Monday, 8 April 2013

Beer and who pays for the visit to the pub.

I have always been partial to a pint of ale and I particularly welcomed the action of My Right Honourable Friend, the Chancellor of the Exchequer, when he reduced the tax on beer. Something I hope will allow moderate enjoyment for many and also help the pubs and inns that are finding life tricky at the moment. The piece below, with thanks to Professor David K Kamerschen Phd and Professor of Economics, links beer drinking with higher rate tax payers.


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 realised 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

"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.

1 comment:

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