Hope and Change: A Story

Hope was a pragmatic young lady who knew the importance of planning ahead. On her 18th birthday, she decided to start saving for retirement. Being a college student, she didn’t have much money to save, but she wanted to start with something.

A local bank had a plan that was perfect for Hope. She would get a fairly moderate 5.1% interest rate on her savings, provided she follow one rule: she must save some money every day, even if it was as little as one cent.

Hope started off saving five cents per day. She followed this plan until her 21st birthday, when she increased her savings to ten cents per day.

By her 25th birthday, she was enjoying a few years of full-time work, and raised her daily savings to 25 cents per day.

Turning 29, with her career taking shape, she increased her daily savings to 50 cents per day, and continued to save that amount each day until her 67th birthday.

On her 67th birthday, Hope went to the bank to see how she had done. Over the years, she had saved just over $7,500 — yet never took more than 50 cents out of her pocket. In her retirement account was much more than that: over $25,000 — more than three times what she had saved.

Sure, no one can retire on $25,000, but everyone can save as little as 50 cents per day. What if Hope was more aggressive in her savings? What if she had saved $1 every day for her entire adult life in the same retirement account (with its 5.1% interest)? Continue reading

Why I won’t support Mike McMahon for Congress

I just received the following in an email from the campaign of Michael McMahon for Congress:

Dear Friends:

I write to ask for your support in my campaign for the U.S. House of Representatives for New York’s 13th Congressional District, which includes all of Staten Island and a portion of Brooklyn. I graduated from Farrell in 1975, and with your support we can make sure that this Congressional seat stays a Lion seat in 2008!

Mike McMahon and I went to the same high school (he graduated 13 years before me). Yes, I’ve seen his name emblazoned on signs throughout my neighborhood and others in this election season. Not knowing much else about him, I decided to go to his web site, MikeMcMahonForCongress.com, to find out.

A lot of it was political fluff, and nothing shook me good or bad, until I got to the Michael on Social Security page, which says:

Since its creation in 1935, Social Security has been the single most successful domestic program that our government has ever run…

Replacing our current Social Security system with privatized investment accounts is simply unacceptable, and I strongly oppose it.

That’s all it took to convince me not to support Mike McMahon. Why? Well, I wrote him a letter about it, and I share it with you below.

Continue reading

A financial look at windfall profits and oil companies

Unless you’ve been living under a rock, you’ve heard about U.S. political leaders calling for a windfall profits tax on oil companies. Apparently, these oil conglomerates, like ExxonMobil, are making too much money, and the government should take more of it than they already do to use as they wish.

Are oil companies, like ExxonMobil, making obscene amounts of money at the expense of the American taxpayer? To determine the answer to that question, you have to do some research.

Let’s take two hypothetical companies — one we’ll call XOM, and the other we’ll call GOOG — and compare their hypothetical financials. However, XOM is a much larger company than GOOG — about 25 times larger. So, instead of comparing actual numbers, we’ll normalize them. (That’s a fancy way to say we’ll adjust the numbers as if both companies were the same size.)
Continue reading

Is it time for a national sales tax?

I just received the following in an e-mail from NewEgg:

As a result of recent changes in the State of New York Tax Law requiring certain out-of-state retailers to collect and remit sales taxes to the State of New York, we regrettably inform you that Newegg.com must begin collecting applicable state and local sales tax for all orders shipped to New York addresses on or after June 1, 2008.

There’s a good reason why businesses don’t charge sales tax to purchasers who are out-of-state, and the reason can be found on Wikipedia‘s Sales taxes in the United States page (bold text added):

Note: Taxes change, are added or eliminated frequently, so this article is prone to being out of date. If so, please change the page accordingly and cite a source if possible. There are private entities that distribute updates weekly regarding the rules in 11,000 different tax jurisdictions in the U.S.

New York State itself has 81 different sales tax jurisdictions (see this PDF). Complying with hundreds (if not thousands) of local sales tax laws is a huge burden that will have two effects, one direct and one indirect:

  • retailers will incur additional administrative charges in order to comply with all the different tax laws;
  • consumers will pay higher prices as retailers charge more for their products.

Perhaps it’s time for a national sales tax to replace the state/local sales tax rates, giving retailers the ability to streamline operations. After all, isn’t the purpose of government to facilitate commerce, not impede in it? (There are many sensible tax reforms which government chooses to ignore. You can read about them at the Cato Institute‘s Budget and Tax Policy research area.)

Of course, this (or any other tax reform) will likely never happen, because taxing people (and spending their money) is what government power is all about. I’d bet the house that you’ll see a national sales tax on top of existing sales taxes and income taxes before you see tax law getting simpleer.

After all, taking (and spending) your money is what government is all about.

Two-fifths good, three-fifths bad: Doublespeak, Radiohead, and Statistics

In October 2007, Radiohead released their latest album as a free digital download, giving consumers the choice to send money for it (i.e. they don’t have to, but they can if they want).

A month later, the news reports are negative: three out of five people did not pay for the album.

Wait a minute! I’d say this is good news. A free product was made available to people, and two out of five decided to pay for it anyway!

Compare this to Wikipedia, which claims on their web site that 19,163 people have donated to their cause. Considering they have 5,775,882 registered users and are, according to Alexa, the eighth most popular web site in the world, responsible for 8% of the world’s web traffic.

When 38% pay for a Radiohead album and one in 300 registered users (or an estimated in 6,000 total visitors) pay for Wikipedia, I’d say Radiohead is the clear winner.

Lies, damn lies, and statistics. I still say Radiohead’s experiment shows that it has potential as a viable business model.