Consequences of Not Thinking Things Through

Sometimes we believe that we are backing a worthy cause or making a good decision, but it turns out (sometimes too late) not to be the case.  Two recent examples in the news are trophy hunting and tax deductibility.  Though they may seem totally unrelated, they share the common characteristic that we tend not to think them through.

They both tend to be political, which makes it all the more important that we fully understand what is going on so as not to be manipulated by the opposing forces.  In these cases I am taking a critical thinking approach rather than taking sides.

In the first case, many oppose trophy hunting as treating animals badly.  There was talk earlier this year of banning imports of trophy-hunted elephants and possibly other species for that reason.  A deeper look reveals a different story.

This article from CNN explains that the major threat facing elephants and other exotic wildlife is not the trophy hunters, but other factors such as loss of habitat, retaliatory killing by local farmers and poaching.  Poachers come at night to kill the elephants for their ivory.  Controlling poaching, reimbursing farmers for crop damage and preserving the savannah requires funding.  A major source of that funding is the license fees paid by the rich trophy hunters.  As long as the hunting is well regulated, the overall impact on wildlife can be positive.

It seems counterintuitive at first glance that shooting a few elephants or lions in a well-regulated way could benefit the larger group, but it’s true.  The writer of the CNN piece admits to being a conservationist and vegetarian who wishes for a different solution, but the revenue ensures positive outcomes for animals as a whole and jobs for local game wardens.  Other sources agree, including The University of Washington’s Conservation Magazine and the National Geographic.  Yet some want to brand these fat-cat hunters as evil men who hate animals and are destroying the planet.

The second example has to do with tax deductibility, which is the subject of a fuss in Washington over a new tax law.  Various proposals intend to double the standard deduction while eliminating different itemized deductions.  But are these deductions as valuable as their backers claim?  Here is a simplified explanation.

A deduction is the amount we subtract from our income before calculating taxes.  If we earn $50,000 and have $15,000 in deductions, we pay tax on only $35,000.  Using a 15% tax bracket, the actual savings is not $15,000, but 15% of that, or $2,250 – still nothing to sneeze at.

But don’t forget the standard deduction!  You must spend that $15,000 to get the benefit, but we can subtract $12,000 without doing anything, which would reduce our taxes by $1,800 (15% of 12,000).  In this example, the difference between having the deduction and not is only $450, or 3% of the total deduction.

Now I don’t know many people who would go rushing to the store for a 3%-Off sale, but that’s not the way it’s presented.  When the state or local government wants to raise your taxes they explain how it won’t hurt you because “it’s all tax-deductible.”  When a charity wants your money they emphasize the tax-deductibility.  When a tax preparer charges $50 for software or over $100 for the personal touch, they don’t tell you that this money saved you only an incremental $450.  No, they stress the much larger number at the bottom of your return, remind you that their fee is also tax-deductible and then urge you to get your money today at their high interest rate.  (Note:  The CPA Practice Advisor says that you should expect to pay an average of $273 in the 2017 filing season if you want to itemize your deductions.)

Elected officials at all levels, charities, environmentalists, tax preparers, animal rights advocates, realtors and many others depend on the majority of us not to think too deeply.  Perhaps some of them aren’t thinking clearly themselves.  But when we just nod in blind agreement, allowing ourselves to be misled, we get poor outcomes and may never realize it.