How the U.S. Tax System Works … or Might Not in the Future if the Rich Decide to Just Leave
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. But what about 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 paid $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.
This wonderful illustration of the current tax system in the United States was created by the Dr. David R. Kamerschen, Ph.D. who is a Professor of Economics at the University of Georgia. I like his explanation very much.
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links for 2008-11-24
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However, conspicuously absent from the collective rhetoric from the auto industry is any reference to the 500 pound gorilla in the corner. GM is burning through cash to the tune of $4 to $5 billion per month. At that rate, even if they were to snag the entire $25 billion from Uncle Sam, the company could remain solvent only through Q1 2009. Does any reputable economist think the economy will be markedly better by April? Unlikely. So it begs the question: Rather than treat the American public to another horror story, why don't you help show us how you plan to build better cars? Cars that can compete with their German and Japanese counterparts?
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Presentation on Leveraging Cognitive Bias in Social Design by Bokardo
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links for 2008-11-22
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The allegations against Ye and Zhong amounted to one of the first economic espionage cases filed. Since then, other cases in Silicon Valley have developed, including one in which an engineer admitted in June he tried to sell fighter-pilot training software to the Chinese Navy. He was sentenced to two years in prison. Prosecutors in that case said the engineer, Xiaodong Sheldon Meng, who was raised in China and holds Canadian citizenship, was focused on profit, not a foreign allegiance. Two other Silicon Valley engineers, Lan Lee and Yuefei Ge, are under indictment on charges they stole chip designs and tried to launch a microprocessor startup with a Chinese venture capital firm. Chinese-American engineer Dongfan "Greg" Chung, who worked at Boeing Co. and space shuttle-builder Rockwell International, is accused of stealing secrets regarding the space shuttle, a military transport plane and a rocket on behalf of China. Chung has pleaded not guilty.
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links for 2008-11-18
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When making real-life decisions such as whom to hire, managers and entrepreneurs performed similarly, but throw some rewards and punishments into the mix and things got more interesting. When the researchers had the entrepreneurs and managers make “hot” or risky decisions such as whether to finance one of several potentially excellent but risky business opportunities, entrepreneurs made significantly riskier decisions. Entrepreneurs also showed greater mental flexibility and a greater tendency to be impulsive when given psychological tests.
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Those CIOs who cannot unshackle themselves from the age-old bonds of internally focused thinking and execution will not be able to survive, let alone thrive, in the years ahead, while those that can shake free and lead the interconnected engagement with customers will remake the way business success and business technology are defined for many years to come.
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links for 2008-11-17
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links for 2008-11-13
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With Lehman Brothers bust and banks across the world posting some pretty dismal results, some 200,000 or so Wall Street workers are set to lose their jobs. That’s obviously rough news for the economy and even rougher news for the families involved, but there is a silver lining argues Dubner. He starts with the premise that for the past few decades Wall Street has attracted our nation’s best and brightest:
Like them or not, the men and women who’ve gone into finance in the past 10 or 20 years… are super-well-educated and work incredibly hard, with intense focus. In economic terms, these people represent a huge stockpile of human capital.
Now, with the detonation of the financial markets, this talent pool is set to disperse to a variety of industries. In addition, “perhaps millions, of college undergrads and graduate students who had planned to work in finance” will be seeking alternate career paths.
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Opening Keynote at CICI Shanghai: Joe Goldberg, President of SCIP and Senior Director of Corporate Intelligence at Motorola, President of Society of Competitive Intelligence Professionals
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My good friend, Dr. Qihao Miao, as conference chair, opened with remarks about how the conference looks very promising and introduced Mr. Joe Goldberg, SCIP President, to keynote the conference. Joe gave the usual glad-handing and greetings from the board and so on, then got to the new international strategy of “One SCIP” and how that applies to China. Here’s my synopsis of his remarks:
The critical issue facing intelligence professionals today is SPEED. The time to make an impact is narrowing between the production and processing of CI and the ability to have an influence on the course of the enterprise. The “Time Between Surprises” is now shorter than the it takes to make decisions – this novel idea of metrics between the quarterly pressure of investor results and the fear of being surprised in a global environment make 5-year, 3-year or 18-month visions obsolete; today, intelligence foresight is defined by weeks.
During the current environment and financial climate, things like wargames and scenarios and benchmarking are far less influential; instead the focus has moved to shorter-term insights and the ability to navigate and maneuver more immediately – the luxury of long-range planning is no longer as relevant – this is Joe’s fundamental critique and recommendation for improvement. (Great observations, by the way – this is one of the best speeches on the topic I’ve heard in a long time!)
Synthesis alone is insufficient as the means by which to add value through CI – the ability to offer alternatives and recommendations for courses of action is more relevant as the requirement for speed shifts the core value for intelligence from analysis toward timeliness. Our work will have maximum value only if it can avoid the element of surprise for leaders and policy makers.
Speed is also the single key stressor in the practice of CI and may strain our objectivity and cause us to ignore the standards by which we conduct CI. Simplicity is the antidote – what are the best products, how do we deliver them, are we structured properly? These are the key questions CI must grapple with – not the more complicated, labor-intensive “insights” – complexity is the enemy of speed. (Dang, was that your own quote Joe? That’s going in my next newsletter.)
The ultimate role of intelligence then is to provide wisdom – speed makes it difficult but that doesn’t make it any less necessary.
The basic usability of our materials simply isn’t good enough and needs a tremendous amount of improvement by everyone involved – it is not as actionable when communicated poorly – but improving the quality and accuracy of intelligence products will make an immediate impact on the use and application of intelligence in the modern business enterprise. We must make our intelligence “effortless” to read, understand and take action on.
The “intelligence mosaic” is what makes up our intelligence consumers’ environment of awareness – inputs come loosely and disconnected from everywhere – family, the media, friends, colleagues and we must as intelligence professionals augment this and help it make sense to them when decisions are on the line. Information might flow freely but intelligence context is hidden within this information mosaic – end-users think of us as only one source in this mosaic and processes their decisions differently. Joe’s office refers to their habit of being “constructively annoying” – fighting through the fog of the info glut to have an impact alongside all the other sources end-users use to deploy intelligence findings in their work.
How do these observations impact business in an era of financial crisis such as today? Intelligence will either be cut, or worse, ignored. Intelligence will be tasked with evaluating the real-time issues of business – financial analysis on suppliers, customers, VC investments and other forces will help demonstrate intelligence value to users.
These are the realities of today – SPEED, TIMELINESS, SIMPLICITY – and there will always be a place for insight and analysis and the realities will cycle back, but in the meantime, we must adapt of be made irrelevant. Joe has confidence in our abilities to help decision makers meet their challenges.
I had the first question – woot: “So we must be more tactical with the understanding that strategic deliverables simply must wait. But HOW do we do that? What specifically are YOU doing to get that done day-to-day?”
Here’s Joe’s GREAT answer to my hardball question:
None of the products they produce are longer than one page – and must be immediate in their scope and important to getting the job done THAT WEEK – really no farther out than that. The heresies of the short term be damned (I’m paraphrasing) – that’s what they really need now but still trying to decide how to keep the longer-term topics that are so important in the mix – “cash” being king, that might be it – but the important thing is not how long but what is the topic. The selective hearing about the long-range issues dictates that decision-makers just won’t listen to stuff longer than one page.
Dr. Tao Jin from LSU was next with a question on the current financial crisis – “Was the current credit crisis a failure of intelligence?”
Answer: Not in his opinion as intelligence practitioners cannot get absorbed in something so overly broad as the international financial system.
Question: “What does Joe do now to adapt to the changing circumstances?”
Answer: Are we adding value? If we have an idea, we get together as a group and one person would write it up, the rest would review it and then put it out. It used to be they generated 70 percent of the topics they wrote about; today, they are responding almost 100 percent to things top management are looking for RIGHT NOW!
Kent Potter takes the stage. Topic is the Implications of Financial Crisis to Chinese Companies Interested in Doing Business in the U.S. At the moment, we have a “firesale” on U.S. assets – China lacks the brand-value of American companies but has the capital and reasons ($1.6 trillion reasons) to acquire those turnkey assets cheaply. But there is a backlash in the form of protectionism against countries like China and on the global integration of world markets. Kent believes that good CI can help even there – who are the people building this lobby against free markets. CI can help put their best case forward.
The key point of the whole talk is that BRAND is almost never a key reason for an M&A deal but should be particularly for the Chinese. Then went into the classical steps for a successful merger or acquisition, but a key piece is missing: organizational culture. The reason most M&A deals fail is because of culture – how does the other company operate and make choices versus that of the other company on the other half of the deal?
DaimlerChrysler is used as the example: Kent had a client there so he knows them well, but almost all of the trouble they had in the integration and ultimate failure of the integration was due to the culture clash between the Germans and the Americans. Hewlett-Packard (another client of Kent’s) bought Compaq and only recently was able to turn the buyout around and make it successful at the expense of a lot of pain and lost market share. References the speed problem Joe focused on and said that being in too big a hurry is the root cause of many of the culture problems that cause the deal to fail.
Solution to all this is the ability to integrate the decision making styles of executive management, which will facilitate the success in the other areas of potential risk or trouble. Likewise, understanding the probable reaction of surrounding companies, markets and other forces to the tie-up transaction must be considered before the deal is done.
Because either lawyers or accountants are involved in the evaluation due diligence, a problem arises: paraphrasing Drucker – the inside of a company consists of only costs, the opportunity to make money only exists outside and therefore the big upside opportunity is lost when the external view is lost.
Question: Is it more difficult for a U.S. company to acquire in China or for a Chinese company to acquire an American one?
Answer: (A little impolitic since it’s basically illegal in China for U.S. companies to buy Chinese ones…) Kent focused on the Chinese acquisition of U.S. companies (since there’s no answer the other direction) it’s fairly easy for a non-strategic U.S. asset to be acquired by a Chinese company, but strategic ones will get lots of Capitol Hill oversight and potential interference (ref, CNOOC and Chevron).
Kelvin Zhang was all in Mandarin but the slides looked interesting… nonetheless, definite language barrier – I didn’t really get any of it.
Panel Discussion with the following speakers from today – (did I mention I was in the front row?)
- Qihao Miao
- Holger Meissner
- Joe Goldberg
- Kelvin Zhang
- Kent Potter
- Tao Jin
Holger was first to talk about the life sciences industry, his focus, and answered Qihao Miao’s question about how CI can help during an economic downturn – Joe asked about the time horizon in life sciences being years, rather than months… comments in response to these questions was centered on staying nimble as a CI team and dealing with the trends in the industry – that outsourcing has risen up to make pharma/biotech companies more flexible. Miao asked about the influence on R&D pipeline because of the absence of P/E ratio measurements due to the pipeline – Holger replied that pipeline was the key issue with the ability to project their decline as generics start to eat away at the indication. Prices are making money tighter and CI becomes very important to understand where competitors are at in development when moving from Phase II to Phase III. Holger used to work for Bayer for 20 years and was asked about his thoughts in response to what the company needs to do today.
Joe Goldberg addressed Miao’s message by responding that it was all about value and everything they write gets circulated in order to have a “seat at the table” – except that table of top management is a pretty nasty place to be… in response to the whole strategy admonition… intelligence people are relevant if they’re doing relevant things for their company, not if they’re “being strategic”. Joe emphasizes that it’s not about writing the best product or looking smart or fancy – it’s about value – helping the company make money while he delights his customer. You don’t need to be at the CEO’s office, though Joe’s group has been since the beginning – but trying to obtain that level of influence often gets in the way of producing value – and eventually the boss starts to ask “what do you exactly do again?” which is a REALLY bad question to have asked.
Question about ROI and how to measure value – Kent took over – during a downturn as the shift goes toward tactical rather than strategic questions – it’s easier to measure impact on the tactical results – Joe grabbed it back and said, the reason he went door to door to ask users questions is because he has no other feedback mechanism.
Tactical versus strategic is really emerging as the topic of the day here…
Tao Jin (CI professor I had dinner with last night from LSU in Baton Rouge) asked about quantitative ways to measure value – Joe says is really a lot softer than that – a qualitative response is the best he has – are his users satisfied. The real quantitative value is “what would you have spent to obtain that piece of intelligence” and that’s the value – however, if they zero, then you’re in trouble.
Kelvin Zhang took over answering the question… but in Chinese… alas, my Mandarin is about a 2 on a scale of 1 to 10. Sorry. Mr. Miao said that he commented on how during the downturn it’s sometimes a good time to skill up their CI group. Sounds good to me..
Question about counter-intelligence – Joe says there’s a need to create awareness throughout the company, but that the electronic authenticity of sources is a big issue and the frontier of the future.
Kent jumped in and talked about two changes – what practitioners are doing must shift from the protective and defensive (competitor-focused) rather than winning the company money – sales driven exercises, for example. The need to partner with marketing and sales people – he mentioned Miller-Heiman decision mapping for sales processes – and CI people. The other change is in the government’s role – for the first time in Kent’s knowledge, since the USA has taken on substantial capital assets and around the world central governments have become owners of businesses in a big way – perhaps, there will be a reversal of the poisonous issues of economic policy being connected with economic intelligence. (ed: Quite a shift!)
Question about CI software – in Chinese, awaiting translation… what kind of software does Joe use at Motorola? Nothing – Word and their brains. What separates intelligence people from everyone else is our passionate curiosity – by reading something and being immediately unsatisfied by what is read and compelling that person to learn what’s behind the story. The critical skill is, communicating – and being able to be concise, a better writer, succinct and clearly explain a complex topic in a very simple way.
I tossed out the “Made to Stick” book which grabbed Joe and he launched into the principles (we’d just been chatting this morning about how much he loved the book) and that was it – Obama as the example – “Change we can believe in” and “yes we can” – these simple ideas that people just get and get behind.
Tao Jin gave many comments about “human factors” – again in Chinese, but I think I’m starting to get better at picking out a few key words – anyhow, supporting Joe’s earlier comments, it’s not about software or technology but about people and how they react to ideas and information. Whoa – I heard “John Prescott” and “APQC”!
So, time’s up, break for lunch… good stuff and had a nice follow up with Joe and a few others on his thoughts from this morning.
After lunch, they made half an hour for a little rest and then started back up around 2:00 – I sat in on the English language classroom – there was an all Chinese down the hall – and Holger Meissner was first from Adler, then Keith Ruark from AVOS – both focused on healthcare, pharma, biotech and life sciences – pretty interesting overall but I didn’t blog it directly – mostly about how healthcare is reinventing itself and how CI is done or should be done. Then, stayed for the English language panel on the changing world of CI. Here’s the rundown from the CI China website:
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Interactive Roundtable Sessions:
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Exhibition for trade visitors:
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links for 2008-11-12
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So Windows 7 looks good. What does this mean to Apple? It means an end to Windows problems driving increased Mac market share. Mac market grew share 60% in 2007, hitting 14% of the market by February. Much of that growth was fueled by Apple making great products, but some of it was disillusioned Windows users switching to Mac.
I should know; I was one of them. In February 2007, I walked into a computer store to buy a new PC. Faced with the choice between XP, which was a six-year-old operating system; or the brand-new Windows Vista, which I was already hearing bad things about, I chose "none of the above" and bought a Mac. It was a good choice, and I'm glad I made it — but if Microsoft had an up-to-date, solid operating system available then, I would have gone with that instead.
Indeed, Microsoft has in recent months reversed its losses; its market share is growing and Apple's share slipped slightly.
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links for 2008-11-11
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Yet the greatest challenge was finding craftsmen who could replicate the refined decorations that are no longer fashionable, said Berliner. One surprising find, she said, was an 80-year-old man in the eastern city of Yangzhou who still knew how to carve lanterns from goat horns.
Artisans from Zhejiang province have preserved techniques for using the inner skin of bamboo and bamboo thread in woodworking, skills needed to restore a two-story screen in the apartment's entrance.
The zeal the Qianlong Emperor showed for the project underscored the diligence he applied throughout his 60-year reign. Though he retired in 1796, he never moved into the studio, preferring to stay in the western half of the palace to watch over his son, the new emperor.
"Ultimately the greatest delight he derived from it may have been the creative process," Berliner wrote in the catalog.
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