File your taxes FREE! (but not for long...)

 

Norene and I just recently e-filed our tax return for 2018 and we did it with the free tax preparation software available at IRS.gov.  It was... not too bad, all things considered and it cost us nothing to fill-in and file, a far cry from many of the other 'free' tax-prep offers you see on the web and in your inbox.

Most of those other 'free' offers have a hidden list of qualifications: your total income must be less than x; you may not itemize deductions; schedule A and several other forms are not 'free'; and the list goes on and on.  You spend several hours doing data-entry before the software tells you that you don't qualify for the free e-file option and it will cost $39.95 or $69.95 or $89.95 if, having done all that work, you still wish to e-file and, in many cases, even print your return.

The free tax-prep software at IRS.gov was actually free, but it may not be that way for very long.  The House Ways and Means committee has just sent the "Taxpayers First Act" to the full House for action.  The name, as you might suspect, is another of Congress' bald-faced lies.  It really ought to have been named the "Screw The Taxpayers First Act".  If it passes the House and the Senate, expect Trump to sign it into law.  It will then become illegal for the IRS to provide free tax-filing software.

Illegal.  H&R Block, TurboTax, and several other similar companies like this bill, because after it passes (and it will), you will have little choice but to fork over $39.95 or $69.95 or $89.95 if you want to e-file.

Of course, you could just 'go through the motions', then hand-copy the numbers onto paper forms, carefully, carefully, not making any mistakes, slip the forms into an envelope, and mail them.  You'll have your refund in three weeks or five weeks or eight weeks instead of five days — until TaxAct and TurboTax and H&R Block fix their software to only show you how much you owe or how much you're getting back, and you'll only see the real 1040 after you fork over $39.95 or $69.95 or $89.95.  I predict that will happen immediately upon passage of the "Screw The Taxpayers First Act".

...as if the income tax itself wasn't outrage enough.

To read a more nuanced take on this, go here.

 

Tariffs Are Taxes

 

The headline (on CNN) reads "US threatens tariffs on $11 billion of European goods over Airbus subsidies".  You can almost hear poorly-educated American viewers cheering and imagine them fist-bumping each other.  Yeah, man, we'll make those Europeans sorry for unfairly competing!

It pains me — almost pains me — to have to tell these good people that the only ones 'paying' will be Americans.

Did I just see your eyebrow lift?  Are you skeptical that Americans will pay for this?  Perhaps you don't understand how tariffs work.  Lemme 'splain dis to dju, Lucy.

In the first place, European governments subsidize Airbus so that Airbus can sell its product at a slightly reduced price — below the price their cost structure would normally dictate — and not just to us...  to everyone.  The money for that subsidy came from European taxpayers.  The EU is taxing their own people so that Airbus can sell us (and everyone else) cut-rate aircraft.

The effect of that is that Airbus planes become slightly more attractive because of their lower price tag, and Boeing aircraft consequently become slightly less attractive.  Those beasts!

To equalize this situation (heh heh heh) the U.S. government levies a tariff on Airbus aircraft.  The tariff jacks the price of Airbus product back to where it would normally be (or perhaps a little higher) for potential buyers, thereby removing the price advantage and making Boeing more financially attractive again.  Understand, that tariff is paid by whoever buys an Airbus aircraft: United, Delta, Continental — domestic airlines — and the tariff gets passed along in the ticket price to... why, to you!  It's almost like the U.S. government taxed you for flying on an Airbus plane!

So, now everyone who had bookkeeping in high school is whipping out paper and pencil and drawing T-accounts to make sense of all this.

• France taxes French taxpayers and gives the money to Airbus
• Airbus offers low-price airplanes to U.S. airline operators
• any airline operator who buy a low-price Airbus also pays a penalty — to the U.S. government
• the American consumer pays the penalty via ticket prices artificially boosted by the tariff
• any airline operator who buys a Boeing product instead also has to boost ticket prices because of Boeing's higher price

Who wins in this little game of three-card monte?  Airbus and Boeing and the U.S. government, of course.  You didn't actually think it was going to be you, did you?

You can thank CNN later for not bursting your bubble.  I'll take the blame for that.

 

Rhapsody in Blue — Remembering Audrey

 

I first heard Gershwin's 'Rhapsody in Blue' at Lewisohn Stadium in the Bronx.  I was an early-teen or possibly a pre-teen.  My sister, Audrey, was, I think, at the time a student at Hunter College.  She had scored a pair of tickets — student discount, no doubt — to a concert featuring 'Rhapsody in Blue' and 'An American in Paris', to this day my favorites of Gershwin's work.

Why she asked me to come along remains a mystery.  It never occurred to me until just recently that I was an unusual choice for a date, and Audrey can no longer explain her motives.  Perhaps Carmine Rispoli was otherwise occupied.

Lewisohn Stadium no longer exists.  It occupied the space (according to Wikipedia) from 136th street to 138th street between Amsterdam and Convent avenues.  We likely took the subway to the 137th street (City College) station and walked the few blocks to the stadium from there.  At a distance of 60+ years I can no longer recall the fine details.

What I can recall is being enthralled by music more beautiful and moving than anything in the classical repertoire.  'An American In Paris', in particular, perfectly described that beautiful city that I wouldn't see with my own eyes for another forty years.  To this day I can never envision Paris without Gershwin.

How odd that it's only now that I realize how much I miss my sister.

 

What if Social Security...?

 

There's lots of nonsense out on FaceBook and other social media sites about Social Security.  "I paid into this my whole life!" someone will pout;  "Where's all my money?" and it's followed by claims that SS is old-age insurance or that there's a separate account in each person's name.

None of that is true.

From the very start of the program, SS was a two-pronged piece of legislation.  The first piece was a tax plan whereby every wage earner would be taxed some small amount and their employer would be taxed the same amount.  This tax money (FICA) went into the General Fund from day-1.  There was never a 'separate account', but the Social Security Administration did keep a record of how much was taken and the earnings the tax was based on.  You can still get from SSA a list of how much you earned (that was taxed) from the day you started work.  Mine goes back to 1962.

The other part of that legislation was a welfare plan under which certain persons would be paid money based on certain qualifications: how much you had earned, your age, your health conditions, and a few others.  Under this plan, people who had never worked a day in their life (for wages) still got SS 'benefits'.  If there had been those mythical 'separate accounts', their balance would have been zero.  As a matter of fact, everyone's balance is zero.  You have no contractual right to SS benefits even today.

But listening to various people carp about how unfair the system is got me to thinking about how things might have been had those politicians in the 30s really been looking out for the welfare of the people.  Try this on for size:

Suppose the SS law had been cast something like this:

1. Every wage earner must escrow with a trustee of their choosing not less than __% of their gross taxable wages.
2. Funds so escrowed may not be withdrawn before age ___, except as provided by law.
3. This account is the property of the wage earner and heirs.

As of right now, when you die, your SS benefits die with you (except for your spouse).  Your children and grandchildren do not inherit your benefits, but the scheme above makes your SS account truly yours as many people think (wrongly) is the case now.

There's something else.  There would be other changes that are harder to predict.

For one thing, all that money taken as taxes was used to fund the Social Security Administration, and none of that money would have been needed because there wouldn't have been a SSA.  Our federal spending would have been noticeably lower, our national debt would have been lower, the inflation rate would have been lower, and the general health of the economy would have been higher, not simply because of lower federal spending, but because all that money in individual investment accounts would have been used to fuel the private sector rather than being wasted on the bureaucracy.

The Dow-Jones which now stands at 25,000-something might have been much higher, and the dividends from a more robust economy would have been reflected in higher interest rates paid on your retirement account.  What effect would that have had?  Hard to tell, but I ran a little spreadsheet on my numbers — which were not exceptional — and at 8% of FICA earnings (not including the amount my employers were taxed) accumulated at 6% interest, I would have had almost $400K at retirement age.  In the hands of a savvy investor, that might have been substantially higher.  If that 8% were bumped up to 15% to account for the employer's portion, my balance at age-65 approaches $750K.  That's a substantial nest egg, no?

Beyond that, I'm guessing that those numbers would have been substantially higher given my actual experience with 401k savings accounts.  What little time I did have to pour money into a 401k still provided a nice pile that SS would otherwise not have provided, and that 401k is mine to do with as I please and to pass along to my children when I don't need it anymore.

Yes, indeed, FDR's Congress surely did not do us any favors writing the SS law the way they did, but that probably wasn't their intent in any case.

Regardless, the law is what the law is.  No, you do not have your own personal SS account with a pile of money squirreled away for your retirement.  Stop complaining.

 

The Rule of 72

 

I read an interesting article today on the growth being shown by various economies and it contained this quote:

Concern about Chinese debt is not unwarranted, but with GDP rising by 6% per annum, its economy will be 80% larger in a decade, whilst India’s, growing at 7%, will have doubled.

and this made me recall "The Rule Of 72".  The rule is a handy yardstick used by financiers to quickly estimate the time it will take to double or halve an amount based on an interest rate.  It's very simple, really.  It works like this:

Say you have $1000 and you invest it or bank it at a cyclic interest rate of 6%.  At the end of the first cycle, you will have $1,060. After the second, $1,123.60, with the increase accelerating each cycle due to compounding.  At the end of the 12th cycle, your balance will be $2,012.20, approximately double your original investment, and 6 x 12 = 72.  As to the quote above, the balance at the end of cycle-10 is $1,790.85, about an 80% increase.

Another example: the interest rate is 3%.  After cycle-1, your balance is $1,030, then $1,060.90 (almost 6%).  By the end of cycle-23, you're at $1,973.59, and after cycle-24, it's $2,032.79, so 23-1/2 cycles give or take — call it 24, and 3 x 24 = 72.

As you can see, it's not exactly exact, but it's pretty close for use as a first approximation.  So, someone offering you a 4% rate is offering to double your money in (72 / 4 =) 18 cycles.  India's growth rate (according to the quote) will double its present size in (72 / 7 =) 10.3 cycles.

'72' is a handy number.

 

Brexit and Ireland

 

With Brexit barely a month away, some Americans may still be scratching their heads.  What's all the fuss?

I have to admit to some confusion myself.  My particular confusion arises over the phrase 'hard border'.  At present, both the UK and the Republic of Ireland (hereafter just 'Ireland') are members of the EU, which means that goods may transit freely between Northern Ireland and Ireland.  Post-Brexit, Northern Ireland will not be part of the EU (even though NI voted to remain — the rest of UK voted otherwise) and if there is not a hard border, goods from outside EU will easily flow into Ireland.  The EU is apparently upset over this and is demanding that Ireland and UK fix this.

Now, the border between Ireland and NI is about 160 miles long and there are hundreds of places where people cross willy-nilly all the time.  'Fixing' this means halting the free passage of people back and forth between NI and Ireland.  This is not going to go down easily.  When the two Irelands were plagued by "the troubles", it took a very large contingent of the UK military to police the border, and they were far from effective.

The alternative is to make the Irish Sea the 'hard border' and let NI continue as if they were part of the EU.  I'm thinking that if that's the solution that's settled on, it won't be too very long before Irishmen on both sides of their soft border start thinking it may be time to do what East Germany and West Germany did.

How do you say "wiedervereinigung" in Gaelic?  Athaontú, perhaps?  One can only hope...

 

Recalling Tourist Homes

 

When I was young, my parents, probably in an effort to instill some geographic and historical wisdom (my brother Jerry adds 'around a vivid, touchable place') into their children, took us all on an annual road trip for our vacation.  Before I was in high school, I had been to Cape Cod, the upper Hudson Valley (Saratoga, Lake Placid, Saranac Lake, Lake George, Fort Ticonderoga) and central New York (Corning Glass Works), Niagara Falls, Montreal and Quebec for the Shrine Church of Ste-Anne de Beaupré, Detroit to watch Ford automobiles being constructed on an assembly line, and Colonial Williamsburg.  My Aunt Alice once remarked that I had been to more places in a half-dozen years than she had been in her entire life.

To fund these trips, my father would take a loan from a bank or Beneficial Finance or Household Finance or something similar.  The loan would be for what we now think of as 'a small amount', $500 or $600, but which was then quite a pile of loot.  (Recall that gasoline in those days was 29 cents per gallon and nobody cared that cars only got 12 miles per gallon.  That's only 4½ cents per mile.)  The loan was methodically repaid over the course of the next year so that those lenders were happy to see Dad when he needed his next vacation loan.

Of course traveling as a family meant we needed to be frugal about how that money was spent, and that generally meant our overnight lodgings would be in 'tourist homes'.  Such things are rare-to-nonexistent these days, probably because our over-regulated society makes them administratively infeasible.  A tourist home is exactly what the name implies:  someone with a large house rents rooms to travelers for short-term stays, typically a single night but occasionally for longer stays.  The price was always 'peanuts' — a few dollars at most — for which you got a clean, comfortable bed and a place to wash up before hitting the road again in the morning.  Breakfast was rarely, if ever, included, but there was always a diner just down the road.  While we travelers were barreling toward our next stop, some tourist home owner was doing laundry, making beds, spiffing up the bathrooms, and restocking them with fresh towels and cute little bars of soap, getting everything ready for the next arrivals.  I don't think we ever made reservations.  For one thing, there wasn't any such thing as a national directory of tourist homes.  We just rolled into town and looked for signs saying "Tourist Home — Vacancy", or we asked the waitress at the local restaurant.  My brother, Jerry, adds parenthetically that the more modern tourist homes had their 'vacancy' sign in neon.

Before there were Holiday Inns, before there were Motel 6s, there were only Howard Johnsons'... and tourist homes.

I do recall that the omnipresent AAA Trip-tik was our guide to getting wherever we were headed, and in those days the ring-bound custom-made planner also had pages for keeping track of trip expenses: gas, food, lodging, and entertainment.  My mother kept meticulous records of everything in that regard.

These trips took place (for me, at least) in the late-40s to mid-50s, before there were interstate highways.  The routes were always US highways and secondary roads that bisected every major city and town along the route.  When the Interstate Highway System began in the late 50s, it doomed the small-town mom-and-pop tourist home industry, not least because major highways now bypassed most of those cities and towns.