How do YOU split the bar bill?

In this classic funny story, we learn the limits of (so-called) progressive tax systems.

10 guys go for beers

Every week, ten men used to go out for beer and, fortunately for this story, the bill always came to £100.

Now, these guys had agreed to pay the bill in the same way we pay our taxes.

So, it went something like this…

• The first four men (the poorest) paid nothing
• The fifth paid just £1.
• The sixth paid £3.
• The seventh £7.
• The eighth £12.
• The ninth £18 and
• The tenth man (the richest) paid a whopping £59.

They had gone out for drinks, in the same bar every week for months, and were perfectly happy with the arrangement.

Then, one day, the bar owner caused them a problem.

“Since you are all such good customers,” he said,

“I’m going to reduce the cost of your weekly beer by £20.”

So, the drinks for the ten men would now cost just £80.

Dealing with the windfall

Of course, these guys wanted to maintain fairness in the group – and to continue paying their bills like we pay our taxes.

So, they started to work out the new ‘fair’ shares.

Initially, they thought they’d just leave the first four men as they were – paying nothing – and divide the £20 windfall evenly between the rest.

That would mean everyone else would pay £3.33 (£20/6) less than before.

But they quickly realized this would mean fifth and sixth men being paid to drink their beer.

And clearly that wouldn’t be right!

So, the bar owner suggested another method.

‘Look guys’, he said, ‘you’re making this too complicated. Why not just reduce each man’s bill by a percentage amount rather than a fixed amount of money?’

As you all want a ‘fair’ system, why not use a progressive system and give the biggest percentage savings to the poorest”

“Bingo”, they all cried in unison, “job done …

… let’s have another round barman, you’re a genius”

The progressive benefits adjustment

The new bar bill payment system was agreed and now:

• The fifth man, like the first four, paid nothing. So that was a 100% saving for him – nice 😉
• 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).

So, each of the last six was better off than before whilst the first four continued to drink for free.

What could be fairer than that?

The impact assessment

Unfortunately, once outside the bar, the men had second thoughts about their savings.

“I only got £1 out of the £20 saving,” declared the sixth man.

He then pointed to the tenth man, “but he got £10!”

“Yeah, that’s right,” exclaimed the fifth man. “I also only saved a £1. 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 system exploits the poor!”

So, the nine men turned on the tenth and beat him up!

The outcome

The next week, guess what…

the tenth man didn’t show up for drinks.

So, the other nine sat down and had their beers without him.

Of course, when it came time to pay the bill, they discovered a problem …

They didn’t have enough money between them to pay the bill.

Indeed, they didn’t have enough money to pay even half of the bill!

The Moral

Funny as it might seem, this is exactly how so-called ‘progressive’ tax systems work when you take them too far.

The people who already pay the highest taxes will naturally (and rightly) get the most benefit from a tax reduction.

There are, of course, some confused people who believe that these guys would be right to complain about the 10th guy enjoying a decent fair share in the windfall.

Which is kinda dumb when you consider he was paying most of the bill.

The far leftists (and more than a few champagne socialists) might also tell you that folk on middle and higher incomes … should be ‘given’ less tax relief – on their pension savings for example.

But let’s STOP and think about that statement for a second.

If you believe that you’re ‘given’ tax relief, it implies that your income belongs to the government.

And that the government is generous to ‘give’ you some of it back in certain areas 😉

Of course, it’s exactly those tax-free ‘allowances’ that are taken away from middle income and higher earners by various means. (Google Tax and Benefits Cliff Edges to see what I mean)

But any reasonable person can see this is all wrong.

Your income is yours

Yes, we all need to pay our ‘fair share’ of tax (and on various things) to fund good public services.

But when a tax is not payable by anyone on certain activities (like pension saving – to encourage us to save for old age) the government should absolutely NOT then distort the system by taxing your tax-free allowance away with various complex ‘tapering’ or Cliff Edge rules.

These rules really are like beating up that guy despite the fact that he was still paying more than 60% of the beer bill – after the adjustment!

What does this have to do with the real world?

Well, while we don’t need need to feel sorry for the super wealthy, it’s worth remembering that:

• The top 1% of earners pay nearly 30% of all income tax.
• The top 0.1% (1 in a thousand) pay 13% of it.
• And the top 0.01% (1 in 10,000) pay 6% (or around £18,000,000,000) a year!

There is a lot of concern about immigration – and it seems that the Labour party want to put a lid on it now – perhaps because REFORM are currently ahead in the (National Gov’t) polls!

But perhaps the gov’t also need to do something to stem the tide of emigration – among the wealthy.

After all, for each single person in the top (0.01%) band who leaves the UK, we need to find 1,300 NEW ordinary taxpayers to make up for the lost income tax.

So, there really is no point in beating these people up.

What do you think?

PS I’ve re-written the story above from one I found many years ago on an Accountants Website.

No authors name was given, but I’m happy to give credit if someone can tell me. It’s a powerful story, right?

Thanks for dropping in

Paul

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