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Enforcing Tax Laws Works. Go Figure.

by Smithee on November 20, 2009

in Taxes

Earlier this Fall, the IRS was offering an amnesty program for offshore tax cheats to come forward and admit their wrongdoing, thereby getting a more lenient punishment.

Nearly 15,000 Americans who knew they were cheating came forward and admitted their bad behavior. From Reuters:

While IRS officials were still analyzing the amount of offshore assets declared in the amnesty program, Shulman said, “we are talking about billions of dollars coming into the U.S. Treasury” from the new disclosures.

This is not the end of the story. Combining these (perhaps) brave souls to the 4,450 accounts which are forcibly being turned over from the Swiss bank UBS, there are just under 20,000 leads that the IRS is now following. For example, they may find that some of the largest account holders were advised by the same unscrupulous high-powered tax adviser. And now we know his or her name, and we can investigate, and find even more cheaters.

This is happening on a State level, as well. According to the Wall Street Journal:

This year, 12 states had amnesties, up from the annual average of two or three. Another 10 or 15 are likely to follow suit in 2010.

If you live in a State with a State Income Tax, and you suspect you might be guilty of tax evasion, I’d recommend you set up a news alert for “[state name] tax amnesty” so that you can have plenty of time to weigh your options.

The Editorial Part

On a personal note, this will probably end up being my favorite story of the year. It takes the cynical view that if you’re wealthy enough, you can buy the power needed to keep more than you’re supposed to, and makes a big ol’ dent in that belief.

We have a big budget deficit, and I believe that’s because the previous administration’s ideas didn’t work out the way they were supposed to. Many people fear that their taxes will be raised as a result, though the only plans I’ve seen to raise taxes will affect maybe 5% of Americans. Amazingly, some people think that their taxes have already been raised (these people are either getting their news from some untrustworthy sources, or their paychecks are coming with a free mirage).

Happily, sometimes you don’t have to raise taxes; you just have to be serious about collecting them.

Nearly 15,000 Americans admit offshore tax cheating, Kim Dixon, Reuters, 17 Nov. 2009
More States Jump on Tax-Amnesty Bandwagon, Arden Dale, Wall Street Journal, 19 Nov. 2009

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Two Down, $2,000 to Go

by Smithee on November 17, 2009

in Credit

When I was a new college graduate in 1997, I got my father to co-sign on a credit account so I could buy a computer. It was a shining white beautiful Gateway 2000, it probably cost around $2,000 (you kids and your $300 computer deals!), and it came with an interest rate of 26.9%.

Around the same time, I was approved for my first credit card, and then my second, and things went pretty badly after that.

Some of the details of that time in my life are fuzzy, but I know that I paid off the computer loan. I had to move back in with my parents in order to afford that, but it was paid off. And until today, that was the only installment or credit account I have ever fully paid off. I’ve gone for eleven-ish years with nothing but revolving credit and unpaid loans to my name.

But I’m proud to announce something totally mundane: we paid off our Rooms-to-Go credit account. That nice big bed in our master bedroom? We actually own that. Like I said, it’s mundane, and there’s probably no reason for you to be impressed by that, but it means the end of a nasty stretch of feeling entirely guilty.

Now I just feel mostly guilty. I’ve still got a balance on what I call my “legacy credit debt” – the debt that’s been in various states of huge for over a decade, and which gets consolidated and moved around but never fully wiped out. But there is good news there, too: that balance is below $2,000 for the first time since the 1990s. I haven’t charged anything to that card since I-don’t-know-when, and I can see the light in the clearing.

Unfortunately, there’s more bad news. My other credit card – the one that I didn’t intend to carry a balance on – has a big balance on it. It’s embarrassing… so much so that I’ve avoided even telling you guys about it. I bought a Mac Mini to use in the entertainment center, and we got tickets for a comedy convention next year, and a paranormal investigation, and we started a corporation. Needless to say, those aren’t the daily expenses I was expecting to put on that card.

Oh, but there’s more good news: my wife got a raise recently, which means she can contribute more to the joint expenses, which means I can make higher payments on my credit card debt.

I estimate that I’m about 8-10 (so, probably 14) months away from having no more credit card debt, assuming I can avoid any more vacation ideas or shiny electronics. I just have to keep reminding myself that all progress is good progress, and kicking myself accomplishes nothing.

Wish me luck.

(Normally, I’d say that luck isn’t even involved, here, but it’d be great if my employer got enough business in the next couple of months to restore our salaries to their original positions. The salary thing really hurts.)

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House Approves Expediting Credit CARD Act

by Smithee on November 10, 2009

in Credit

We reported just a few days ago on the passage of a measure in the House of Representatives to expedite the Credit Card reforms passed earlier this year.

Unfortunately, I left out some of the story, as I’m still figuring out the intricacies of how laws are made, and there were some amendments made to the bill before it passed. In addition to pushing up the enactment date to December 1, 2009 and the other changes we reported, the House version would also:

  • ensure that changes to a credit card agreement that reduce a customer’s interest rate or other fees can be implemented immediately, instead of being subject to the 45-day waiting period required under the CARD Act of 2009 — in other words, the bad things require a delay, the good things do not
  • dictate that any card issuer that imposes a moratorium on increases in rates, fees and terms and conditions of a contract would be exempt from the accelerated date for the provision requiring an issuer to apply a customer’s payment in excess of the minimum amount due, to the highest rate balance — the Credit CARD Act of 2009 fixes the industry abuse of extending a balance by applying payments insincerely. If banks play along and start a moratorium, they can have until Feb. 22 to fix the balance-payment problem.
  • prevent the closure of a credit card account in response to the imposition of a new fee from negatively impacting a consumer’s credit report or credit score

As before, the Senate version includes no additional measures, only moves up the date to Dec. 1. There’s a general sense in the news media that the Senate version would have trouble passing (sound familiar?), but I’m not sure where the pessimism comes from, as the original Credit CARD Act passed with 90% in the Senate.

Here’s the govtrack page to track the Senate version.

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Expedited CARD Reform for Consumers Act of 2009

by Smithee on November 6, 2009

in Credit

After the Credit CARD Act of 2009 was signed into law, we saw how credit card issuers started making life tougher for their customers. In short, banks were levying fees on their customers indiscriminately, affecting both the good and the bad.

This has been going on for months. Lawmakers have publicly condemned it, and made requests to the federal reserve, but all to no avail. This week, however, an amendment to expedite the Credit CARD Act (giving it an effective date of December 1st) has passed the House of Representatives in a better-than-average bipartisan manner (only 53% of Republicans opposed it), and I’m hopeful for all of our sakes that a similar measure quickly passes in the Senate.

I read through the words in both versions, and found a few differences, which might make it take longer to work through Congress:

In the House

The House version (full text) makes an exception for depository institutions (banks) with fewer than two million credit cards in circulation. It also comes with various clarifications to make sure that the new law doesn’t apply to banks and creditors who haven’t punished their customers (many of whom continued to pay on time and remain in good standing) in advance of the new law.

It also includes new features starting at Section 6 which state that:

  • if you receive notice of a new fee, and you pay off your balance in full, or cancel your account, that won’t negatively impact your credit score
  • there will be a nine-month moratorium on rate increases with a start date of the enactment of the Credit CARD Act of 2009

If these amendments pass, the moratorium would start December 1, 2009, instead of nine months after the law was passed, on about February 22, 2010.

In the Senate

The Senate version (full text) includes no additional clarifications or amendments, only a date change to December 1.

Flexo and I don’t agree on everything (if everybody did, life sure would be boring), but we agree that Congress should pass each idea into law based on its own merits, and not bundle them together into a jumbled mess of unrelated ideas. In this case, if you want to expedite a law, then document the new date and move on. Now’s probably not the time to be adding new regulations.

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Spend Money to Save Money: Smart Power Meters

by Smithee on November 3, 2009

in Frugality

We all have power meters attached to the buildings in which we live, and the little needle keeps spinning around and around, ad nauseum, at least until solar panels become affordable. I recently read a story of a family who managed to install solar panels, and while that would normally have cost over $20,000, with various national and state rebate programs, they only spent $8,000.

Wow. Imagine having $8,000 to spend.

We’re customers of Green Mountain Energy here in Dallas, so our bill payments go toward producing more renewable energy (see the big bathtub analogy for more on how this works). But the hardware is operated by a company called Oncor, which has decided it’s time to upgrade our power meters to be smarter. Oncor worked through some calculations (Surcharge Analysis PDF) and figured that the best way to install them would be to charge the average customer $2.12. Every month. For eleven years.

That’s $291.72 for a new power meter.

Within the last month, a hundred grants were given out to companies making improvements to power meters. The company in our area was not one of them. So residents of DFW are likely stuck with the fee.

On their FAQ about the Advanced Meters, Oncor made this suggestion for dealing with the extra $2.12 per month:

How can you offset this fee? Just replace a 100W light bulb with an Energy Star CFL light bulb and you could save more than $2.30 a month.

That’s cute, and likely true, but I don’t believe we’re still using any of the old style bulbs at our house.

This entire scenario of being charged over an eleven-year period for something that won’t be available to everyone until 2012 would be supremely depressing, were it not for the fact that I’m a big data nerd. I love efficiency, and you can’t improve efficiency unless you know exactly what is being wasted. A smart meter will do that for me.

Google PowerMeterBut what’s depressing again is that I could have this right now, for only $200. The Energy Detective (TED) Series 5000 is a device that attaches to the power control panel on the inside of your house, rather than the outside. Other than that, it does all the same stuff: analyze your power usage in real-time, and over regular intervals, then adjust your behavior accordingly.

I’d be excited to get a TED set up in my house, then walk around unplugging one thing at a time, finding the major offenders, maybe put some devices on a schedule; or find out exactly how much we’d save by keeping the house, say, 2 degrees warmer. Those are just a couple of examples. For all I know, more energy is being wasted when two particular devices are running together for one hour than by running both separately for one hour each. Like I said, I’m a big data nerd.

I’d be very interested to hear your story of using a smart meter. Has anybody had the pleasure, yet?

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Hulu and the Subscription Model

by Smithee on October 27, 2009

in Consumer

This is an editorial by Smithee and a plea for your help in shaping the future of entertainment.

At our house, we enjoy some Hulu programming on occasion. Even though during the recent DVR years I’ve become accustomed to skipping commercials, I don’t mind them on Hulu, for these reasons:

  1. I’ve only seen one per commercial break
  2. They haven’t been suddenly, obnoxiously loud
  3. Hulu is free, and so advertising makes sense

And so far, there’s no ability to skip them. I can deal with that, because in an episode of, say, “Defying Gravity” on Hulu, there are five commercial breaks, for a total of five minutes of Lipitor commercials (at first, every episode would play five of the same Lipitor commercial, it was almost funny). I can accept five minutes. That means about 9.6% of a 43-minute show is an ad. That’s fine, so long as the service is free.

But that is going to change sometime in 2010. Hulu is owned by NewsCorp (who owns roughly half of everything), and they have decided:

It’s time to start getting paid for broadcast content online. I think a free model is a very difficult way to capture the value of our content. I think what we need to do is deliver that content to consumers in a way where they will appreciate the value. Hulu concurs with that, it needs to evolve to have a meaningful subscription model as part of its business

Anything more specific than this decision is just speculation: subscriptions for what, everything? premium channels only? groups of channels? Nobody knows.

What I propose is unacceptable is this: a subscription fee for any user, for any content, so long as the advertising remains part of the experience. In other words: unskippable ads are no problem, subscription fees for any content are no problem, but both together would be a problem.

You and I have a chance right now to help influence and inform Hulu’s decision to go forward with a subscription model, before we let ourselves get duped.

Sadly, we’ve been letting ourselves get duped for a long time.

Newspapers, Cable TV, mobile phones

Newspapers are filled with advertisements, and they also expect you to pay for each copy. The same is true of magazines. In fact you could argue that any fashion magazine is just one huge multi-part advertisement. So, I don’t read them. Oh, I look at the news online all the time, but between my banner-blindness and various browser plugins, it’s not often I see an advertisement.

TV is a different story. TV used to be just like radio: the good parts were ad-supported, and you also had a station that relied on member subscriptions. Cable messed that all up, and we were too busy with the colorful new channels to notice. A cable company would set up shop in your town and tell you all about the dozens of extra options you’d get for $X / month. We were totally psyched to get MTV and Nickelodeon at our house, but it didn’t occur to me until later than since the cable company replaced our over-the-air channels, we were now paying for something that used to be free. Thirteen free somethings, in fact (UHF was admittedly pretty empty).

There’s an argument that in the case of OTA / broadcast channels, what you’re paying the cable company for is consistent quality of signal. I’d be happy to see some proof of that, in the form of a cable company’s accounting spreadsheet. I’m sure that NBC is charging the cable companies regional monopolies a fee to include their programming, and cable is passing that cost on to the customer.

The mobile phone business model just depresses me whenever I think of it. Here’s how a phone worked since the time it was invented: if you called someone, you were expected to pay for it, but if someone called you, it was free. This makes total sense: the phone call recipient didn’t intend to have that conversation, he or she isn’t really responsible. Besides that, this seemed to work very well for decades, and phone companies never changed it. That is, until we were tooling around town with phones in our pockets and cars. Since it was new and fancy, providers decided to invent a different business model: you’d be paying for calls now whether you started it or not.

As far as I know, mobile phone companies have never had to justify this to their customers en masse.

AOL vs. World of Warcraft

Remember those CDs of AOL software? They were everywhere. It seemed like you’d get a new version in your mailbox every three months, especially if you weren’t even a customer. They were free, because AOL’s business model was a monthly fee for access, content, and software upgrades. And AOL did fine for a long time.

Everquest came along and messed that all up, charging both a monthly fee and an upfront fee for the software, and now WoW players suffer the same fate. You’re paying the company twice for the same things they were going to be doing anyway. What is wrong with us? Why do we enable companies to use more than one business model at a time?

Advertising is a replacement for subscriptions

And vice versa: subscriptions are a replacement for advertising. Advertising is one business model, and subscriptions are another. Employing both for the same product is unacceptable.

I’d like to ask for your help now in spreading this message to the managers at Hulu, so they understand the intelligent way to move forward is to either saddle us with a recurring fee and remove the commercials, or leave the commercials in an otherwise free service.

On Hulu’s discussion forum, there are already many threads decrying the decision to start charging. You could try adding your own voice there, or e-mailing feedback@hulu.com. Another less elegant method would be to add an irrelevant comment on one of the entries at the official Hulu blog. In my experience, site owners are more likely to read blog comments than they are discussion forums, but your mileage may vary.

Hulu’s Free Glory Days Are Official Numbered, John Herrman, Gizmodo, Oct. 22 2009

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Net Neutrality Simplified

by Smithee on October 23, 2009

in Consumer

Depending on how you get your news, the topic of network neutrality can seem boring, or confusing, or both. Possibly you haven’t yet heard about it, or you’ve already formed an opinion. The reports I see are too often complicated, lacking reasoned arguments and full of hyperbolic guesses as to what the future might hold. Not to mention that both supporters and critics say that their side is the one promoting “freedom”. I’ve read all the boringly-written PDFs about the FCC’s new guidelines for you, and here’s what it means.

Same as it is now

Enacting an official policy of network neutrality means that the Internet you use now will not change. Broadband providers have ideas about limiting access to some content for customers who don’t pay as much, or aren’t on their networks.

As the specific FCC guideline is written:

broadband providers cannot discriminate against particular Internet content or applications

Without Net Neutrality

For example, imagine if you needed to be a Verizon FiOS subscriber in order to access www.startrek.com. Star Trek fans who didn’t have FiOS would throw a fit (those same Star Trek fans might recall this actually happened on AOL many years ago). As an alternative, the owners of www.startrek.com work out a deal with the other big broadband companies and they say, “okay, fine, you can have access to it, but your broadband bill will be $5 more per month”. Meanwhile, FiOS subscribers aren’t paying $5 a month for the Web site. Sound fair?

Here’s another made-up example of a world without net neutrality: you have AT&T broadband at home, and a Sprint mobile phone through work. Your company uses Google Apps, but AT&T decides they don’t like Google, so you can’t get to your work e-mail from home. Does that sound like a good idea to you? If you’re against that idea, then you are in favor of net neutrality.

No reason for prices to change

The Internet was built by a bunch of nerdy scientists to be open and accessible to everyone. It isn’t free, because moving data requires paying people to do various jobs. At my house, we’re paying about $60 / month for some very fast Internet. Critics of net neutrality claim that “new rules” will force providers to raise prices. But remember, neutrality is what we have now, as it’s been regulated by the FCC in the past on a case-by-case basis, so there’s no logical reason to raise prices for anyone. Besides, $60 a month is almost highway robbery as it is.

Internet providers charge more for faster speeds, and less for slower speeds. Critics of neutrality want to invent new ways to charge people in addition to this one simple rule.

Regarding congestion and illegal activities

The FCC’s published guidelines (they’re just getting started writing the actual rules), make exceptions that give Internet providers the ability to manage network congestion and prevent illegal activities. So if you’re on cable, and you’ve got neighbors downloading (and uploading) 68 gigabytes of Star Trek movies, providers can find a way to stop your speeds from being negatively affected. The new rules do not prevent throttling, and they do not encourage illegal activities.

Avoiding an ugly fight

I’m speculating here, but ensuring network neutrality will also mean side-stepping huge Public Relations nightmares for broadband companies. I think a provider has the right to consider limiting access to certain content or applications, and I think it would be massively stupid of them to go through with it. Millions of people would be instantly enraged.

Back when you needed to be an AOL subscriber to access www.startrek.com, they got complaint after complaint, and it was less than a year before access was returned to everyone. Why would anyone want to go through with that again?

Preserving a Free and Open Internet, at the FCC’s OpenInternet.gov web site (which is accessible to everyone)

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Senator Dodd Going Ahead With Overdraft Legislation

by Smithee on October 20, 2009

in Banking

We told you last month about banks deciding to let customers opt out of overdraft fees, first announced by Bank of America and JP Morgan Chase, and then the next day by Wells Fargo (and Wachovia, which it owns).

These big banks made the changes very soon after lawmakers announced an intention to try to regulate the extent to which customers are punished for spending money they don’t have.

Here’s a summary of the changes already made:

Opt out? Max daily
overdrafts		 Balance to trigger
overdraft fee
Bank of America Yes 4 -$10 *
Chase Yes 3 -$5
Wells Fargo Yes 4 -$5

* Fee will also be charged for overdrafts maintained longer than 5 days, regardless of balance.

Not satisfied, Senator Chris Dodd is still pursuing a new law that will enforce some limits on all banks.

Proposed legislation

The law introduced yesterday aims to prevent:

  • more than one overdraft fee per month;
  • more than six overdraft fees per year;
  • fees that are more expensive than the cost of processing an overdraft;
  • banks from manipulating the order in which they post transactions in order to rack up extra fees;
  • fees if an overdraft is due solely to a bank hold, such as the hold placed on funds when reserving a hotel, if the hold is greater than the actual amount of the transaction; and,
  • enabling overdraft protection on customers who don’t explicitly sign up for it.

3455410819_aed2a1b3ccIn addition, automated bank systems (SMS, e-mail, etc.), ATMs and bank tellers would be obligated to warn a customer if they were in danger of going negative (presumably with the current transaction), and be given the option to avoid that result.

Analysis

Opt-in

I am all in favor of “opt-in”. I want opt-in everything, but as we saw when Windows Vista was new, it’s maddening to be asked for your permission after initiating every single activity. Some things are perfectly innocent and should be opt-out instead. Frankly, I find it thrilling that for the first time, customers can opt out of overdraft fees. Apparently, it took the threat of new legislation to prod banks into introducing this, so sure, let’s make it all consistent.

Fee instances per year, and per month

One overdraft fee per month and six per year seems arbitrary to me. If I had to guess, I’d say this is related to the fact that banks stand to earn over $38 billion this year on overdraft fees, and they weren’t in danger of losing anywhere near that much from accounts which went negative and then stayed that way.

But I’m enough of a capitalist to admit that it seems wrong to limit profits just because it can be done, which this seems to smack of. When the full text of the bill is available, I’ll try to find more about where these numbers came from.

Fees more expensive than the cost of processing

To be sure, it’s part of a bank’s operation to process an overdraft, deal with a negative account, and pay the salaries of people who write the software and maintain the literal and figurative machinery.

But as was explained to me while working the phones at Bank of America, part of the fee is also meant to dissuade the customer from going negative, and failing that, to encourage the customer to bank elsewhere. Clearly, the fees are adding up to lavish profits at the expense of probably-well-meaning customers. In my opinion, it’s simply not right to profit because someone else fails, especially when that someone is your customer.

Manipulating the order of posting items to create extra fees

This should be obvious as a disgusting practice performed by a heartless behemoth of a corporation.

Overdraft fees because of a bank hold

This also seems like common sense. If a hotel has reduced your available balance by $250 when you’re only going to be paying $110, it’s unreasonably for the bank to punish you for being overdrawn. You had no intention of spending more than you have.

The same is true if there’s a hold placed on a deposit. I’m sure the vast majority of deposits that have holds placed on them end up being legitimate, probably at least 98%. A check made out to you isn’t the same as cash, but why not give your customers the benefit of the doubt, or at least avoid punishing them when you don’t and you end up being wrong?

Warning customers who are in danger of going negative

This just seems like excellent customer service. If a bank truly finds it inconvenient to process overdraft fees, they’d all be doing this today.

Sources

Dodd Introduces Legislation to Curtail Overdraft Fees, Jeff Plungis, Bloomberg, Oct. 19, 2009
Dodd Unveils Bill to Protect Customers From Abusive Checking Account Overdraft Fees, Sen. Dodd’s Official Web site, Oct. 19, 2009
Photo Credit: Tom T

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