Critical Analysis: A How-To Guide
Before we can critically analyze the validity or viability
of ideas, it helps to have a lot of ideas. Why is this an important
point? Because too often we are critical and analytical during
the idea-generation process, which stifles our creative output.
Let your mind run free then, and only afterward tear into what
it produces.
You don't need to analyze everything you believe all the time,
but at some point you do have to judge on their merits the beliefs
and ideas that you and others have, and this is where critical
analysis is needed. One of your primary tools for this should
be challenging questions, including the following four:
1. Are there other factors involved that are not being considered,
and what might these be?
2. What real-life evidence is there for the principle, proposal
or idea being considered?
3. How does the way in which the principle is implemented affect
its viability?
4. What arguments can you make against the principle or idea?
In part, critical analysis has to include attacking the idea
or belief. It may be a bad idea, after all. How would we know
if we never challenge it? Also, some ideas will become better
ones if we attack them as they are and then refine them according
to what we learn in the process. An example of the forming of
a new idea and the analysis of that idea follows.
Most people assume the truth of the basic principle that governments
can collect more revenue by raising the rates taxpayers pay on
their income. It seems a reasonable assumption, but lets challenge
the idea and look for possible flaws. One way to do this is to
test it by taking it to an extreme: suppose the tax rate people
paid was 99% of income. It seems clear enough that they would
not bother to work too hard if they only kept 1% for their efforts,
right?
So how much in taxes could be collected if the people stopped
working? More would be collected at a rate of 20%, right? The
principle is thus shown to be invalid in its extreme form: raising
tax rates will not always result in more revenue for a government.
We can also easily imagine that if high taxes discourage business
expansion, or drive businesses to other countries, there will
be less income to tax, so lower revenues could be expected due
to this effect as well.
At other extreme, a 1% tax rate would also less revenue than
a 20% rate. In considering these two extremes we come upon a
new idea or principle: Taxation which is most efficient--collects
the most revenue--has to be at a rate somewhere between the extremes.
There is also an important idea which follows from this, namely
that anything below or above this maximum-efficiency rate actually
means a government will have less total revenue.
These ideas suggest the need for a more scientific approach
to taxation in general. It seems a tragedy to raise taxes and
so hurt the economy and taxpayers, lose jobs (higher taxes cause
businesses to cut back), and then get no actual gain in revenue.
After all, even if we want every social program imaginable, shouldn't
we want a tax rate that collects the most money to pay for all
those programs? In other words, if the goal is not something
else (like punishing certain classes through taxation), but is
to raise the most money for
doing whatever we want the government to do, there is a rate
of taxation which--when we go beyond it--defeats that purpose
rather than helping it.
Let's use our four questions, to see how we might refine this
idea through critical analysis.
1. Factors
Perhaps the tax rate which is most efficient is 20% right
now, which could be partially determined by testing over the
years. On the other hand, there are other factors involved. For
example, if more of the revenue a government collects is spent
for things like new roads and bridges, instead of wars and welfare,
there is a bigger positive economic impact. The result can be
a bigger economy to tax, so we might find that a tax rate of
24% is the "sweet spot" where the most money is collected.
If we are to design a scientific tax system then, we have to
take into account how the revenue collected is spent, since some
uses lower or raise the rate that is most efficient.
2. Plausibility
What are the odds of constructing a scientific tax system,
based on finding the most efficient tax rates (and perhaps the
best types of taxes as well)? We have to recognize the reality
that the tax code is used not just to raise revenue, but to encourage
or discourage certain choices citizens make. That's why there
are deductions for kids and mortgages, and credits for investing
in oil wells and wind power. The tax code is designed to buy
votes as well, as when politicians pay for votes of the struggling
and envious masses by punishing the wealthy with higher taxes
(perhaps even while knowing that those high tax rates hurt us
all in the long run). The other difficulty is in educating the
public; no more than 5% of people truly understand that raising
tax rates doesn't automatically raise revenue for the government.
For this idea of scientific taxation to be plausible then,
would require changing the political atmosphere, and educating
millions of people who vote. That might mean enlisting the help
of politicians who are serving their last term and therefore
are not worried about their political future.
3. Implementation
Do we stick with just an income tax when we implement scientific
taxation? Considering the incentives and disincentives involved,
what would create more revenue, an income tax or a sales tax?
The former might encourage working and investing more, while
the sales tax could discourage spending. It's tough to say which
would be best from a tax-revenue perspective.
The total tax burden on citizens has to be taken into account
too when figuring what revenue a national government might generate--people
are taxed at state and local levels as well. Could laws limit
the rates that states and localities tax us at, in order to keep
the total tax burden at that efficient sweet-spot we are looking
for? We might also leave it to the states and let them compete
for residents and businesses, which should put some restraints
on their tax raises.
4. Arguments
Always find arguments against your own ideas and beliefs.
It's a crucial part of critical analysis. So after we consider
the three questions above, we need to look beyond them for any
arguments someone might have against the idea of scientific taxation.
We might find answers to those arguments, or we might find that
we missed something important.
It could be argued, for example, that despite later effects,
raising tax rates now means we'll immediately collect more revenue
this year--probably true, since the damage is done to the economy
going forward, and therefore the drop in revenues will come a
little later. Of course this is something like saying we can
have more food by eating our seed stock--not a great argument
or plan.
Perhaps a government shouldn't have raising the most revenue
as a primary goal. It is only necessary as long as we believe
the ways in which it will be spent are better than the ways in
which the people would have spent their own money if they had
been allowed to keep more of it. It's a good point, but in nay
case the scientific approach would still show when we are going
beyond the efficient rate and causing more harm than good, while
leaving us free to tax ourselves below this rate.
The argument that we need various taxes for various purposes
is a strong one. The gasoline tax, when used to build and maintain
roads and infrastructure, is a great way to fairly tax those
who benefit most from those expenditures. Of course the idea
of finding the most efficient tax rate for a sales tax or income
tax doesn't exclude the possibility of other taxes based on other
purposes.
Always look for arguments for and against against an idea
in real life examples where similar ideas have been implemented.
In such historical examples we can see what didn't work and try
to decipher why those failures or problems existed, or see what
did work as our ideas suggest they would. Then we can further
refine our own ideas to avoid similar failures or limitations,
and model the successes.
By the way, there have been real examples of countries lowering
their tax rates and thereby collecting far more in revenue. One
was during the Reagan presidency (although the government spent
it even faster than the new collections came in). Another was
in Iceland, where they systematically reduced the corporate tax
rate from 60% down to 15% and collected more in tax revenue every
step of the way due to increase business activity.
Critical Analysis Exercise
Here's a simple exercise you can try out your analytical skills
and your ability to think of new ideas:
It's commonly assumed that there is a deterrent effect from
putting people in prison for their crimes, and this principle
is easily demonstrated with an imagined extreme example of no
jail time for crimes. Would some people commit more crimes in
such a system? Certainly. This simple mental exercise shows us
that the principle of a deterrent effect is valid in some contexts.
For this exercise, however, think further about how to measure
this effect, how to enhance it, or how to change the more general
principle that punishment deters, whether in the context of jail
or with children, etc. Generate a few interesting ideas, the
choose the best one (including closely related ideas), and use
the critical thinking techniques suggested above to refine or
possibly reject your new idea.
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