Suppose that every day, ten men 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 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. The tenth man (the richest) would pay $59. So, that’s what they decided to do.

The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve. ‘Since you are all such good customers, he said, ‘I’m going to reduce the cost of your daily beer by $20. Drinks for the ten now cost just $80. The group still wanted to pay their bill the way we pay our taxes so the first four men were unaffected. They would still drink for free. What happens to the other six men – the paying customers? How could they divide the $20 windfall so that everyone would get his ‘fair share?’ They realized that $20 divided by six is $3.33. But if they subtracted that from everybody’s share, then the fifth man and the sixth man would each end up being paid to drink his beer. So, the bar owner suggested that it would be fair to reduce each man’s bill by roughly the same amount, and he proceeded to work out the amounts each should pay. And so: The fifth man, like the first four, now paid nothing (100% savings). The sixth now paid $2 instead of $3 (33% savings). The seventh now pay $5 instead of $7 (28% savings). The eighth now paid $9 instead of $12 (25% savings). The ninth now paid $14 instead of $18 (22% savings). The tenth now paid $49 instead of $59 (16% savings). Each of the six was better off than before. And the first four continued to drink for free.

But once outside the restaurant, the men began to compare their savings. ‘I only got a dollar out of the $20,’ declared the sixth man. He pointed to the tenth man, ‘But he got $10!’ ‘Yeah, that’s right,’ exclaimed the fifth man. ‘I only saved a dollar, too. It’s unfair that he got ten times more than I!’ ‘That’s true!!’ shouted the seventh man. ‘Why should he get $10 back when I got only two? The wealthy get all the breaks!’ ‘Wait a minute,’ yelled the first four men in unison. ‘We didn’t get anything at all. The system exploits the poor!’ The nine men surrounded the tenth and beat him up.

The next night the tenth man didn’t show up for drinks, so the nine sat down and had beers without him. But when it came time to pay the bill, they discovered something important. They didn’t have enough money between all of them for even half of the bill! And that, boys and girls, journalists and college professors, is how our tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start drinking overseas where the atmosphere is somewhat friendlier.

I've seen this thing a few times and I always have the same question.

Where overseas is the atmosphere somewhat friendlier?

Sure places like the UK are less progressive but you end up paying more taxes overall... and you don't pay too much taxes on capital gains in the US where a bunch of people make their money.

So... where are these people moving? Dubai?

This is something most people seem to miss too... the US has an extremely progressive taxation scale. 

To use this analogy, let's say if you drank in 4 bars, they divided your income by 4. So buy visiting a new bar ever 4th night, he moves from the richest down to the 8th or 9th richest, and saves a lot of money.

All the countries in the world don't add up all your income, and then figure out your tax rate. If tax is progressive, it makes sense to make your money in more then one country.

Wouldn't that then be the case regardless?

Not sure I get the question.

I mean if I was a man making 100 million a year, I would much rather make 50 million in the US, and 50 million in the UK. (or even better, 34 US, 33 UK, 33 somewhere else).

I think everyone would agree that spending 100 million in the US would be better for the US then spending 50 million here. It would be nice if the US had a tax system that made it inviting to do so. 

Also, with the new energy costs, this is going to get even worse.

I don't see a big payoff here, in tax terms.

Ignoring any benefits from diversifying your currencies and income sources, you're well into the top tax bracket of both countries. You might recover a little money for claiming two personal exemptions and lower taxes on your first couple hundred thousand dollars (actually, only the first 35,000 pounds in the UK), but you'll lose far more on the bulk of that 50 million on the UK's higher top-bracket rate. My quick estimate suggests that you'd lose over two million dollars by splitting a $100 million income between the US and UK instead of just keeping it all in the US.

Now, if you're earning $100,000 dollars a year, you'd probably see an actual benefit to splitting your income between jurisdictions. But once you start earning millions, you want your earnings to get taxed by whichever government has the lowest rate in the top bracket. That means the Bahamas.

At the end of the day though, rich people have a lot to fear from government in just about any country. In countries where they can evade a bunch of tax laws, they have to worry about the government turning on them and seizing all of their assets. And in those countries they typically have to worry much more about people revolting against them since their are less laws to protect their assets.

I mean hell, even the banks they store their money in can just take the money and not give it back. What are they going to do about it? Call the U.S. government?

And a lot of it has to do with the quality of life in countries as well. You can have the best business in the world, but it really does you no good if none of your employees want to live in the country where you built your business.

I want to let you in on a little secret that few people seem to be able to understand ... Regardless of how "Progressive" your tax system is, the people who don't have the ability to pass their increased costs along to someone else (the "Poor" and "Middle Class") pay all of the taxes. Now, you may not directly be paying these taxes but when you don't get a good pay increase (and everything you buy has gone up in price) in order for the wealthy decision makers to have more money to pay their taxes and maintain their standard of living you're not better off; and you have paid their taxes for them.

Screw the tax altogether, it only pays interest on borrowed money from a private institution anyway.

I have a brilliant idea...why don't we pay taxes for things we actually need taxes on? Tax on our own damn money is one of the most insane ideas ever devised.

Yes, because we all know that the rich are kind, benevolent, and pass along every extra dollar they can to those beneath them. They certainly wouldn't just keep it to themselves.

Seriously, do you even believe what you just posted, or do you live in a box isolated from all human contact.  Rich or poor, human beings are greedy, greedy individuals who think of themselves before anybody else.