The Tax System Explained with Beer

Credit to Dr. Kamerschen.

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 beer in the bar every day and seemed quite happy with the arrangement, until one day, the bar 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 just cost $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 everbody'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 paid $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 $50 instead of $59 (15% savings).

Each of the six was better off than before. And, the first four continued to drink for free. But, once outside the bar, 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 $9!"

"Yeah, that's right," exclaimed the fifth man. "I only saved a dollar, too. It's unfair that he got nine times more than I!"

"That's true!!" shouted the seventh man. "Why should he get $9 back when I got only $2? 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.

David R. Kamerschen, Ph.D.
Professor of Economics
University of Georgia
For those who understand, no explanation is needed.

2012 Elections

Wow. After the primaries I thought Romney was going to be a good match to take on Obama. He went after Newt, Cain, and all the others with abandon. But, come the dance, he let Obama off the hook. Romney never really challenged Obama on his record, or even on his attacks. Romney was on the defensive when he had the perfect reason to go full press. But he didn't and lost.

Will America be a different country in four more year? I fear yes. 

How? These are my fears:

Obamacare will be fully entrenched. I bet the middle east will be run by extremists. Israel may be a completely different place. We will have taken away many of our nukes from the world theater, leaving Russia as the largest threat to the world. And the US economy will stagnate and look more and more like Greece. Who knows, maybe Christians will be further chastised and labeled as extremists by a larger number of Americans.

One thing is certain: the "have nots" won last night.

Someone made a point on Rush yesterday. It was this: If you split the country in half and gave Obama and his supporters one side and Romney and his supporters the other, which side of the country would you choose to live on? Which side would have the nicer restaurants, the well maintained roads, job creators, and lower crime?

Curiosity Rover

I love space related (and physics) news, so, the success that we saw this morning with Curiosity actually landing without a massive failure is fantastic.

So, go here to learn more about the rover. This thing is a beast!

Obama History Video

I'd describe this as being disturbing if it is true. Of course, even as Obama calls for Mitt Romney to release his tax returns for years past, we still know very little of the truth regarding Obama's crucial developmental years.

Albert Einstein

Albert Einstein, who navigated the twilight turf between consciousness and matter for much of his life, argued that “Man” suffers from an “optical delusion of consciousness” as he “experiences himself, his thoughts and feelings as something separated from the rest.” His cure? Get some n/um. “The most beautiful thing we can experience is the mysterious,” he said. “It is the source of all true art and science. He to whom this emotion is a stranger, who can no longer pause to wonder and stand rapt in awe, is as good as dead: His eyes are closed.”

I found it here: http://www.themorningnews.org/article/the-heretic?src=longreads

US Employment Graphs

I'm trying to put together some graphs on the real story regarding the employment rates in the US. When you hear about unemployment numbers, they always leave out a few bits. The first is that "Unemployment Rate" is defined as the percentage of people who are in the labor market who don't have a job. This often does not count stay at home moms, retirees, homeless, etc. What I am plotting is the percentage of the population who have a job (Employed) + percent of people who are looking for a job/claiming unemployment (Unemployed) + percent of people who aren't in the labor force (the group defined above). The percentages are of the entire population. So, unemployment of 6% in this graph means something different than the 8-10% talked about on the news. However, anyone not in the labor force is, by my definition, unemployed. They aren't actively contributing to the tax base in any way. It's real disturbing that less than 60% of the population is considered employed.

The important thing to notice is that the percent of people employed has not increased at all in the past 3+ years under Obama. In fact, this is the lowest the employment rate has consistently been since before Carter. Additionally, the percent of people "Not in the Labor Force" has been trending upward for the past 4 years... and we know that this is not because people are suddenly getting wealthy and being able to retire.

I'm adding a new Employment Rate chart using the latest June 2012 data. Except it now extends back to 2000. It shows how disturbing the employment rate drop has truly been.

This will continue to be revised as I work on more plots. Eventually, I will link to the final spreadsheet.

America Needs a Visionary

You want America to be great? How do we do that? By bitching all the time? By providing individual groups here and there with their incentives to vote a certain way?

Hell no. You do it through vision. Vision that can pave the way forward to giving the United States the single greatest infrastructure in the world. Infrastructure is key to the movement of people, accessibility of services, and the exchange of resources. The more robust the infrastructure, the more resilient we can be as a country.

The standard of living in the United States is as high as it is because there is a huge uniformity in available services. Highways criss cross the country allowing a business to get the goods it needs from anywhere in the country. Airports allow for quick travel and goods to arrive quickly from around the world. A satellite system for instant communication. Radio. Television. Knowledge.

What are we missing? Well for one, the weather can easily wreck havoc on our country. Why is it that no one talks about creating infrastructure to help deal with some of the greatest concerns we have?

Water is quite possibly the single most important resource our country has. It is also one that can cause death and destruction just as easily as it provides life. It's a fine balance... one that if we had a nation-wide distribution system for would possibly revolutionize this country.

Every year, throughout the country, there will be regions with too much water to handle and regions praying for the same rain that is ruining a small town to drop some water on their dried up farms.

When a region has excessive flooding, it would be possible to pump the excess back to "the grid" and hopefully mitigate the damage. It may not be possible to mitigate all potential damage, but it could possibly avoid the situations where there are flash floods or periods of extended rains that cause localized flooding. Some years there are areas in the country that in the middle of extreme droughts while other areas can't get rid of the water fast enough.

A nation-wide water distribution system would stabilize the farming industry as it would eventually be possible to irrigate every farm in the country.

This is a "blue sky" sort of dream. This would take trillions of dollars over dozens of years. However, it is this kind of dreaming, the dreaming that only the most powerful country in the world could undertake successfully.

Instead, we have Captain Blame up in DC talking about congress doing nothing. How the economy is Bush's fault. And for whatever reason, Romney screwed it up too. Obama has no vision and no idea as to what he is doing. Why can't people see that?