Last weekend, like many US citizens, I spend a good deal of time completing and submitting my tax returns. I use a very popular software product and it does a terrific job of telling me how much I have to pay at the end of the year.
No, this is about understanding the totality of a problem and not focusing exclusively on one piece or part. Its about thinking in context and not in a vacuum. Don't miss the forest for the trees. Make sure you see the big picture.
Okay, enough platitudes. What the heck am I talking about?
Every year at this time we hear lots of discussions about tax returns. People carry on about how much money they got back or gripe about the ridiculous amount they had to pay. Friends, neighbors, coworkers and family members all compare notes. There is glee in the voices of those who expect to receive a check. They revel in the victory of getting money back, while "losers" like me, who must write a check, are supposed to feel bad. They hang their head in shame and disgust.
But the only thing that really matters is how much tax did you pay in total. What was your effective tax rate. Everyone knows you have taxes taken out of your pay and held throughout the year. Depending on how well these have been estimated, you may have too much or too little taken out, resulting in a difference between what you owe and what was withheld for the whole year.
Oh, I understand that some people see the refund as a forced savings program, and it can be a pretty effective one. Others, like me, prefer to retain the use of the cash until we are forced to hand it over to Uncle Sam.
But there are those who fail to see that only your total income and tax liability should be used as a basis for comparison. Two people making about the same amount of money but having very different tax situations might pay very different amounts. How much they get back or pay in April is irrelevant, merely a function of how much was withheld. The question should be how much did you pay in total.
As senior management, we see all aspects of the business, both inside and outside of the company. It is incumbent on us to keep an eye out for the people in our organizations who are only comparing the size of their refunds and miss the larger issues.
It is up to us to make sure they have a better, more complete view from the bridge.
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