home . blog ...

The fallacy of the beer and tax analogy

Monday, March 11, 2024

Two rows of beer barrels stacked one on top of the other line a wall in Tokyo

I've been mulling over the debunked "beer = tax" analogy. This is the one where 10 people drink beer, and it turns out the wealthiest guy doesn't have any friends. When he has a hissy fit and walks off, the economy collapses.

It's supposed to warn us that taxing the wealthiest in our society could lead to them abandoning us. If that happens, our poorest are left to contribute more taxes to fund a crumbling society. Therefore, we should be thankful for the taxes the rich pay and not ask too much of them.

However, I have issues with this analogy as it works in "the real world."

First, in the analogy the poorest person gets free beer. In reality, the poorest are paying taxes, usually in the form of a sales tax.

Second, for the wealthiest, the relative value of €59 (the amount often quoted as their price for a beer) is less than €1 for the poorest.

Third, beer doesn't work because, in the real world, the poor often don't get beer - they get something of lesser value - and usually at a higher relative cost.

Finally, it doesn't account for externalities that may discourage the wealthy person from walking out. These include the cost of becoming a regular at another bar, paying the tab they've run up, or the possibility they own a share in the business.

There's a few other niggles bashing around in my head too.

When I was researching its history, a couple of different names popped up as authors, both economics professors. Neither was the original author nor saw it as anything more than a vague analogy. They were sharing it to generate debate and discussion rather than as the absolute truth it seems to have become.

Maybe the fact we grab at these "wealth memes" says more about our lack of critical thinking and financial skills?

My name is Ross Hori

I'm a freelance writer, designer and photographer. By day I create articles, features and reports. At night I take photos and write fiction.

My socials...

click for LinkedInclick for Tumblr