BOO HOO!

There's an old saying, “There are three kinds of lies, lies, damn lies, and statistics.” With that in mind I just red the Yahoo News piece on how the gap between the rich and the poor is larger than ever. Well even though the article relies heavily on the that third type of lie let's assume that it is true. My question is; so what?

The reason for the difference between the rich and the poor income wise is habits. The rich have different habits when comes to money than the poor do. Dr. Stanley J. Thomas began studying the wealthy in 1979, and has written several books on how millionaires became and stay wealthy. The differences are both simple and profound. For instance:

• The wealthy don't actually use credit, they at least use cash, and are the ones extending credit. The poor take that credit and buy stuff they can't afford.
• The wealthy get up and go to work EVERYDAY. Or to paraphrase my uncle Lloyd, “They only work on days they eat.” And, they stay at that work until it is done or they are to exhausted to continue. Many of them will flat out state that's it's not a matter of how smart you work, or how lucky you are it's a matter of how hard and how much you work.
• The wealthy live within their means, their favorite brand of car is Ford, and they pay cash for them. The poor buy as much car as they can borrow for, and by the time they've paid it off it's worth the same $500 that the wealthy person's Ford is worth, but they paid retail plus plus plus.

And those are just the contrasts I can recall from having read The Millionaire Next Door several years ago. What is annoying to me is that our school system, and society, instead of teaching the kids to think like millionaires, is teaching them to despise the wealthy, and punish them. So instead of whining about the gap between the rich and the poor, why don't we study the rich, and start emulating them?

And, I do mean studying them formally. In the class room. Let's start teaching our children how to be wealthy. It's not like emulating someone's behavior is a radical idea. It's pretty much how everything is taught from basic math to sports. We show a kid how to do something, and then have the emulate us to do it themselves. So, let's teach them to emulate the rich, and watch them learn how to be rich.

After all they are the ones who have to care for us in our old age, and I'd rather be old and broke down in comfort, wouldn't you?

As to the gap they're talking about: Who knows what will happen to that gap? But, for darn sure emulating the rich won't result in more poor. And, isn't eradicating poverty a worthy goal?

BASIC ECONOMICS

For those of you who follow me on facebook this is a rerun. Sorry, but with Yahoo, and others FINALLY pointing out that the tax hike going into effect soon is going to effect more than just the 'rich' it seemed an appropriate lesson to re-post.

--------------------------

BASIC ECONOMICS

I hate it when people talk about “tax the rich,” or “let the government pay for it.” It tells me just how much our educational system has let us down in the areas of logical thinking and basic economics.

Let's take, “Tax the rich,” first shall we? You see the rich don't pay taxes at all. Most rich people are business owners, and business owners do not pay taxes, they collect them and send them up the line. So you as the consumer pay the taxes, THROUGH the business. Let me say it more clearly – all taxes are paid by the end user of the product. Taking the evil oil companies for instance. They make an average profit margin of 9.7% as per CNNmoney.com. That will be a very important figure later.

There are 4 basic line items on a companies budget; cost of goods produced, cost of labor, taxes and regulatory costs, and profit. Every thing a company spends is represented on one of these lines. For accounting purposes they are often broken down into much smaller subdivisions, but that's usually for marketing and/or regulatory purposes.

So let's define our terms I'll bet you can figure most of them out;
Cost of goods produced (COG) – all materials that go into a the production of a given product
Costs of labor (Labor) – simple, costs for labor, and usually the most expensive of the 3 line items
Taxes and Regulatory costs (Taxes) – what the government costs you to do what you do legally
Profit (P) – this is the simplest and yet often most misunderstood cost. In accounting terms it is what is left over after the product is sold, but it is also often maligned as evil or bad. What most people who think of profit as bad don't realize is that often the business owner doesn't draw a salary, to the business owner the profit IS the salary, and if there is no profit his family doesn't eat. If we're talking a huge corporation we're talking the share holders who have to obtain their share of the profits in various ways either through dividends or through selling the stock. Either way the profit is not evil, it is the point of the exercise. With out profit you couldn't live in your house or drive your car or eat food you didn't raise or kill because no one would have been paid to provide these things for you.

So let's make the example of the wildly thought of evil oil companies. Right now gas in the Austin area is about $2.60/gallon. So, while I don't know the exact numbers I can make an educated guess to make my point.

0.85 = COG
1.00 = Labor
0.52 = Taxes (national average)
0.23 = Profit = (COG + Labor + Taxes)0.097
2.60 = Gallon of gas in your tank
39.00 = Filling your car assuming 15 gallon tank
2028.00 = Full tank once a week for a year

So, let's raise the taxes on this evil oil company and see what happens to the costs of filling you gallon can of gas for your car.

0.85 = COG
1.00 = Labor
0.53 = Taxes
0.24 = Profit = (COG + Labor + Taxes)0.097
2.61 = Gallon of gas in your tank
39.15 = Filling your car assuming 15 gallon tank
2035.80 = Full tank once a week for a year

Most of us can live with an extra 15 cents/week so, let's raise the taxes on this evil oil company by 325% and see what happens to the costs of filling your car.

0.50 = COG
1.00 = Labor
1.74 = Taxes
0.31 = Profit = (COG + Labor + Taxes)0.097
3.55 = Gallon of gas in your tank
53.25 = Filling your car assuming 15 gallon tank
2769.00 = Full tank once a week for a year

Now the real question you need to ask yourself before you scream about taxing the evil rich is – can I afford this little temper tantrum? You see the rich are simply going to roll that costs to you, raise their price and maintain their salary percentage. Either that or go out of business. So, you can have high a priced moral statement that costs them nothing and you everything, or cheap gas, and be happy for them that they get to make a living also.