A fatuous parable that, I'm sure you meant, reveals the

Quote:

That Weird Analogy About Beer and Tax Cuts Was Dumb as Hell



Hamilton Nolan
10/31/17 2:29pm
•Filed to: taxes

Presented by this esteemed economist:



Photo: AP

Yesterday, Zoltar-esque Trump administration flack Sarah Huckabee Sanders opened the White House press briefing with a long, meandering story that purported to use an analogy about buying beer to explain the logic of the Republican tax cut plan.

You may be flabbergasted to learn that this story, which was literally borrowed from an old FW: FW: FW: viral email, does not make sense.

What—a 2011 viral email read stumblingly from a White House podium by a spokesperson desperate to avoid questions about criminal indictments over Russian-influenced corruption is not the best explanation of America’s tax code today?

I know. I too was dumbfounded. But here we are. You can watch the interminable video of Huckabee Sanders telling the story here, or just read the text version of it below, originally attributed to University of Georgia economics professor David R. 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 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, ladies and gentlemen, 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.

It’s so long!

Like most email forwards popular with your mom’s more untethered friends, this story has a surface appeal. You can just imagine a satisfied economics professor patiently telling this little parable to unsophisticated bumpkins, like University of Georgia students, or the president of the United States. It all sort of slots in at the end, like a satisfying bad movie.


But let us now ask ourselves: Is this story of sharing a bar tab an accurate analogy for the U.S. tax system? No. A few points:

·In this story, the “ten men” represent the population of the United States and the $100 bar tab represents the US federal budget. But our government’s budget is nothing like a bar tab that comes out to the same damn dollar amount every day.

Our budget changes every year because it is just the total cost of the things that we collectively choose to spend money on. It is in fact a statement of our priorities. It is not static. If there is a war, or natural disasters, or if we just decide that hey, we need to spend more money on science to cure cancer and we need to pay more for early childhood education because it’s the right thing to do, the budget goes up.

America doesn’t roll out of bed every year and get delivered on a platter a bill for all services that is equal to that of the previous year. America gets together and decides what we want our budget to be, and then we figure out how to pay for it, or not.

Instead of ten guys walking into a bar and ordering the same exact beers every day, imagine ten guys plus their families plus everyone who lives in their town being dumped in a Walmart once a year and forced to decide what to buy to build a civilization for the following year. You can see how the math might not be so neat!

·I guess the owner of the bar in this analogy represents, uhh, Congress? And we are supposed to imagine that the owner’s magnanimous 20% price reduction is the equivalent of Congress passing a 20% national income tax reduction?

But of course, in the same way that America’s budget is not just a number but a statement of our values, so too is our tax system. It is a tool that we use to even out the built-in inequities of our economic system, at least a little.

A 20% reduction in our total national budget would not be a nice gift—it would be chaos! Social Security cuts! Medicare cuts! Vital social spending slashed! Fewer aircraft carriers, for the gun people! Taxes pay for things we use, and tax cuts have real human costs that are not at all analogous to getting a discount on beers.

Furthermore, this little beer story is meant to mock the idea that poorer people would be angry that rich people got the lion’s share of proceeds from tax cuts. But why?

We have a progressive tax system because we believe the rich should pay more, and we believe that because the rich can pay more, and the idea that tax cuts should automatically accrue to those who, yes, pay more taxes now but are also, still, the richest people is not at all an automatic logical progression. Diminishing marginal utility, motherfucker.

·In this story, the bottom 90% of people surround the top 10% and beat them up, for being greedy. This has never happened in America, despite the best efforts of SplinterNews.com.


If only the president of the United States had access to economic information that did not come from mass email forwards. We can dream!


**Update: In fact, the original author of this email forward may be lost to history; University of Georgia professor David Kamerschen denies that he is the author. Regardless, University of Georgia students are still bumpkins.