Girls’ Night Out Economics
Suppose that every Friday night, ten women go out for dinner 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 women (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 woman (the wealthiest) would pay $59.
So the ten women met every Friday and seemed quite happy with the arrangement, until one day, the restaurant owner threw them a curve.
'Since you are all such good customers,' he said,
'I'm going to reduce the cost of your meal by $20.” Dinner 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 women were unaffected. They would still eat for free.
But what about the other six women - the paying customers? How could they
divide the $20 windfall so that everyone would get her 'fair share’?
They realized that $20 divided by six is $3.33.
But if they subtracted that from everybody's share, then the fifth woman
and the sixth woman would each end up being paid to eat her meal. So,
the restaurant owner suggested that it would be fair to reduce each woman's bill
by roughly the same amount and he proceeded to work out the amounts
each should pay.
The fifth woman, 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 eat for free. But once outside the restaurant, the women
began to compare their savings.
'I only got a dollar out of the $20,'declared the sixth woman. She
pointed to the tenth woman,' but she got $10!'
'Yes, that's right,' exclaimed the fifth woman. 'I only saved a dollar,
too. It's unfair that she got ten times more than I!' 'That's true!!'
shouted the seventh woman. 'Why should she get $10 back when I got only
two? The wealthy get all the breaks!'
'Wait a minute,' yelled the first four women in unison.
'We didn't get anything at all. The system exploits the poor!'
The nine women walked off leaving the tenth behind.
The next Friday night the tenth woman didn't show up at the restaurant, so the nine sat
down and had dinner without her. 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, in a very simple way, 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 dining overseas where the atmosphere is somewhat friendlier.
Until next post, continue to believe, achieve, receive. SDG - JBHIV
Friday, March 13, 2009
TGIF 13th - Let's keep it Light and Lucky!
Girls’ Night Out Economics