And while I agree with the basic idea behind the parable, I think the numbers are a little fishy.

Johnny H: I too think the numbers, and even the concept itself, is fishy, and there are plenty of other factors to consider. But it’s a fun way to think of things.

This was posted on the Tigerhawk blog last April 17:

Since your taxes are due today and it is probably too late to evade any taxes you weren’t going to dodge anyway, you will be happy to learn that you are among the few and the proud!($)

If the tax forms you’re filing this year show Uncle Sam entitled to any income tax, you increasingly stand alone. The income tax system is so bad, and increasingly reliant on a shrinking number of Americans to pay the nation’s bills, that 40% of the country’s households—more than 44 million adults—pay no income taxes at all. Not a penny.

Think of it this way. After dropping off your tax forms at the Post Office, you find 100 people standing on the sidewalk. Forty of them will be excused from paying income taxes thanks to Congress. Twenty of them, the middle class, will pay barely a thing. The 40 people who remain, the upper middle class and the wealthy, will pay nearly all of the income taxes.

Look at that crowd again and find the richest person there. That individual will pay 37% of all the income taxes owed by those 100 people. The 10 richest people in the crowd will pay 71% of the income-tax bill. The 40 most successful people will pay 99% of everyone’s income taxes.

My point about market-dominant minorities (re: the barstool econ example): it’s a lot easier for the poorer 9 guys to decide to beat up the rich 10th guy and take his money if he’s a visible minority. (Jews in Europe, Chinese in SE Asia, Indians in pacific islands, whites in Zimbabwe, etc, etc, etc.)

@Steve W

I don’t think that is quite right. The barman here is the government and the beer is government expenditure. Therefore the 4 who pay the least (in fact nothing) would get the most beer and the richest man the least. He would have to fork over more cash (beyond the $59) to buy his own premium beer.

Whether any particular rich or poor person “deserves” to pay higher or lower income taxes is, imo, not a useful question.

People respond to incentives, and changing tax rates changes these incentives. Also different tax schemes can be more or less efficient. For example, most economists agree that the corporate income tax is a harmful tax. The tax just gets passed on to consumers anyway, and the end result is just wasteful since nothing productive is done except effort spent to comply with or avoid the tax.

Other goals, like maximizing long term gdp growth, are more useful metrics for choosing tax schemes. And there is solid evidence higher marginal rates discourage productive activity (and encourage it’s untaxed alternative-leisure).

And, to dip into the weeds of class warfare for a moment, the poor benefit much more when their richer, more productive fellow citizens engage in productive activities as opposed to leisure.

I think it helps to be explicit about criteria for evaluating economic proposals. I think intuitive ideas about justice are idiosyncratic and practically useless. For me, long tern gdp per capita growth is the primary criteria. A secondary criteria is equity (ie distributive fairness), so avoiding Latin American style GINI coeffficients seems wise. So I do favor redistribution to a degree. Enough to maintain social order.

The poor will benefit much more from decades of high gdp growth and productivity growth, than they will by a few years of soaking the rich. But the poor, who are uneducated, can not be counted on to understand these arguments or their own long term (decades) self-interest. So bribing them with redistribution is sound policy.

Of course, more ethnically homogenous states can support greater redistribution. There is a much lower limit in a country like America than a country like Sweden.

The problem with the analogy is likening government spending to mugs of beer. Some budget expenses are clearly a waste of money while others are valuable and even necessary. Moreover, while in the analogy, all the men got the same amount of beer, not all residents benefit equally from government spending. The largest expenditures are for health and human services(Medicare), defense (wars and foreign military outposts), and the treasury (including interest on debt). The government does not tax to punish the rich; it taxes to pay for programs that are supposed to benefit the community, state, or nation as a whole. If we are to deal honestly with the issue of taxation, we must look at both sides of the ledger: revenue collection and spending.

Look at that crowd again and find the richest person there. That individual will pay 37% of all the income taxes owed by those 100 people. The 10 richest people in the crowd will pay 71% of the income-tax bill. The 40 most successful people will pay 99% of everyone’s income taxes

Apparently, you define “success” as making money. I would define “success” as doing your job very well, whatever your occupation may be. And keep in mind that those 40 most ‘successul’ people paying 99% still have assets valued in the billions. That’s why Warren Buffet and Bill Gates’ dad, among others, opposed a repeal of the estate tax. Even they recognize that progressive taxation is fairest in an economically stratified society. Besides, not all of the superrich earned their wealth. Seven of the top twenty wealthiest Americans inherited their fortunes.

Another question: what if the bartender decided on his own to give these guys the beers SteveW describes above? Walking in and asking for stale leftovers for free is one thing; asking for fresh beer on the assumption that it is paid for and getting stale leftovers at the bartender’s fiat. . .

Progressive taxation combined with regressive service is not a good thing if you’re trying to avoid spontaneous tavern (or nation) renovation.

interestingly when the tab (tax) cut is given the tenth man pays an even greater percentage (49/80= 61.25% opposed to 59%). Thus as it appears that everyone doesn’t fair as well as the tenth man in the cut, in actuality more burden is placed on the tenth man). The laffer curve is another very relative point to the political commentary on this simplified version of the progressive income tax system (which probably only intended to clarify uneducated complaints about said system). Everyone has been assuming that wealthy and rich refer to extravagant money such as Bill Gates. However the upper middle class which still pays a large percentage of taxes is killed by outdated tax law that requires them to pay a minimum amount rather than calculating their taxes the way the normal middle class would. With the current state of the economy, the better questions than those being posed is what can be done to amend the system. I fear the economy is at a place where over taxation hurts the American public more. (especially the dreaded taxes on corporations which the general public seem to love while not comprehending the problems they cause).