What does WalMart have to do with Taxes? … Everything

I have spent a considerable amount of time thinking about the implications of our tax code and the reasoning that we make the political distinctions that we do. Bear with me and see if I challenge some of the standard dogma of both of the major political parties.

How does Walmart make money? This is an interesting question that many people have probably never thought of before. Most people think that because of their sheer size and the volume of products that they sell, Walmart beats up their suppliers for a better price on goods. While this is true to a marginal extent, it is not what is responsible for the majority of the profit that they achieve.

The source of most of the profit for Walmart, or any other major retailer for that matter, is the concept of inventory turns. Basically this concept takes into account the profit margin (selling price – cost) multiplied by the number of times they can sell this item in a given period of time. For example, if a bottle of ketchup yield a profit of 25 cents and sells 5 units in a month the monthly profit for this item $1.25 for that period. What Walmart does is reduce the profit margin in an effort to turn the inventory more times in the same period. They may reduce their profit margin to 15 cents per unit and increase the turns to 10, which would yield $1.50 in profits for the same period.

This is how these major retailers make money. This is also why the store shelves are always changing at these stores, and why some of your favorite items are not being carried anymore.

How does this apply to taxes? Well the answer is everything. The same principles apply.

It is known as objective truth that every time the marginal tax rates of the federal tax code are reduced, the actual revenue (the amount of money that comes into the government) has increased. The most recent examples of this are in the Kennedy, Reagan, and Bush (43) administrations. The reason for this was simply that the lower tax rates (profit margin) resulted in more inventory turns of each and every dollar throughout the economy. Basically if you had the opportunity to track a single dollar bill through the economy, you would actually see an increase in the number of people that actually paid taxes on that same dollar over that year.

What I have said so far is not rocket science. Most economists will agree with this theory – but now the rub.

Most of you know that I am very fiscally conservative, but this is something that neither the democrats nor the republicans ever talk about. Why do the politicians always think they need to justify a tax cut with a spending cut to “pay for” the tax break? If you see the validity of the economics, it never needs to be done. Now don’t go thinking that I am not for reducing the size of government, but this is not the argument for that. At the current rate of taxation, we should be able to reduce the tax rates AND increase the amount of money available to fund the current programs.

The problem I have with the democrats is that they seem to be talking out of both sides of their mouths. On the one hand they want to increase the various social programs, which increases the demand for money. On the other hand they want to increase the overall tax burden in order to pay for it. We have seen that these two things do not go together. If they were to look at history they would be more truthful if they championed plans that reduced the marginal tax rates while still wanting to use this increased revenue on their social programs. Why do they not do this? I can only think of a couple of reasons.

The first is ignorance. Notice I did not say stupidity. Maybe they are simply ignorant of the economic principles that are working in their midst. This is an indictment of the educational system that most of these politicians grew up in. They just might not know any better.

The second is that they might understand, but they do not believe that the ignorant masses of people can understand the concept. This speaks to both a condescension and an arrogance to think that people cannot grasp the finer points of this discussion. While many people today are woefully ignorant of economics, they should not be left out in the cold when it comes to the opportunity to learn.

The third is the most irritating – Disingenuousness. What I mean by this big word is that some of these people my know better, but in an effort to gain power and control over more aspects of more peoples lives, they use a lie to incite class warfare in order to further their cause. Unfortunately this seems to be the reason for many of these people’s position on taxation.

As an example, I watched in agony as Bill O’Reilly interviewed Barack Obama about this issue. Mr. Obama’a line in response to the evidence of increasing revenues with tax cuts was to harp on the simplistic idea that the deficit spending in the current administration had increased and therefore the actual GAO numbers showing an increase in revenues must be wrong. These were not his exact words, but it was definitely the point he was subtly making. There are so many logical fallacies here that we could not go through them all, but basically since the evidence did not support the contention of Mr. Obama’s position, we are to believe that his policies would be better for our economic progress. He did not attempt to deal with the mammoth increase in federal spending on both domestic and military spending that actually grew more than the increases in revenue.

While we should not necessarily base our opinions entirely on the data from the GAO, we should not give anyone credence that does not even attempt to break down the circumstances that have caused so much havoc in our federal budget.

As much as our society want to malign Walmart, rightly or wrongly, we should recognize that they have an example that we should all follow when it comes to taxes. Maybe we can use this analogy to increase the economics education of our neighbors.

Red means stop – or does it?

Recently I have been reflecting on the abortion debate and trying to truly understand what is the reasoning on both sides. As I am a conservative evangelical Christian, my loyalties lie definitively with the “Pro-Life” crowd, even though I don’t really like the moniker.

What I really want to understand is the rationale of the other side for choosing to allow abortions even in the face of what seems to me an admitted lack of knowledge and understanding. As I heard the comments of Barack Obama at his appearance at Saddleback Church, it seems very obvious that the position on what defines human life is essential to the issue. When asked when a fertilized egg inherits human rights, Mr. Obama basically said that there is no consensus on this question and he did not believe it is his prerogative to claim one or the other.

To this point I could agree with him. While there are many people who have claimed that “human status” begins at a point (fertilization, cell division, etc.), Mr. Obama claimed agnosticism on this issue. I am fine with that.

The issue is not whether or not we can agree when human “life” begins, but how that question determines our decisions, and more importantly our decision making process. What is really at stake is a judgment that is based on the best information we have AND taking the ramifications of a decision based on wrong information into account.

Let’s grant that we just do not know when human “life” begins. We now have two basic options: 1) to allow a person (presumably a mother or father) to decide the fate of the conceived being, or 2) to lawfully restrict the inhibition of this conceived being. These are the only two options.

If we allow this second party to make the decision to inhibit the life (abort) this being, what are the negatives? It seems obvious to me that if the being is a full fledged human person then this would be tantamount to legalized murder. Only if we knew that the being was not a person could we be completely justified in aborting it.

On the other hand, if we restricted the inhibition of this being by law, and it turned out to not to be a justifiable person, then we would have allowed many children into the world that were not wanted by their parents. Granted, this would place these children in a sufficiently negative situation, yet the prospects for adoption would always be a possibility.

By potentially erring on the side of caution, we have allowed a much lesser negative consequence to our actions.

I started this tale with the title “Red means stop – or does it?” because I wanted to use this as a metaphor. You see, we can make a general statement that is true in almost all circumstances while realizing that we do not know all of the facts. I remember when I was in college and I had to temporarily ride a motorcycle for a couple of months. There were a couple of intersections that were less traveled in certain times of the day and it was not rare to find myself as the only vehicle at the intersection. These traffic signals were set up with sensors that would determine if a vehicle was at the intersection or not. If they did not sense a vehicle, then they would perpetually stay in a certain position with two directions being green and the other two being red.

The problem was that my motorcycle and I were not heavy enough to be picked up by the sensors, and, therefore I would be stuck at the red light without the light knowing that I was even there. Conceivably I would be there waiting for the light to change until another vehicle which was large enough to be detected by the sensors came to free me of my predicament.

The question is: Would I be justified in running the red light? The next important question is why or why not? I spoke to a police officer about this issue and he told me that he could not imagine a citation being given to me if I had run the light, as long as I made every effort to determine that there were no other vehicles around. This in fact is what I did many times. What made the difference?

Knowledge. Agnosticism told me that I needed to stop at the light in the first place, but knowledge told me that I could run the light since I had sufficient cause to determine that I was not putting myself or anyone else at risk because of my actions. This is very akin to the topic at hand in that we have to impede the actions of some to protect the rights of others who are involved. With Mr. Obama’s position, I would not have to stop at a red light anywhere since there is no proof that other vehicles will be driving down that road when I am there.

Let’s take this way of thinking to another per issue of the left, global warming. Why are we to take such drastic steps in our lives in order to reduce our carbon footprints? The reason given is because the earth “might” not be able to deal with the excess carbon based pollution that we generate. I myself have major reservations about the apocalyptic future that we are told will happen. But suffice to say, that there is actually a degree of agnosticism on both sides.

Without looking at the actual evidence, which does not give as grim a picture and the popularizers believe, this agnosticism says we should err on the side of caution, for the potential negative ramifications of a wrong decision can be catastrophic. Taking the same logical approach that they this same ideology takes towards abortion, we should be defending the rights of polluters and forcing any real restrictions on them.

We cannot have it both ways. Either we err on the side of caution or we do not. We cannot make rules against one class of agnostics for their behavior while not making any rules against the behavior of another group of agnostics on another issue.

Red means stop for a reason, and it is only with a knowledge of what is actually true that we can make judgments that impair the right of potential children. Doing otherwise would be nothing short of reckless. Mr. Obama, where do you stand now?

Who has faith?

I have been thinking lately that all of us human beings lack complete and perfect knowledge of everything. Since this is the case, I think it is easy to note that all of us must, by definition, operate out of some sort of faith.

This is the purpose of this blog - to examine faith and try to get a handle on how our beliefs correspond to truth. We will touch on many areas including religion, politics, ethics, as well as have some lighthearted fun.

Throughout this time together I hope we all will realize that the only reason that we should believe anything is that it corresponds to truth.

Please comment as we go forward since my ideas need refinement and you are the iron sharpening my sword. For that I thank you in advance.