Transcript for White House offers beer anecdote to explain tax reform

Suppose every day ten people for our purposes we'll say reporters go out for beer. And the bill for all ten comes the hundred dollars if these ten reporters paid their tab every night the way we pay our taxes it would go something like this. The first for the poorest would pay nothing. The fifth would pay one dollar. The six would pay three dollars the seventh would pay seven dollars. Eight would pay twelve dollars and I would pay eighteen dollars that tent the richest would pay 59 dollars so that's what they decided it day. The ten reporters drinking the bar every day and seemed quite happy with the arrangement until one day the bar honor book bar owner threw them a curve ball. Censure also it's good customers he said I'm gonna reduce the cost of your daily beer by twenty dollars. Drinks for the ten reporters would now cost just eighty dollars. The group still wanted to pay their bill the way we pay our taxes so the first four were unaffected its children for free. But what about the other six how could they divide the twenty dollar windfall so that everyone would get their fair share. These other reporters after also they're concerned with fairness. They realize that twenty dollars divided west exits three dollars and 33 cents. But if they subtracted that from everybody shares in the fifth reporter in the six reporter which. Winning each end up being paid to drink beer. So the bar and suggested it would be fair to reduce each man's bill by a higher percentage the pouring wise. By doing that he explained they continue following the principle of the tax system they think music so it per seated to work out the amounts he suggested that each should pay now. And so the fifth reporter like the first four now paid nothing. He had a 100%. Saving. The sixth now paid two dollars instead of three dollars and 33%. Say. The seventh now paid five dollars instead of 728%. Stake to eight now pay nine dollars instead of twelve a 25% say. The ninth now paid fourteen instead of eighteen which was a 22% saving. And it tenth now paid 49 dollars instead of 59 dollars a 16% Satan. So each of the six was better off than before and the first four continued to drink for free but once outside the bar the reporters begin to compare their savings. I only got a dollar out of the twenty dollars savings declared the six reporter he she pointed to the tenth reporter he got ten. Yes that's right exclaimed the fifth reporter probably saved a dollar ticket it's unfair that he received ten times more benefits and me. That's Tricia out of the seventh reporter why should he get ten dollars back when I only got to the wealthy gets all the breaks. Wait a minute yelled the first four reporters in unison we didn't get anything at all this new tax system exploits the poor. The not reporters yelled at the tent and made him feel that so the next night the tenth man didn't show up for drinks and I sit down and had their Beers without. But when it came time to pay the bill they discovered something important. They no longer had enough money between them all to even cover half of the film and that ladies and gentlemen is how our tax system works.

This transcript has been automatically generated and may not be 100% accurate.