Bar Stool Economics

Bar Stool Economics
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 on 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, 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

How much do you owe?

According to this website, the national debt is $12,691,221,577,248.59 or about $41,191.12 per person...but not everyone pays the same amount since there are several tax brackets. Here is a simple breakdown of how much each person pays in taxes based upon their income level:

	Number of Returns with Positive AGI	Income Taxes Paid ($ millions)	Group's Share of Income Taxes	Income Split Point	Average Tax Rate
All Taxpayers	141,070,971	$1,115,504	100%		12.68%
Top 1%	1,410,710	$450,926	40.42%	> $410,096	22.45%
Top 2-5%	5,642,839	$225,367	20.20%	> $160,041	20.53%
Top 6-10%	7,053,548	$118,139	10.59%	> $113,018	12.66%
Top 11-25%	21,160,646	$171,443	15.37%	> $66,532	9.43%
Top 26-50%	35,267,743	$117,368	10.52%	> $32,879	7.01%
Bottom 50%	70,535,485	$32,261	2.89%	< $32,879	2.99%

Source

Using simple mathematics, we can calculate how much each group must pay to reduce the debt to zero.  Of course, this does not include any corporate taxes…but then it doesn’t include any state or local taxes.

	Number of Returns with Positive AGI	Group's Share of Income Taxes	Owed
Top 1%	1,410,710	40.42%	$3,636,319.13
Top 2-5%	5,642,839	20.20%	$454,315.06
Top 6-10%	7,053,548	10.59%	$190,542.46
Top 11-25%	21,160,646	15.37%	92,182.48
Top 26-50%	35,267,743	10.52%	$37,856.59
Bottom 50%	70,535,486	2.89%	$5,199.88

The Federal Governments Owns or Controls How Much?

Fifty-one percent of the private economy is today owned or controlled by the federal government. Before September of 2008 and for all the previous history of this country, one hundred percent of our economy has been private as America.  But since September 2008 with the TARP bailout, that was under George W. Bush, that was $700,000,000,000; from that point forward we watched government take over one industry after another. We purchased, the government, purchased large banks, the largest insurance company in the United States, AIG, Freddie and Fannie, the secondary mortgage market, which means the United States government now owns over fifty percent of all private home mortgages. We still own Chrysler and GM the largest car companies. We own the student loan industry and now we control the health sector which is another eighteen percent of the economy. You add all that up, 51 percent of the economy is now owned or controlled by the federal government.

Minnesota Congresswoman Michele Bachmann on 97.1 FM Talk on 3/29/2010.

Reason Saves Cleveland

Reason Saves Cleveland With Drew Carey is an original Reason.tv documentary series airing the week of March 15-19, 2010.

Featuring sitcom legend, Price Is Right host, and proud Clevelander Drew Carey, each 10-minute episode investigates and analyzes the problems that turned Cleveland from the nation's sixth-largest city in 1950 into today's "Mistake By The Lake."

Like all too many American cities, Cleveland seems locked into a death spiral, shedding people, jobs, and dreams like nobody's business. When it comes to education, business climate, redevelopment, and more, Clevelanders have come to expect the worse.

Is a renaissance possible? Of course it is, but only if the city's leaders and residents are willing to learn from other cities such as Houston, Chicago, Oakland, and Indianapolis. And only if they're willing to try new approaches to old problems.

Reason.tv's Nick Gillespie narrates and talks with educators, elected officials, businesspeople, policy experts, and residents from all walks of life. Reason Saves Cleveland maps a route back to prosperity and growth not just for Cleveland but for other once-great American cities.

Reason Saves Cleveland with Drew Carey is written and produced by Paul Feine; camera and editing by Roger Richards and Alex Manning; music by the Cleveland band Cats on Holiday.

Conservatives vs Progressives

The different world views that we have between progressives and conservatives is that liberals believe that their definition of freedom is entitlements while conservatives define it by limited government.

Missouri Senator Jim Lembke on 97.1 FM Talk on 3/26/2010.

Needing to Find a Purpose

Elected government officials only do three tasks--without these they have no purpose:

1. Find creative ways to raise taxes
2. Spend the taxes.
3. Focus the tax spending on projects that help them get re-elected.

But they have to show their constituents some accomplishments...

The real whining class

Former Senator George Nethercutt wrote a wonderful article on the Politico website. Some points that I really agree with are:

• Citizens are particularly unhappy that these measures sometimes reach 1,000 pages and are admittedly unread by their elected representatives.
• When I successfully ran for Congress against then-House Speaker Tom Foley (D-Wash.) in 1994, I remember making the point that neither congressional representatives nor presidents feel the pinch of recessions — their government paychecks keep coming no matter how bad their performance — so it is hard for them to grasp the full impact on a small-business owner or someone dependent on the free-market system to feed a family or keep doors open when times are bad.
• The best advice to those serving in office today? Quit whining. It is your job to know about the measures you pass into law and expect the rest of us to live by.

While I agree that all our elected officials (both in the majority and minority) should stop whining about citizens protesting, I found a larger group of whiners...the people who respond to any argument by name-calling.  Here is a very small sample of quotes from bomb-throwers that don't try to win the argument with logic.

• The people showing up at town meetings yelling are old, white and racist just like the party they represent.
• Come on, Politico. We're smarter than we look. If there's a "whining" class, its the GOP and their racist base. 
• Please no more pelosi's. Hell even ehr Daughter is a sicofant wacko, and politico gives the wacko a voice.
• The "Chosen One" Barry, Queen Bee Pelosi and Dingy Harry Reid...
• You sir are the idiot....Let's see if I can make it easy even for a tool/fool like you. 
  
• under Emperor Obama...
• They're mad because the illegal-alien usurping commie-fascist Obama...
• Town hall protesters are "evil-mongers"

I get very frustrated with people like these who really divert attention away from the real debates.  If these people want to push their ideas, they should find a new way to communicate.

Who Writes the Laws?

With several reports stating that members of Congress haven't read legislation on which they are voting (or here, here and here), does anyone know who is writing the legislation?

Firearms and Abortion

Even though abortion nor privacy are ever mentioned in the Constitution, why do some people so liberally view the Constitution that they can see:

• the right to abortion
• an infringement of rights for requiring a waiting period
• abortion acceptable for all ages
• late-term abortions are acceptable

But at the same time, strictly view the Constitution's second amendment and believe:

• people should not own firearms
• waiting periods are required
• only adults can purchase firearms or ammunition
• all owners of firearms should register every firearm
• a waiting period between purchases is necessary
• only the government can possess firearms (even though the National Guard wasn't formed until 1903).
  

Health Care Questions to Congress

If companies find out that it would be cheaper for them to pay the 8% penalty and drop coverage, the insurance companies would lose business. In turn, they would have to either raise rates for other people or layoff employees. Either outcome will start the cycle over and more people will be on the government plan. I would like to know what provisions are being made to ensure that insurance companies will remain a viable competitor to the government health plan. Are there any insurance companies too big to fail?

Will all Congressmen and Congresswomen be on this health plan? Will the First Lady? Will the Obama children be on this plan?

The Cash for Clunkers was considered widely successful...spending a billion dollars withing two weeks instead of the 4-5 months planned. If the government could be so wrong about how much this small plan cost, why should I believe that your estimates about the cost of the health care plan will be accurate?

If a wealthy person wanted to start a new health insurance company, would they be able to do so?

What is the most a person should be in taxes a year, even the wealthy? 40%? 50%? 80%? Would you make that statement publicly? Would you be willing to make that public policy?

Is there an exit strategy in case this doesn't work?

If people are complaining about the high prices and availability of insurance and the government believes it needs to step in and give everyone insurance, what other industries will the government take an active roll? If auto prices are too high, will the government soon offer everyone a new car? If tobacco and alcohol cause too many social problems, will the government take over these industries? If groceries become too expensive, will the government start a new grocery chain to force more competition? Why is it just health care?

Are there any incentives to be healthy in the government plan? Incentives to quit smoking? Incentives to lose weight? Incentives to have an annual physical? Are there incentives to use your primary physician instead of just using the emergency room?

Will you read the legislation?

Definition of Equality

Several years ago, much of the news centered around affirmative action.  Although I am generally against the concept of affirmative action, I admit that I don't know how long it will take to undo all the years of segregation.

It is very easy to point out inequality.  You simply point it out.  You take a definite example and say that inequality exists.  One piece that always seemed to bother me was when someone would point out racism and mention that affirmative action was still needed...but the end point always kept moving.  People would say that there are no black baseball players.  Then no black pitchers.  Then no black coaches.  Then no black owners.  Next it might be there is a discrepancy in left handed pitcher's ERA's who pitch on the third Tuesday in a month with a blue moon.  

But how do you define equality and make laws and policies around it?  I always wanted to ask people, "Under what measurable conditions would it take for you to agree that affirmative action is not needed anymore? "

I thought about that for quite a while, and I created my own list.  My list is simple, looking at positive behaviors, and generally is about everyone having the same opportunities...but not necessarily the same outcome.  Based on the Keep It Simple method, here is my list:

1. The number of high school, college, and graduate school graduates must be equivalent among all races.  Simple.  I did not include parent's income, the number of students receiving aid, grants, or scholarships.
2. The number of people owning a home is equivalent among races.
3. The number of people owning small businesses (5-250 employees) is equivalent among races.  I really don't care about the leaders fortune 500 companies as this is only a small percentage of the workforce.
4. The number of teenage pregnancies is equivalent among races.

After compiling my list, fine-tuning it, and just thinking about what it means; I realized that this is how I define equality.  This list isn't only about race--it could be used to define equality among between any two groups.

I know my list is very simple.  My list probably doesn't represent everyone's opinion, but it is a start.  I wish I would hear more opinions of the definition of equality!

Professional Politicians

Why does it seem that all federal politicians only had the career of a politician? They start their careers in local government, then state government, and ending in federal government.

How many politicians comprehend all the rules they force on people; or even read the legislation? How many of them are business owners? How many of them have to purchase their own health insurance? How many of them send their children to public schools? How many of them are considered rich and vote for themselves to pay more taxes?

Does it seem that if a successful businessperson runs for a political seat, that everyone feels like that person is trying to buy the election? Why do people feel like the only good candidates are political lifers?

I wish all political leaders be required to work in their own district at least six months of each year. These leaders might spend more time at home running a small business, volunteering, or just getting to know their constituents better. The time spent working as a politician could then focus just on the important matters with more empathy for the people back home.

A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves largesse from the public treasury. From that moment on, the majority always votes for the candidates promising the most benefits from the public treasury... Attributed to Tytler.

Judicial Systems Around the World

Does anyone find it ironic that two news articles appeared on June 8th, 2009 that dealt with prisons, prison life, and judicial sentencing?  This demonstrates a huge contrast between different country's sentencing styles and the expectations of prison life.

One was about the possibility of closing San Quentin, but the inmates (including murderers) don't want to leave as they want to maintain their lifestyle of the Shakespearean drama program, football, baseball, basketball, soccer and tennis teams, and the Prison University Project.  

The second article was about North Korea sentencing two journalists to twelve years of hard labor for encroaching on North Korean soil for reporting on human trafficking by Kim Jong Il's regime.

Maybe these two articles illustrate some of the differences between rehabilitation and punishment/deterrence. 

SCOTUS Nominee Sotomayor

This really doesn't have anything to do with Sotomayor since I don't know how she will vote, but...

Why does the Supreme Court members have to be an elite political party? It seems that you could throw any issue at the SCOTUS and predict 99% of the time how each judge will vote even before any arguments are heard. The way it is now, it just appears to be a smaller version of Congress and everything is political. 

Shouldn't the judges hear the arguments and make their decisions on the arguments and the Constitution? Not whether they are personally for or against big government, taxes, guns, abortion, immigration, etc.

Conservative vs. Liberal

The more I think about it, the root difference between conservatives and liberals is on how they view the U.S. Constitution.  

Conservatives look closely at the founding father's reasoning for their inclusions and exclusions.  Then they look at today's society and the original intent of the Constitution trumps today's desires.

Liberals, on the other hand, believe that the Constitution is alive and always changing.  Since today's intent trumps the original intent, the liberal's view is that the Constitution is much more fluid and flexible.

While most Americans are reasonable and will agree that both components are important, the political extremist will only view whatever fits into their agenda.

Do you agree with this simplistic reasoning?

Update:  This was just discussed on Glenn Beck about Cass Sustein's comments.