a flat tax rate of 20% on all income, which includes investment, dividend, and interest income. No loopholes, no deductions, 20% is 20%. If you’re making under $33,000, your tax rate is lower.
Or perhaps the income threshold is above $106,800, where social security and medicare taxes disappear. We tax people progressively up to $106,800 and then a flat tax afterward. One of the big arguments some have against a flat tax is that it’s regressive, since the rich don’t pay any more social security and medicare taxes after $106,800.
Well guess what? Although you don’t have to pay those taxes above $106,800, you also don’t get any benefits either! Do you really think there is a free ride with our government of waste? Of course not. Please understand this point.
With a flat tax system after a certain amount of minimum income, the person who makes 10X more, pays 10X more in absolute dollars. Nobody can logically argue against equality. But, for those of you who feel that discrimination is the way to go, here’s a story of Bar Stool Economics which I stumbled across online that hopefully sheds some light.
Bar Stool Economics
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 ball. ‘Since you are all such good customers,’ he said, ‘I’m going to reduce the cost of your daily beers 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.
With the new system:
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 very important. They didn’t have enough money between all of them for even half of the bill!
The people who pay the highest taxes get the most benefit from a tax reduction. This is called, “No shit Sherlock.” 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 bar stool economics, no explanation is needed.
For those who do not understand bar stool economics, no explanation is possible!
If you enjoyed this article on bar stool economics, here are more suggestions for further reading.
- Do Higher Taxes Lead To Socialism In America?
- Are The Top 1% Getting Screwed The Most?
- Move to Nevada And Make 10% More Money Per Annum Forever
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- How To Deal With A Bully And Defend Your Honor
- Who Pays The Bill If You Are A Perspective Client?
For more resources, check out my top financial products page to find the best products for your finances, my invest in real estate page to invest in my favorite asset class, and my free wealth management page to manage your money better. Financial Samurai has been online since 2009 and is one of the most trusted and largest independently-run personal finances today.
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