What will $32 Billion Buy?

Sunday, April 30, 2006
On Friday, Microsoft's stock price dropped over 11%. For a company the size of Microsoft, that is a significant drop. It amounts to almost $32 billion dollars that just evaporated from shareholders pockets, IN ONE DAY! To put that in context here is a quick list of what $32 billion can buy you

Needless to say, its a lot of money

Your Mortgage Deduction - How you really Lose

Monday, April 24, 2006
I touched on this in my tax rant so let me clarify something a little bit because people don't always really understand this point.

The middle class loves the mortgage deduction. They think its a great deal because they end up saving so much on their taxes.

I'm not here to debate that an individual doesn't on the surface save on their taxes because of the mortgage deduction but people don't realize that their mortgage deduction may actually cost them more than they save in the big picture. A recent study released shows that the top 2.2% of tax returns claim 22% of the benefits.

Think about it. The richest people benefit the most. They have larger mortgages thus more to deduct. They are in a higher tax bracket therefore save more with each deduction. The problem is compounded further because most middle-class Americans DO NOT receive the full value of the deduction!

Let me say that again because most people don't get it. Most middle-class Americans DO NOT receive the full value of the deduction! To achieve full value of the deduction, you must have OTHER deductions totaling more than the standard deduction. The standard deduction for 2005 is $5000. $10000 for married couples. Do you know many people who have $5,000 of itemized deductions? Believe me, most do not. So until you breach the $5,000 mark, your deductions are meaningless; you are better off taking the standard deduction. Even if your mortgage interest (Only mortgage interest is deductible. You wouldn't believe how many people believe the entire payment is deductible) is say $10,000 this year, you don't just lop off $10,000 from your taxable income, you may be able to deduct only $8,000 of that. If you are in the 25% tax bracket you just saved $2,050. Not a small sum but not huge either considering $10,000 in mortgage interest.

Now think about the rich. They easily have $5,000 in deductions from other sources. State taxes alone probably account for this sum. Add on investment expenses, charitable contributions, and business expenses and most of the rich have no problem breaking the standard deduction barrier BEFORE their mortgage interest deduction. They have a bigger house, and larger mortgage, so let's say they spend $50,000 in mortgage interest. They get to deduct this amount fully from their income and at a higher rate, 35%. They save $17,500 from this deduction. Compared with $2,500 for the middle-class person with the smaller mortgage. They benefit 7x more from the deduction and they don't even "need" it!

All the money they don't pay has to come from somewhere. Every dollar they are able to avoid comes from someone else's pocket. That pocket is yours.

This is why I don't like government. People are so worried about their own individual problem that they don't see the bigger problem. If the government were to repeal the mortgage interest deduction (which I would love to see but don't think they should because of the inherent unfairness) those protesting the loudest would be those who are most hurt by the deduction itself. They make you think you are getting a great deal when in the end, you are the one carrying the largest burden.

If I Were a Despot

Monday, April 17, 2006
If I were to create the most onerous Tax code I could this is how I would do it.

1. I would make sure you couldn't escape it.

What is the point of collecting taxes if you can escape the tax.? Taxing cigarettes and booze is silly because if you want, you can not use those products. However, If I tax income, there is pretty much no way out of it. You have to earn money to live and if I tax your income you have very little way to avoid paying my tax, unless you were already wealthy and no longer had to earn income.

2. I would make sure you paid it even if you died

Nothing as certain as death and taxes right? I'm going to make sure taxes are even more certain. When you die, I am going to tax your estate. You are dead, you won't need the money. Leaving it to your heirs? Please, everything you have is mine.

3. I would make sure you paid it on income you didn't even really "earn"

I don't care what form of "income" you have. If someone gives you a gift, I'm going to tax it. If you win a new car, that is making you better off (and is therefore income) so I'm going to tax that too.

4. I would make sure you didn't know how much you were paying

Before you even get your paycheck, I'm going to take my share of it. Knowing human nature, I know if you never see it you won't realize how much in taxes you are paying. Further, I'm going to tax other things like Corporate income and the like. You won't ever directly see the cost of this since this will only raise the price you pay for goods. Ingenious!

5. I would make sure the burden would be placed directly on you to comply with my plan

My tax plan probably needs to be really complex to make all of this work and make sure I can extract all the money I can from you. But no way do I want to take the time to figure out what you owe me; I'll leave that up to you. Therefore I'll pick a date, say April 15th (or maybe the 17th if the 15th is on a Saturday), that you will be responsible for figuring out how much money you should have given me. If you should have given me less, I'll give you some money back (interest free of course). However if you screw up you will get stiff penalties and I will force you to pay me that and the taxes you owe me (with interest).

6. I would make sure it was so horribly complex you would never understand it

If you actually are able to understand how to comply I might not get all the money I need from you and you may find ways to pay less. Further, the more complex I make it the easier it will be for me to change it and get more money from you.

7. I would make sure I could easily change the plan to extract even more taxes from you

I would probably change some part of the tax code every year. I might change the tax on things like dividends to make them more attractive. I might change the tax brackets or remove various deductions. The code will however be so complex and so esoteric that you won't even bother to really understand it and just pay me whatever I tell you to pay me.

8. I would make sure I could lower the taxes for my friends while at the same time thinking you are getting the better deal.

I would do things like create tax breaks that seem to work for the common man but in reality they work best for my rich friends like myself. I could probably implement this by doing something like allowing you to deduct interest on a big ticket item. Say your house. Of course, you won't be able to get full benefit out of this because you won't really spend more than your standard deduction. However, my rich friends, with big houses and mortgages, and with multiple houses on top of that, will benefit far more than the average person. The average person won't realize that they are paying for my rich friend's tax break. They will only see their relatively small deduction and feel good about it. Given their lack of understanding of my tax code, they will fight tooth and nail to save this deduction all the while not realizing how much they are really paying to have it.

9. Even if you try to leave the country, I will still make you pay the tax

I will decree that even if you leave the country to try and avoid my tax, your rightful duty as a citizen is to pay me the tax. I don't care if you work in a foreign country for 20 years, if you are a citizen of my great land it is your duty to pay me the tax.

Sounds awful doesn't it? I'm glad this system doesn't really exist.

Blockbuster Cheating Customers?

Monday, April 10, 2006
I canceled my blockbuster online membership a month ago. I wasn't getting full use out of it so it was time to cancel. That, and I was about to move so I figured I would cancel during the move since I would have no time to actually watch movies.

Now I'm glad I no longer give my business to Blockbuster. I seriously think they are out to cheat their customers, or at least former customers. Some of you may remember I posted about how Blockbuster lost one of the last DVD's I had when I canceled my free subscription. Unbelievably they did the same damn thing to me again.

Because of the move, I did not have time to carefully check that all the movies were returned. Sure enough, I got two e-mails describing that they got two of the last three movies back but no e-mail about the third. Busy with the move, I didn't notice it this time. But because I was checking my credit card transactions I notice a $21 charge from Blockbuster which should not have been there. Sure enough, they "did not receive" the third DVD. I haven't had any other problems with Blockbuster getting DVD's except for these two incidents. Can it really be coincidence or is Blockbuster out to just anger those people who no longer are its customers.

It just seems very fishy to me that two DVD's are lost in exactly the same manner. If others who come to my blog have similar experiences let me know.

Name on Parking Spaces

Thursday, April 06, 2006
The company across the way has a number of parking spaces with signs saying things like, "Space reserved for John Doe" .

I hope someday to rise through the ranks of corporate America. I hope someday to be important enough to deserve my own parking spot which would be reserved soley for me. But I know for sure that in no way shape or form do I want my name actually on the parking spot. What is the point of that? You can just as easily reserve the spot by saying "reserved" and assigning a number to it. I'm not sure why you actually have to have your name on the spot. Does it make these people feel more important? "Ooh look, I'm important enough to have a sign with my name on it in front of this empty space."

It just seems kind of over the top to me. It has no real tangible advantage other than trying to reinforce the owner's own self importance but has the real disadvantage of promoting animosity from others.