Who knew that drinking beer could be perfect preparation for my next exam?! It’s in May by the way (up next is RO3 – Tax), and good timing to be fair as the recent April Budget made several changes to different taxes… pressing me to keep my finger on the pulse.
Whilst procrastinating one evening recently… I was aimlessly scrolling on my phone… perusing LinkedIn and such like for some inspiration. I came across a post from a Financial Planner who is very active on these platforms. This time he was sharing a thread (originally written by a Councillor in Oxfordshire) telling a story about ‘tax’… (where’s the inspiration in that, I hear you ask)… using beer as the metaphor (there it is).
It intrigued me – so I thought it was a story worth sharing with you.
A Short Story
Suppose that once a week, ten people 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 £0…
The fifth person would only pay £1. The sixth person would pay £3. The seventh person would pay £7. The eighth person would pay £12. The ninth person would pay £18 and the tenth person (the richest) would have to 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, I’m going to reduce the cost of your weekly beer by £20.”
The group still wanted to pay their bill the way we pay our taxes. So, the first four people were unaffected. They still enjoyed their drinks for free… but what about the others? How could they divide the £20 windfall so that everyone would get their fair share?
They realised that £20 divided by six is £3.33. But if they subtracted that from everybody’s share then not only would the first four people still be drinking for free – but the fifth and sixth people would each end up being paid to drink their beer!
So, the bar owner suggested that it would be fairer to reduce each person’s bill by a higher percentage. They decided to follow the principle of the tax system they had been using and he proceeded to work out the amounts he suggested that each should now pay.
And so, the fifth person, like the first four, now paid £0 (a 100% saving). The sixth person now paid £2 instead of £3 (a 33% saving). The seventh person now paid £5 instead of £7 (a 28% saving). The eighth person now paid £9 instead of £12 (a 25% saving). The ninth person now paid £14 instead of £18 (a 22% saving). And the tenth person 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.
However, once outside the bar, the customers began to chat and compare their savings. “I only got £1 out of the £20 saving,” declared the sixth person. He pointed to the tenth person, “but they got £10!”
“Yeah, that’s right,” exclaimed the fifth person. “I only saved £1 too. It’s unfair that they got ten times more benefit than me!” That’s true!” shouted the seventh person. “Why should they get £10 back, when I only got £2?…. The wealthy get all the breaks!”
“Wait a minute,” yelled the first four people in unison, “we didn’t get anything at all. This new tax system exploits the poor!” The nine others surrounded the tenth and decided to exclude him from drinks moving forward.
The next week, the tenth person didn’t show up for drinks as expected, so the nine sat down and had their beers without the tenth person. 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!
And on that note, it’s nearly the end of the week and so nearly ‘Guinness o’ Clock’… here’s hoping it can help me through my exam!