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Tag Archives: Taxes

An Essential Rule For Not Being A Fool

Engineers know that measured data points require context to be meaningful. For example, the total miles that a car can travel on a tank of fuel is not economically useful knowledge, unless you also know how many gallons of fuel the tank holds, and the cost of the fuel per gallon. If you know all this, you get a meaningful metric: miles traveled per dollar spent. In addition, there can be supplementary but important considerations such as safety, pollution, styling, and reliability. Therefore, to properly evaluate economic alternatives, all important factors must be converted to a baseline of total benefits per dollar.

GOOD DATA = BENEFITS per $ SPENT

FOOL’S DATA = $ SPENT

Here are some examples of meaningless data that are commonly used to try to fool people:

Dollars spent per pupil. (The important metric is how much a student learns per dollar spent.)

“On Sale” dollars spent for a car, lipstick, sports equipment, or any consumer purchase. (The important question to ask is, “What benefit will I get from spending the dollars?” rather than concluding, “Wow, the on-sale price is much less than the normal price therefore it must be a good deal.”)

Benefits of taxing the rich 1% on behalf of the 99%: (This example is a case where both benefits and dollars spent (extracted from the rich) are difficult to properly define and determine. For example, how do you define “rich”? Is this a person or a corporation? How much money = rich? Is that earned income, or investment income, or total assets, or a combination? And should everyone who is in the 1% group be taxed more? Why not 2% or 1/2% or some other %? Also, since rich people often become poor, and the poor often become rich, how long does one have to be rich before you would say they are truly rich? Or what about someone who invents something that benefits society? What about someone who’s been poor and wins the lottery? How about an athlete who’s paid a lot of money for their physical talent? Even assuming you can arrive at a rational and moral definition for “rich 1%,” the proper question becomes: what benefits are obtained for every dollar extracted from those folks? This is a complex question not easily answered by the simplistic 1% versus 99% “fool’s chatter” that one typically hears.)

Government dollars “invested” in green energy (or education, or bridges, or whatever). (The important metric is the benefit provided per taxpayer dollar spent, where the benefit to all of the taxpayers is honestly defined and measured.)

AN ESSENTIAL RULE FOR NOT BEING A FOOL:

Don’t Make Decisions or Listen to Arguments Based Only On $ Spent

A useful corollary to the above is: don’t make decisions or listen to arguments where benefits and expenditures are not clearly defined, or are distorted by appeals to envy or other emotions.

-Ed Walker

 

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Paying Their “Fair Share”: Should The Rich Be Our Slaves?

As mentioned in a recent post (“Where Is Eliot Ness?”), making decisions based simply on public pronouncements is extremely difficult, because such pronouncements are often false and misleading.

Today, for example, we hear a lot of talk about “the rich” needing to pay “their fair share” in order to reduce the U.S. deficit.  If you accept that statement at face value, it implies:

1. The rich are not presently paying their fair share.

2. Taxing the rich will reduce the deficit.

3. Taxing the rich is acceptable because they have more money than we do, and it is morally okay to take it from them and give it to the rest of us.

Even though all of the above implications are arguable, “the rich need to pay their fair share” is spoken as though it is gospel, a classic example of evoking powerful emotions (primarily envy) that bypass the brain, in order to dishonestly advance a policy position.

What can be done? Demand serious discussion based on evidence and logic. Write your congressional representative, compose a letter and send it to the editor of your local newspaper, stand up during a town hall meeting and respectfully challenge talking-point blather, or express your views (with careful research and analysis) in your own blog.

-Ed Walker

 

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Where Is Eliot Ness?

Eliot Ness, the lawman best known for his major role (1927-1931) in taking down Chicago mega-gangster Al Capone, was known to be incorruptible, as were his hand-picked team members (known as “The Untouchables” because they could not be bribed). Ness also helped clean out the highly corrupt Cleveland city government, weeding out over two hundred crooked police officers and public officials.

So why is ET talking about Mr. Ness? Because integrity is essential, not only for upholding the law, but also for making good decisions.

IF THE INFORMATION WE USE TO MAKE DECISIONS IS CORRUPT
THEN OUR DECISIONS WILL BE WRONG

Engineers know this. We simply cannot do our work without accurate and reliable data. If it’s discovered that an engineer has falsified data, or engaged in any other deceptive behavior, they are (in my experience) always fired. Integrity is mandatory for an engineering professional.

One of the most important decisions we make is whom to elect to represent us in our federal and local governments. If politicians seeking office were subjected to an engineering design review, it would be a straightforward process; i.e. the “spinners” (liars) would be detected and rejected. Unfortunately, the method we use to select politicians is hugely corrupted by bad data, and here’s a major reason why:

You may be aware, in watching or reading the news, that politicians (or their allies in the media) often use exactly the same phrases. e.g., “taxing the rich,” “shared sacrifice,” “pay their fair share,” “balanced approach,” “drive the economy over a cliff,” “the extreme right wing,” etc. The reason these phrases sound like they are all part of a chorus is that, well, they are. “Talking points” (emotionally-laden and focus-group tested phrases) are distributed to all like-minded politicos and their friends, who repeat them at every opportunity. The idea is that the average person, upon hearing the same viewpoint expressed by many supposedly independent sources, will conclude that the viewpoint must be true.

But talking points are not based on the search for truth, they are based on the search for votes, and are simply propaganda, sometimes blatant, sometimes subtle. To the extent that the intent is to make you believe something is true when the speaker knows it is not, they are lies. Unfortunately, they are very effective, and they are extremely destructive; not just because they are false and misleading, but because they very often appeal to our worst nature (e.g. encourage us to be envious of those who make more money than we do, a position that is neither logical or moral (see “Is The President’s Reason For Taxing The Wealthy Logical?“; “Is The President’s Reason For Taxing The Wealthy Moral?“)).

Can we clean this up? Are you today’s Eliot Ness? Are you an Untouchable, the man or woman who cannot be bribed, who will always tell the truth? When you hear a politician utter an emotionally-laden smear, will you speak up and challenge them? Will you change careers or come out of retirement and run against the liars, so we can rid them from our government?

Please step forward, we need you.

-Ed Walker

 

 

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Is The President’s Reason For Taxing The Wealthy Moral?

In the last post we examined the following assertion from a factual perspective. In this post we’ll review it within a moral framework. This will provide an example of how differing assumptions can lead to dramatically different conclusions.

Assertion: President Obama’s press secretary, Robert Gibbs, recently said that it was okay to tax wealthy citizens for the health care of others because, “The president believes that the richest 1% of this country has had a pretty good run of it for many, many, many years.”

Assumption: The government should (should not) tax the wealthier portion of the population to provide benefits for the portion that is less wealthy.

Analysis:

  1. Paying taxes is not voluntary; i.e. all citizens are forced to pay taxes.
  2. If one believes that it is acceptable to use force to transfer money from a wealthier group of citizens to a less-wealthy group, then President Obama’s belief is moral.
  3. If one believes that using force as a means of wealth transfer is not acceptable, then the president’s belief is not moral.
  4. The morality of the belief is therefore dependent on the view of the one that holds the governing assumption.

Conclusion: The Assertion is conditionally true or false from a moral perspective, depending on the governing assumption. This is an example of why many arguments tend to go around in circles and be irresolvable, because the parties doing the arguing are starting with different baseline assumptions. Resolution of such arguments is dependent on digging deeper and challenging the assumptions, which engineers call a root cause analysis. In future posts we’ll see how this analysis method can be used to help break endless debates and come to some reasonable conclusions. But first we need to learn how to avoid emotional blockages.

Next Post:

Put On Your Emotional Armor

-Ed Walker

 

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Is The President’s Reason For Taxing The Wealthy Logical?

Assertion: President Obama’s press secretary, Robert Gibbs, recently said that it was okay to tax wealthy citizens for the health care of others because, “The president believes that the richest 1% of this country has had a pretty good run of it for many, many, many years.”

Assumptions: The “richest 1%” of citizens will be determined by their income tax returns, and taxation will start on the year that the president’s tax plan takes effect.

Analysis:

  1. A powerful method of determining whether or not an assertion is factual is called proof by contradiction. For example, consider the assertion that “all swans are white.” To prove the falsity of the statement, all that is required is that you locate a single non-white swan. (Historical note: Europeans believed that all swans were white until the mid-1600s when sailors first visited Western Australia, an area where black swans are not uncommon.)
  2. In our analysis we will present three cases that contradict the assertion that it is acceptable to tax the wealthy because “the richest 1% of this country has had a pretty good run of it for many, many, many years.”

Case 1: Assume you are an entrepreneur who has worked very hard for the past twenty years, trying to perfect an idea you conceived. During that time you and your family have lived very modestly, and have taken great financial risks. Today, you are finally at a point where you can sell your idea and make millions. However, because you will now be one of “the richest 1% of this country” you will be heavily taxed to provide health care for others, even though you have not had “a pretty good run of it for many, many, many years.” Just the opposite; you and your family have had a very tough time of it for twenty years.

Case 2: Assume you are an average guy or gal whose salary has never been anywhere near a million dollars a year, but you like to dream and you sometimes buy one of those jumbo lottery tickets. One fantastic day you actually win a mega-jackpot, and now you are a millionaire. You, too, will now be heavily taxed, although during the past many, many, many years you have had just an average income.

Case 3: Assume you are a hard worker but, due to various misfortunes beyond your control, during the past several years you have had a very tough time making ends meet. To your surprise, you are informed that when your uncle recently passed away he bequeathed you a sizeable fortune, and you are now a multi-millionaire. Yep, same result. You will be heavily taxed even though your life has been anything but “a good run” up until now.

Conclusion: The assertion is factually false. The president’s belief is based on a logical fallacy, namely that “the richest 1%” is a specific group of folks who have made a lot of money over the past many years. To the contrary, the population is comprised of millions of individuals whose incomes can vary widely from year to year, including a great many who may be wealthy today, but in prior years were not.

Next Post:

We’ll review the president’s assertion from a moral perspective.

-Ed Walker

 

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