Poker On The Street

Editor’s note: Today we have a guest entry from Raymond Buse on taxes!

America was founded on the principle of liberty. We are supposed to get to do whatever we want, so long as we don’t hurt anyone else. Essential to that liberty is fairness – rules in accordance with equal, reasonable, and ethical treatment. But the current tax system - it’s just not fair.

The tax structure today is largely a mechanism for wealth redistribution. That’s not fair. It’s money taken from people, and then expropriated to other people, (sometimes the same people) in cash. About 45% of federal spending is on Social Security, Medicare, and Medicaid1. In fact, only about 20% of taxes go toward non-defense discretionary spending1. We try and create a strong middle class by taking from the rich and giving to the poor. That’s not fair, it doesn’t even make sense. Giving people money doesn’t “create” a middle class – at best it simulates it, and it certainly doesn’t encourage people to work harder.

Security is an illusion, Social Security – doubly so. That’s not fair. We asked for a system that forces people to save (though I don’t see that as a responsibility of the government in the constitution anywhere). Unfortunately, that’s not how Social Security works at all. When the President proposes a system where money is actually saved, nearly everyone is scared off because they think it’s too expensive. Of course that argument makes little sense, as in the long run its totally free, and even in the short run we are paying all the money to back to ourselves. In any case, why is this even a function of the government? Shouldn’t we have the freedom to save our own money however we want: whether that be in our homes, in our education, or in the stock market?

The tax system is wasteful. That’s not fair. Why do we need such a convoluted tax system? Why to we need an IRS anyway? Answer: we don’t. Yet, for some reason, it has always seemed better to us to create new taxes rather than raise old ones whenever possible. Over time we (we can’t blame the congress that we elected) have come to tax nearly every aspect of our lives. People think the inheritance tax (“death tax” in Republicaneese, “estate tax” in Democratian) is the only example of double taxation - but of course, it’s not. We tax income and then we tax how you spend it, and most of what we own gets taxed on an annual basis. Does that system make any sense?

We like to tax things differently in order to affect people’s behavior. That’s not fair. We like to call these incentives, but of course for every incentive there’s a disincentive. Some things we tax a lot, smoking and gasoline for example. The government shouldn’t get to tell people what they should and should not buy. People can decide for themselves what they want, or what they want to invest in.

There’s one tax scheme that’s inherently fair: a broad sales tax. Everyone gets taxed in accordance to the amount they spend. It’s easy to account for. It’s nearly impossible to avoid. It encourages saving naturally. And economists agree that it would mean a boom for the economy. It may not be perfect, but it’s a lot better than what we have now. It’s the fair tax. http://www.fairtax.org/

[1] Congressional Budget Outlook

“If you are going through hell, keep going.” Winston Churchill.

Sorry for the lack of updates, I have had lots of work (midterms and lab reports). But I have been getting lots of ideas on future posts. Look forward to the following topics:

• Used car dealers and car depreciation.
• College admissions today and how it has changed from years past.
• The iPod and Apple Computer phenomenon.
• Why we love/hate reality shows.

Let me leave you with a quote from Michael Lewis’s novel “Liar’s Poker:”

So, on the face of it, my decision to leave [Salomon Brothers] was an almost suicidal trade, the sort of thing a customer might do if he fell into the hands of a geek salesman at Salomon. I believe I walked away from the clearest shot I’ll ever have at being a millionaire… In leaving, I was sure I was making the beginner’s mistake of selling at the bottom…

If I made a bad trade, it’s because I wasn’t making a trade. I was given pause, however, after I had decide to vamoose, to think that maybe what I was doing wasn’t so foolish after all. Alexander insisted at our farewell dinner that I was making a great move. The best decisions he has made in his life, he said, were completely unexpected, the ones that cut against convention. Then he went even farther. He said that every decision he has forced himself to make because it was unexpected has been a good one. It was refreshing to hear a case for unpredictability in this age of careful career planning. It would be nice if it were true.

As a follow up to yesterday’s entry about TV, I am going to go into more depth today. First, the revenues of each of the networks are probably very surprising to everyone. CBS is first with 2005 revenues of $4.67 billion which one might expect since they have the most total viewers, but the surprises start at number 2 with the QVC network which had revenues of $4.49 billion [1]. Here is the whole table:

It is interesting to note that ESPN has greater revenues than ABC, apparently many folks watch SportsCenter. This seasons ratings race has been extremely tight, with Fox’s American Idol dominating everything in its path like the Olympics and Grammys averaging 32 million viewers on Tuesday [2]. The analysts are predicting that Fox will win the coveted adults 18-49 demographic with CBS winning total viewers [3]:

Last summer, primetime pundits predicted this season would come down to a photo finish among Fox, ABC and CBS in the coveted adults 18-49 demographic. The thoroughbreds in this race have not disappointed.

Most network number-crunchers foresee Fox pulling ahead by a nose in the final stretch next month to win by one-tenth of a rating point, or a mere 130,000 viewers, with ABC and CBS right behind. Braggadocio aside, the real story behind the razor-thin margins is that each of those networks generally has had a good season, albeit in different ways.

The top 10 shows are as follows: American Idol-Tuesday, American Idol-Wednesday, CSI, Desperate Housewives, Grey’s Anatomy, Without A Trace, Dancing With The Stars, CSI: Miami, Survivor: Guatemala, and The Unit [4]. It is interesting to note that NBC’s highest rated show so far this season is Law and Order: SVU which clocks in at a measly 19th. Networks are using various schemes to boost their viewers since the TV season is 36 weeks long but most shows only have 22 episodes. In most cases, networks are reruns to space out the new episodes, but this causes issues with shows that are very plot driven with each episode picking off where the previous ended. For example, fans of ABC’s Lost have been extremely frustrated with its numerous repeats, whereas Fox has been airing 24 continuously without repeats since 2004 to much success [5]. As a fan of both shows, I definately prefer the Fox model in not airing reruns but networks are trying to maximize their profits. I wonder why people buy so much stuff from HSN and QVC, maybe these two videos will dissuade future buyers: here and here.

Online video is becoming very big [1]. Google has come out with Google Video [2], iTunes now sells TV shows [3], and YouTube shows 90 million videos a day and had 9.1 million viewers in February [4]. Internet video is a interesting concept because it was previously very difficult to share movies with others because of the high bandwidth demands. Now with the advent of YouTube and Google Video it is possible to instantly share your movies with the world. As we can see from the cult hit, SNL Skit “Lazy Sunday” by Chris Parnell and Andy Samberg [5]:

It took a “Saturday Night Live” skit featuring a rap about cupcakes and “The Chronicles of Narnia” to put YouTube on Hollywood’s radar.

Not long after “SNL” aired the segment December 17, the clever lyrics to what was known as “Lazy Sunday” made its way to the Internet. YouTube in particular saw its traffic shoot up, with 5 million streams over 45 days — making it the most-watched clip on the site for a time.

Of course two months after NBC had received enormous amount of free publicity from the video (over 5 million views), they decided that they had had enough and NBC told YouTube to remove the video [6]. If you still want to see the video, it is on NBC’s own website here. All of this raises the question on how to handle copyright issues. UPN’s hit show “Everybody Hates Chris” from Chris Rock was actually premiered on Google Video [7]. But it is also very easy to download TV shows via BitTorrent which is causing much concern for TV executives [8]. Britain has emerged as one of the top downloaders of pirated TV shows because there is often a delay of months between the airings in the US and the UK [9]. Piracy is growing, especially with the younger “Internet generation,” but I don’t know of any “quick fix” solutions to this muti-billion dollar problem.

Tax season is here. I don’t file taxes because I don’t earn enough income, but that doesn’t stop me from making taxes my next topic. For those that can’t seem to make deadlines, you can easily file an extension to give you an extra 6 months no questions asked [1]! If you don’t want to file your own taxes, as Ken Jennings knows well [2], you can use H&R Block to help you out. Although I would reconsider using them [3]:

H&R Block Inc., the company that helps millions of Americans complete tax returns, said late Thursday [Feb 23, 2006] that it got its own taxes wrong in recent years. The Kansas City, Mo.-based company said it will restate results for fiscal years 2004 and 2005, plus previous 2006 quarters, mainly because of errors in calculating its state effective income tax rate. The mistakes resulted in H&R Block understating its state income tax liability by about $32 million as of the end of April, 2005, the company added.

Now that doesn’t inspire too much confidence in me. But that’s not all folks! Our boy Eliot Spitzer (New York State Attorney General) has sued H&R Block becuase they were pushing IRA accounts that (for some unfortuante folks) had more fees than you could earn on interest [4]. Just think about that, you open up an IRA with 500 bucks but come back next year and you balance is $489. How would you feel? Here are the details [4]:

The suit seeks $250 million in fines plus refunds after H&R Block steered roughly 500,000 tax return customers to invest in individual retirement accounts, but failed to disclose high hidden fees that actually outpaced interest earned on the accounts, the attorney general said.

As a result, about 85 percent of these customers lost money, Spitzer said.

On top of those, more lawyers are jumping into the game. Tons of class action lawsuits against H&R Block have been filed on behalf of shareholders who were mislead by management [5]. It makes me think, wouldn’t you be better off saving some money and doing it yourself? I’m back and I promise to keep vigilant on the updates.