September 4, 2007

August 21, 2007

August 11, 2007

August 9, 2007

June 29, 2007

June 8, 2007

  • Before or After

    Here’s a topic that I know everyone has some first-hand experience with.

    When you tip at a restaurant, do you tip based on amount before tax, or after?  Most of us, I assume are after-tax tippers.  When I get the bill, I look at the final total, then do the calculations to arrive at the tip amount. 

    But why do we tip this way?  Here’s a hypothetical for you –

    Say you and 3 other friends go to a restaurant in State A.  State A has a sales tax of 10%.  You and your friends each order a nice big steak with some potatoes.  The price of the steak and potatoes is $50.  The service is excellent.  The price of the food comes out to $200.  The sales tax is $20. 

    Next month, you and your friends go to a restaurant in State B.  State B has a sales tax of 5%.  You all get the exact same thing, costing the same exact amount.  The service is also exactly the same.  The total for the food, again, is $200.  The sales tax is $10. 

    You are a generous tipper, and tip 20% wherever you eat. 

    If you were to tip AFTER tax, in State A, the waiter would get (220 * 0.20) = $44. 
    If you were to tip AFTER tax, in State B, the waiter would get (210 * 0.20) = $42. 
    If you were to tip BEFORE tax in State A OR State B, the waiters would get the same amount (200 * 0.20) = $40. 

    What everyone knows is that you pay more in tip if you calculate AFTER tax.  A common response is that the difference between before-tax tip and after-tax tip is so small in most cases that it’s not a big deal either way.  And there’s some validity to that.  Even though I’ve pumped up the meal prices here to highlight the discrepancies, the difference is still only $4.  In most instances, the difference will come out to one to three dollars at the most.  That’s not a lot. 

    What’s interesting to me is that if you look at the hypothetical situation, the waiter in State A gets more money than the waiter in State B simply by virtue of being in a state with a higher sales tax.  Waiter in State A didn’t provide the food any quicker, didn’t fill up water glasses more regularly, or give any more attention to you and your friends.  Yet, they end up with more money than the waiter in State B. 

    Does that seem fair?  Yes, the residents of State A may have a higher cost of living because they have to pay a higher sales tax on the things they buy.  But as a customer, with all other considerations aside, does it make sense?  I suppose that the extension of this is that two exactly identical things can cost different amounts in different states.  We see that in a lot of different areas, like milk and gas.  But it doesn’t seem fair to waiter in State B to get paid less in tip solely because his state doesn’t have a higher sales tax. 

May 26, 2007

May 14, 2007