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Bar Stool Economics

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54 pointssigna1125 comments

Kamerschen really likes to oversimplify things here. The violent mass of poorer guys beating up their richer drinking buddy who used to pay half the drinking bill. I had to laugh, though i dont think it's realistic.

The only real point he makes is that taxing the rich too much will drive them abroad. As far as i know there is no proof for this.

I feel another problem is more important than scaring out the rich by higher taxation: when tax money is largely used for public services like schools and health care that the rich dont use as they prefer the better private alternatives. In Kamerschen's words this will give the rich the feeling they pay more for the beer, that they dont even drink!

Coming from the netherlands, i value that public schools and hospitals are being used regardless of pay grade. This justifies paying tax for everyone, and gives a sense of fair chances in society regardless your social-economic background.

The rich might not use public schools and hospitals, but they benefit vastly more than the poor from other services that governments provide, such as economic stability, protection of property rights, infrastructure giving them better access to markets etc.

There are lots of countries where public schools are basically the only way, and don't imply a second rate education. And if the company that made you rich employs a high rate of white collar workers, you benefit from their high level of training. (Depending on your country, this also applies to highly trained blue color workers)

But yes, with all these benefits, I'm really amazed when I hear people talk as if the whole tax system is basically fraud (as opposed to taxes just being too high). Unless they're very idealistic libertarians, of course. Or live in New Jersey.

> There are lots of countries where public schools are basically the only way, and don't imply a second rate education.

Yups, the Netherlands is luckily still one of those. :)

What you say is hard to measure.

I think the benefit of "fairness" that results from having everyone go though the same schools and hospitals is far greater then any of the benefits you mention.

The only real point he makes is that taxing the rich too much will drive them abroad. As far as i know there is no proof for this.

Proof that this occurs: http://www.taxresearch.org.uk/Blog/2006/08/20/100/

Another far more dangerous effect is that the rich might produce less. If they produce goods abroad, the only deadweight loss is the cost of shipping. For every good/service not produced, we lose the entire consumer surplus. One famous (albeit historical) example of this is that actor Ronald Reagan only made one movie a year - due to high taxes, making two movies/year earned him virtually no additional income.

The only remaining question is the degree to which these effects occur.

This article has nothing to do with Dr Kamerschen, here's an extract from his page at http://davidk.myweb.uga.edu/

"Contrary to Internet folklore, Dr. Kamerschen is NOT the author of "Tax Cuts: A Simple Lesson in Economics" or “Bar Stool Economics” or anything similar to that. Additionally, he does NOT know who wrote it and he has no opinion on its merits."

> they might start drinking overseas where the atmosphere is somewhat friendlier.

That's the limiting factor indeed. However, even if taxation is much lower in Bolivia or Burma or Afghanistan, I doubt they'd be happier there even with 0% taxation. Happiness and disposable income are positively correlated, but not proportional, especially for higher incomes.

Moreover, many fortunes built in America are dependent on USA. Intel or Microsoft couldn't have been built in Albania. This co-dependence between the country and its businesses allows the former to command financial support from the later.

This is where the bar metaphor falls into pieces: the drinkers spend money together, but don't make this money co-dependently. If they were, the rich guy wouldn't leave because it would remove his source of income.

Intel couldn't relocate to Zimbabwe, hire local engineers and keep making money. It could maybe entertain the fiction that its money is made in Caiman Island or some other fiscal paradise, but that would be a gross lie; for US state representatives to tolerate such an absurd claim, some form of corruption would most likely be necessary.

While I'm not here to defend the article there are plenty of low taxation countries with a very high standard of living. There's a reason why a lot of sports stars move to places like Monaco. And that's not the only example - there are plenty of places accommodating to rich individuals.

Monaco is a nice place to spend your wealth, but it's a poor place to produce wealth. No real estate (not at a realistic price anyway), no skilled workforce except in fiscal optimization (although they might call themselves bankers), no natural resources.

Wealth-producing countries tolerate Monaco because it's too tiny for its parasitism to produce big effects. De Gaulle threatened to close Monaco off with a blocus, unless it stopped welcoming French taxpayers. Needless to say, the prince complied immediately.

Intel makes chips in many such countries, like costa rica and Malaysia. There are many countries around the world with good standards of living and lower taxes and lower overall regulatory burden.

Plus with Internet businesses and the easy ability to have virtual office with employees living remotely, you can locate your business in a jurisdiction that is more favorable. Intel or Microsoft can't move, but starting a new business off shore can make a lot of sense.

> > Bolivia or Burma or Afghanistan

> Intel makes chips in many such countries, like costa rica and Malaysia.

many "such" countries... there is a _HUGE_ difference in freedom, social economic development and stability between these two sets of countries.

i dont reckon the infrastructure in the first set of countries would be sufficient for intel to consider it.

And infrastructure in the second set of countries might not be sufficient for these companies forever without them paying something for it's support:

It is ironic, of course, that the very tax exemptions granted to Intel and other TNCs under the rules of the Zona Franca, means that these companies do not directly contribute to an increase in the tax revenue needed for significant improvements in infrastructure and education that they benefit from. It is unfortunate that these companies do not appreciate the need to contribute to the generation of the country specific assets they are looking for. But it is even more unfortunate that the government does not recognize the need for such a contribution either. The tax reform attempts that have been sent to the congress only timidly open up the possibility of taxes on TNCs, and with the fear that perhaps these firms will decide to leave the country, in search for more favorable treatment in other developing countries. Of course, these fears are well grounded as firms (like the comments by Intel above) have made it very clear that they do not want to be taxed.

http://ase.tufts.edu/gdae/Pubs/rp/DP13Paus_CorderoApr08.pdf

as the article continues:

Stopping the tax rate race to the bottom among developing countries ultimately requires the imposition of tax floors at a global level, a formidable challenge.

I thought this was a place for Hacker News, not recycled hokum trickle down homilies.

Hopefully you flagged it.

The reason this logic doesn't convince many is because the very rich are so proficient at tax evasion.

http://www.guardian.co.uk/business/interactive/2009/feb/02/t...

http://static.guim.co.uk/sys-images/Guardian/Pix/pictures/20...

Still, there will be a groupt analogyous to the people in the top tax brackets.

Where is the article that references a biblical tale regarding how to reach a compromise between uneven parties ?

What if we consider the motivations of the bar owner here? If the bar owner cut prices with the intention of stimulating more spending on alcohol (as tax cutting is generally presented as a fiscal stimulus) then they would probably give the biggest discounts to those who were most price-sensitive...

Instead of throwing rocks at rich folks or regurgitating what some professor told us in college, let's change the experiment such that perhaps we can look at it from a fresh perspective.

Let's say that everybody at the bar is happy. The rich guy has what he wants, and the poor guy has what he wants. They all have a good time. Let's even assume that after the new rules the rich guy decides not to move and comes back to the bar. Maybe because his likes the band.

Now the poor guy finds a business opportunity making the amount the rich guy is making. What happens? What would you do?

The poor guy would be an idiot to take the job. After all, he has everything he wants, plus free beer. There is no reason to take on some new work with tremendous responsibilities and risks for no reason. For the politically incorrect among you: if the poor are completely happy, society stagnates. People very very rarely build huge businesses simply because of altruism. For the PC among you, stress breeds learning. Challenge breeds invention. That stress or challenge can be internal or external to a person, but it must exist in most of us for our society to continue to progress.

Now realize that there are 97 poor guys for every rich guy.

Your logic only holds in a world made only of beer and work. As you add other things to the model, the rich guy's advantage increases, creating more motivation to work.

I think you vastly underestimate greed if you think having healthcare and not having to worry about where their next meal is coming from is going to kill motivation. We've got whole industries devoted to giving you a reason to spend money.

Your idea of a fresh perspective is build a straw man to imply that the poor are all lazy?

imply that the poor are all lazy

Speaking of straw men...

The words I'd use for what you call lazy include "rational" and "goal-oriented".

Of course, human nature seems to be such that people eventually stop being satisfied with what they have, so I don't think DanielBMarkham's argument is a great one: if the poor feel getting ahead is hopeless, they'll be unhappy, but if they don't feel it's hopeless, they'll (eventually) be dissatisfied with what they have.

This kind of math is the origin of the so called "bush tax cuts forth rich". Bush proposed cutting the tax rate for the lowest bracket in half giving the poorest the biggest benefit, but that didn't make it past the democrats. In e end, the poorest got the biggest percentage tax cuts and the highest bracket got the smallest...yet despite helping the poorest taxpayers the most people call these tax cuts "for the rich". In fact, how many of You even knew the lowest bracket had a dramatically higher percentage cut?

The important figure is net taxes payed. You add all the taxes you pay and subtract all the direct benefits you gain. If someone pays a lot of taxes but gets free high school education for their 4 children and medicare for their sick wife, he is a net winner of the system.

Modern states spend 60-80% of their income for social things. Defense, police, education and infrastructure are only a fraction of the expenses (at least in europe).

Since rich people rarely use social services, every tax cut directly eases their tax-burden. Middle class people end up paying less taxes but also receive less benefits from the goverment.

I am not saying the author is wrong, but you need to compare the net money paid to goverment.

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