Tax System Explained, With Beer

Suppose that once a week, ten people go out for a 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 (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.
And the tenth (the richest) would pay £59.
So, that’s what they decided to do.

The ten people drank in the bar every week and seemed quite happy with the arrangement until, one day, the owner caused them a little problem. “Since you are all such good customers,” he said, “I’m going to reduce the cost of your weekly beer by £20.” Drinks for the ten would now cost just £80.

The group still wanted to pay their bill the way we pay our taxes. So the first four were unaffected. They would still drink for free but what about the other six? The paying customers? How could they divide the £20 windfall so that everyone would get their fair share?

They decided to follow the principle of the tax system they had been using and they proceeded to work out the amounts that each should now pay.

And so, the fifth person, like the first four, now paid nothing (a 100% saving).
The sixth now paid £2 instead of £3 (a 33% saving).
The seventh now paid £5 instead of £7 (a 28% saving).
The eighth now paid £9 instead of £12 (a 25% saving).
The ninth now paid £14 instead of £18 (a 22% saving).
And the tenth now paid £49 instead of £59 (a 16% saving).
Each of the last six was better off than before with the first four continuing to drink for free.

But, once outside the bar, they began to compare their savings. “I only got £1 out of the £20 saving,” declared the sixth person. He pointed to the tenth person, “but he got £10!”

“Yeah, that’s right,” exclaimed the fifth person. “I only saved a £1 too. It’s unfair that he/she/they got ten times more benefit than me!”

“That’s true!” shouted the seventh. “Why should they get £10 back, when I only got £2? The wealthy get all the breaks!”

“Wait a minute,” yelled the first four in unison, “we didn’t get anything at all. This new tax system exploits the poor!” The nine people surrounded the tenth and beat them up. (See Labour economic policy to see them figuratively do this!)

The next week the tenth person didn’t show up for drinks, so the nine sat down and had their beers without them. But when it came time to pay the bill, they discovered something important – they didn’t have enough money between all of them to pay for even half of the bill!

The people who already pay the highest taxes will naturally get the most benefit from a tax reduction. Taking politicised economic swipes at additional rate tax changes is much the same (Keir Starmer).

(Adapted from source unknown)

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