tax


The WordPress.com stats helper monkeys prepared a 2012 annual report for this blog.

Here’s an excerpt:

19,000 people fit into the new Barclays Center to see Jay-Z perform. This blog was viewed about 77,000 times in 2012. If it were a concert at the Barclays Center, it would take about 4 sold-out performances for that many people to see it.

Click here to see the complete report.

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Anyone reading through the list of bribes attached to the bailout bill passed last week eventually runs across this entry, and is utterly confused.

Excise Tax Exemption for Wooden Practice Arrows Used by Children. Current law imposes an excise tax of 39 cents, adjusted for inflation, on the first sale by the manufacturer, producer, or importer of any shaft of a type used to produce certain types of arrows. This proposal would exempt from the excise tax any shaft consisting of all natural wood with no laminations or artificial means to enhance the spine of the shaft used in the manufacture of an arrow that measures 5/16 of an inch or less and is unsuited for use with a bow with a peak draw weight of 30 pounds or more. The proposal is effective for shafts first sold after the date of enactment. The estimated cost of the proposal is $2 million over ten years.

I took it upon myself, being fond of archery, to look into this as a service to our loyal readers, and hopefully find something that made this make more sense.

Fortunately, there were a number of other sites more devoted to the topic, and with longer, more detailed write-ups of the issues, so here’s the summary:

In 1900, the Lacey Act helped return hunting to a for-sport hobby or for-food necessity, rather than a for-profit cash-crop mega-harvest that it had been, and the remaining hunters have had a key interest in proper wildlife management.

In 1937 the “Federal Aid in Wildlife Restoration” program (referred to as the Pittman-Robertson program) was enacted and signed by FDR. This enacted that fish and hunting license fees would be used only for wildlife management and for hunting safety and training (such as setting up state-run shooting ranges).

In 1969-1972, in quick succession, an excise tax was imposed on hunting arms and ammunition as well as hunting archery equipment. This was mostly spearheaded by a prominent archery manufacturer and conservationist, Fred Bear. The archery tax was intended to be split 50/50 between the state for wildlife preservation and archery clubs for setting up instruction and shooting facilities — to help encourage the hobby. Because of a bit of politicking, the money for the archery facilities was never released, and all of it was kept by the governmental departments.

In 1997 collection this tax was moved from being at the point of retail sale (that is, at every mom & pop archery store — which was a serious headache) to further back up the supply chain at the manufacturer. Arrows, for various reasons, have to fit the individual archer and bow, and so are best assembled and finished at the point-of-sale. This tax change encouraged the continuance of point-of-sale arrow finishing.
But this specified that the tax on arrows would be on arrow components, not on finished arrows. This opened a loophole in that imported finished arrows did not have the tax assessed on them.

From 1997-2002, domestic arrow manufacturers increasingly lost market share to importers because of the unlevel playing field. ($.43M, $1.6M, $3.2M, $7.8M, $11.0M)

In 2003 the loophole was closed by taxing the first-sale of completed arrows regardless of where they are manufactured.

This eventually resulted in a $.43 tax per arrow. (Real arrows tend to cost between $5 and $10, so $.43 isn’t a huge deal.)

However, children’s practice arrows can be very cheap, even into the $.36/arrow range. This means the excise tax for these arrows is 120%! This priced archery as an activity out of the range of most youth programs when the price for the core expendable more than doubled.

Starting in 2005, a wooden arrow manufacturer in Oregon (Rose City Archery), whose business orders from youth programs had died off 40% that year, began lobbying for an exception to this tax for youth arrows. (Note: I’m not entirely sure where Rose City was getting their numbers (quoted from the link above) from here, since even their cheapest kids’ wooden arrows are $39/dozen = $3.25 per arrow ($2 per arrow for do-it-yourself), of which tax would be around 13%, still not ridiculous)

In 2008, this bill that didn’t have the weight behind it to get passed on its own, and it just sat around waiting for the right spending free-for-all to get attached to before it could pass. And now, voila! Youth archery is blooming abundantly this week and upwards of four (yep, just 4) U.S. manufacturers of wooden arrows are back in the cheap wooden arrow business! The economy is saved!

Verdict:
Overall, I didn’t know that hunting licenses and taxes paid for so much of the state fish & wildlife budgets. This seems proper that people benefiting should pay most of the cost.

I began thinking that the wooden arrow thing actually made -more- sense because it was correcting a fault in the tax code, and the new version would encourage youth archery, and lead to more adult archery, resulting in higher tax revenue amounts (not least of all because adult archery equipment is expensive). However, aluminum arrows were invented in 1939, and carbon arrows invented in 1983, wooden arrows are only used by “purists” and historical reenacters. Most real youth archery programs use aluminum or carbon arrows, and aren’t affected by this change.

I conclude that this is just another piece of pork for congresscritters from woody states, and won’t really have any affect at all on archery in America, except to draw a bit of attention to it from all the chatter about how ridiculous this tax exception is, especially compared to the actual matter at hand that it was tacked onto.

-AI

Having some experience in the credit card collections and recovery business, I thought it might be time to address the collections business. Most of the impetus for this comes from reading comments on the Tax Collections grabs by the State of Virginia. Apparently the post hit a nerve with people who lived in or were associated with the State of Virginia. Collections agencies are, for the most part, douchebags.

[Overheard conversation in a collections department]
Collector: You owe us $5,450.00. You are delinquent 90 days. We need to see some cash.
Consumer: Yes, but my mother just died, and I have to pay her funeral bill.
Collector: Did your mother have a car?
Consumer: Yes, Why?
Collector: Well then. Sell the car and send the money to us.

Once your account goes into collections there are consequences. Collections becomes a derogatory event or “derog” in the parlance of the industry. Derogs on your file incease your card interest rate; make it difficult to borrow money for houses, cars, and those sundries of life; and will remain there for as long as the file exists — essentially forever or until the sun novas.

It’s even worse now. The card issuers have all pretty much adopted “dynamic risk based pricing”. The classic underwriting process was to pull a set of credit scores based on some criteria, send some mail, repull the scores after you responded to the offer, and then assign a fixed price — interest rate — based on the score. This is the “as low as…” offer. Now however, scores are routinely monitored. Your 11% card rate may be raised to 22% on the basis of a missed payment on another account not even related to your issuing bank — say you missed a payment on your car loan. This just illustrates the importance of your credit history.


A brief diversion here. While scores and your credit file are important, and you should review them periodically, there is no need to sucumb to the fear tactics that marketing groups practice with their catchy pirate and ice tea commercials, identity theft horror stories, and peace of mind come-ons.

When you apply for a loan, the originating loan officer will check your credit score. To do so however, he will need your permission and you will have to sign something. If this occurs, simply say that “I wish to see and review the information which you are using to approve my loan.” If you ask to see the information, they are required by law to show it to you. Same thing if a credit report is pulled when leasing an apartment. Ask to see the report. Same thing for any “instant” credit approvals.

If you aren’t involved in transactions like this, you can go to the FreeCreditReport.com or other like sites and actually get your reports. Just click NO on all the offers they attempt to sign you up for, no matter how enticing they sound. The FACTA law requires that they provide this to you free. (They use the opportunity to scare you into signing up for crap you don’t need.) Note that they ARE NOT required by law to provide your FICO score and for that they make you pay. If you want to see your FICO score, you can get this by reading your file when you apply for a loan — they do provide the scores to merchants and underwriters; pay to see it; or estimate it using an on-line calculator.


The problem with the free credit report nonsense is that they offer no assistance when you really need it, i.e., you have a derog on your file and can’t get rid of it. There are three, really four, credit bureaus (data accumulators) in the United States. Currently these are Experian, Trans-Union, Equifax, and Innovis. I say currently because they get absorbed, changed and renamed periodically. Traditionally, each bureau had a geographic concentration and you could obtain better data from the one in your region. That has largely gone by the wayside.

The important thing to remember is that a credit bureau is an aggregator of information and does not source or generate the information. Issuing banks and other loan underwriters send information on you to these bureaus. Why do they do this? It’s essentially blackmail. If banks don’t report to them, they can’t use their services, i.e., banks and credit issuers can’t do “pulls” to obtain a marketing list. The reporting process occurs fairly automatically. Underwriters generate reporting files on their book, including delinquencies, payments, and other evaluatory data. These files have specific formats for each bureau — for example, Trans-Union uses the TU-4 format, Equifax the Metro-2 format which was standardized by the Consumer Data Industry Association (CDIA). These files are cut to tape and shipped or just secure FTP’d to the bureaus.

So if you have a derog on your file which you believe to be invalid, it doesn’t do much good to bitch to the bureaus. If a bureau manually deletes your derog, the next monthly update will restore it. So you have to go to the source to get the problem fixed. Because of the persistance of data in the bureau files, the government has implemented some procedures to protect citizens. If you believe that your file is in error, you can file a dispute. Disputes appear simply as a note on the derog that indicates that the consumer has disputed the item’s validity. The item still remains on the file. Dispute procedures are available on all the major bureau sites. Disputes are added by running a dispute file against the master file after it has been updated. If the derog is not valid, file disputes with all three bureaus in order to document and support your position as soon as possible.

So let’s say that a merchant believes incorrectly that you owe him money. He will try to collect it himself if at all possible, and if he has the wherewithall to do so — that is to say a dedicated group of collections people. If he can’t, then he will engage a collection agency to either collect on his behalf or sell the account at a steep discount to an agency, which will then attempt to collect. An attorney or agency will generally collect for 50 cents on the dollar. Third party sale of bad paper goes for as little as 10 cents on the dollar. Clearly, if a merchant can collect, then it is to his financial benefit. Here is the catch: as many as 60% of the people that go delinquent and reach charge-off status are not locatable. They have moved and not left a forwarding address and disappeared. These are called “skips”. In a group of accounts, the skips are filtered out and placed in collection agencies almost immediately. It takes a lot of time and energy to resolve these cases and identify a new contact channel with the consumer. If initial attempts to resolve the skips fail, then the paper is usually identified for sale at a discount. (As another aside — it is getting more and more difficult to completely skip with the prevalence of databases and on-line activities. They WILL find you eventually.) The reason I mention this at all is that once the account has been sold, then access to the merchant who originally placed the report is limited. The merchant may have even purged the account completely. Getting to the source is the fastest way to correct bad information on your bureau file.

The way to get started is to utilize a system which was developed collaboratively by the four mentioned credit bureaus called e-OSCAR. This is the Online Solution for Complete and Accurate Reporting. It allows you to pursue corrections to your file and hit all four bureaus simultaneously. Since all reported data has a source identifier, e-OSCAR allows queries to be issued to the data source. In addition, since it is real-time, updates to the bureau files can be made independently of the source reporting cycle.

This simplifies the process, but you still have to have supporting data to make your case. Just wishing the derog will go away seldom works. If you are dealing with a collections agency, remember that they don’t source the data. Your position has to be that the source data was incorrect and the file is invalid — through, of course, no fault of your own. The real threat you want to convey here is that dealing with you is going to consume so much time and energy that it won’t be worth the miniscule amount they might collect. If you are aware of the system and how it works, they are less free to intimidate you. It’s also a good thing to attempt to find out whether they are working the account on behalf of the merchant or whether they have purchased the paper. This fact affects how they will behave in response to your inquiries.

To that end, the Fair Debt Collection Practices Act sets some limitations on collections agencies and what they may or may not do. For those who can’t read Congressionalese, other sites are available to translate. To mention a couple, if you tell them that the account is disputed — remember me mentioning that you should dispute the derog — then they cannot legally continute to attempt to collect. Additionally, they can only collect during reasonable times. If they call you after 9:00 PM local time, then the call is illegal. Ask for and obtain the name of the collector, the supervisor and the name of the agency. (You should also keep all correspondence with a collections agency.) Many collections agencies, in their letters or calls, do not give out telephone numbers or addresses. This makes it difficult to contact them — which is exactly what they want. They want to be the one doing the harrassing.

Ask them for their NCRA subscriber code. This can be backtracked via a bureau to a contact. Find out where they are located. Then contact the state and obtain the contact information from the business license. Much of this is online. The object here is to identify a person, preferrably a company officer or manager with which you can have a conversation. The object of the conversation is to identify contacts at the merchant with which you may continue the conversation. The ultimate objective is to get the merchant who sourced the derog to approve its deletion. (e-OSCAR will email the source requesting approval of the purge.) Once approved, e-OSCAR updates all of the bureaus and you are clear.

You should of course verify that the derog has been cleared and continue to check for several months to insure that all of the source files have been purged. Backup files restored for whatever reason at an agency may have old reporting data and the derog may magically reappear. Vigilence is necessary.

So in recap:

  1. Monitor your credit data
  2. File a dispute with all bureaus on an invalid item immediately
  3. Register with e-OSCAR to work the dispute
  4. Identify the reporting source, obtain the address and contact information
  5. Contact the reporting source and advocate approval for the e-OSCAR purge
  6. Check afterwards to insure that the derog does not reappear


In the above I have tacitly assumed that the derog was in fact, invalid. If the item is valid and the result of a slip of some kind on the part of the reader, you can still use this procedure. Your goal is to negotiate with the collections agency or with the merchant. The best strategy is to identify whether they are collecting on behalf of the merchant, or on paper they have purchased. Knowing the percentages, you know what they paid for the right to collect and what they expect to collect. You can offer some partial payment in consideration of approving the e-OSCAR item purge. Remember to discuss this only with the manager or officer. The collections agents manning the telephones are paid incentives on the amount they collect and have no reason to work with you. You are more likely to get the kind of discussion overheard at the start of this post.

On April 15th this year, Angry Overeducated Catholic posted on a subject dear to all of us (on April 15th at least): the Income Tax. By way of some simple math (actually simpler than that needed to complete a 2007 Schedule D), a flat tax with a single or at most two rates, and sufficiently high exclusions, becomes progressive in the “traditional Democratic sense.” My subsequent post explored some considerations involving the taxation of capital gains, for which, I might point out, AOC’s methodology would also provide an acceptable solution. Angry New Mexican in his comment suggested that we ‘crunch some numbers’ to see if this would be revenue neutral.

Since I am more than slightly interested in living to witness the elimination of the IRS, and the tens of thousands of pages of incomprehensible tax code, I decided to research the problem myself. Interestingly, multiple others have looked at income distribution, taxation and policy impact. Just to reference a few:

Income Distribution: Stagnant or Mobile?
Further Analysis of the Distribution of Income and Taxes, 1979-2002
Income, Earnings, and Poverty Data From the 2006 American Community Survey
Income Mobility in the U.S. from 1996 to 2005
U.S. Treasury Distributional Analysis Methodology (1999)
Census Bureau: Source and Accuracy of Estimates for Income
Current Population Reports: Income, Poverty, and Health Insurance Coverage in the United States: 2006
Income Inequality in the United States, 1913-2002 (Berkeley)
Federal Reserve Bank of Minneapolis Quarterly Review, Vol. 21, No. 2, Spring 1997,

What I was after was (a) a source of data for the income distribution in the United States; (b) the current revenue from the income tax; and possibly (c) the revenue broken down as ordinary income vs. capital gains. I figured that these base data would allow me to apply AOC’s methodology and see what rates would be needed to provide a revenue neutral model. (By the way, the Census Bureau has a wonderful tool called the DataFerrett that allows you to import data from various web based databases: the DataWeb.)

Unfortunately, after looking through the various papers, including a very good one from Berkeley—Income Inequality in the United States, 1913-2002 by Thomas Piketty, EHESS, Paris and Emmanuel Saez, UC Berkeley —hardly the bastion of conservative fiscal policy—, I am forced to conclude that a fair, progressive (or otherwise), revenue-maximizing income tax is not at all likely. The problem is that the strategic objective of the income tax is not to be revenue-maximizing, not to be fair in any sense, and not to be particularly progressive, although these are certainly the words mouthed by politicians. The primary motivation for today’s bizarre income tax policy is quite simply “income redistribution”.

The first clue is in the source papers themselves where the economic distribution of income appears as a principal part of the title in many documents. The problem is that some people cannot look at a person who is making more than a specific amount and not see an inherent evil. It doesn’t matter how many jobs, or how much wealth for everyone this income generates, only that any one person, corporation or entity, is “indecently wealthy” or has “wind-fall profits”. And in the case of the Oil Companies (Shell, BP, Exxon, etc.) it’s not about what the percent profit-to-revenue is, but only the absolute dollar amount. Big companies have big revenues and consequently big dollar profits — that’s a consequence of ‘big’. As a percent of revenue, Oil profits are in the 7% range which is hardly excessive. In fact, your typical corner ice-cream store probably generates a higher percentage profit than this.

The same with high net worth individuals, CEOs of corporations, and others with high dollar market driven compensation. It’s a simple fact that the market sets the value of the compensation — Congressional limits on the deductibility of CEO compensation (at $1 million) only forced the creation of other forms of compensation. But this goes whooshing by the hair of the typical redistributionist — inherently evil is any compensation over $1 million.

But how does this ‘redistributionist’ philosophy result in the morass of current tax regulation? After all, there are ( I presume —er, hope) some Senators and Congresscritters who have a brain. I can only conclude that the redistributionist philosophy has permeated the policy environment and legislative ‘language’ to the extent that most reasoned tax policy writers throw up their hands in disgust; and if they can’t fix the damn thing at the base through fundamentals, then at least they can carve out a little loophole for their constituents providing some relief from the redistribution. The result is the current mess.

The redistributionist philosophy also dovetails nicely with the ability to ‘take’ from those who have and redistribute to those the Congress deems worthy — i.e., to those who will support their bids to remain in power. It’s so nice to deliver benefits and charity when you personally don’t have to bear the cost.

Alas…

“The American Republic will survive until the day the Congress discovers it can bribe the people with the people’s money.” -Alexis de Tocqueville .

It’s always amusing when someone’s words and efforts come back to bite them in the ass and its especially gratifying when a politician spends millions on attack ads, succeeds in imprinting a memetic theme into the national lexicon, and then has it used against him.

In the last Illinois Gubernatorial election, Rod Blagojevich launched a year long, expensive, negative television campaign against challenger Judy Baar Topinka. These ads were characterized by black and white images of Ms. Trobinka with the video and words sufficiently out of sync to portray her as a recent stroke victim, with a sad “I don’t quite understand how she could have gone so bad” undertone, followed by the now immortal tag line:

What was she thinking?

Estimated to have been viewed over 200 times by the average Illinois citizen, Ms. Topinka’s public image suffered to the point where she was unable to recover. She lost the Governorship.

Now Governor Rod, in his effort to “support” (pay off) those who funded his re-election campaign (the Illinois Education Association, the American Hospital Association, and the Unions) has proposed the Gross Business Receipts Tax, and is bypassing the mostly hostile legislature by appealing to the people with slick ads (view ad). He has in support the Citizens for Tax Fairness, Health Care and Education who have been running their own continuous slick ads. A quick look at the structure of this PAC shows that the principle contributors are (surprise!) the Illinois Educational Association, The American Hospital Association, etc.

But this tax is so bad, that the business community has responded by creating their own Illinois Coalition for Jobs, Growth and Prosperity, which is issuing their response ads. Listening to one such ad on the radio, the mandatory paid for by the Illinois Coalition verbiage was followed by a woman asking:
“If Mr. Blagojevich were standing here right now, I would have one question for him.”

Mr. Blagojevich, What were you thinking?

[Quick Update: Between the time I wrote this, and its publication, the Illinois House held a “test vote” on the Governor’s Gross Retail Tax proposal. Total for the tax: 0; total against: 107; balance conveniently absent. Even more amusing, on the day before the vote, the Governor issued a statement suggesting that the representatives vote NO on his own proposal. Moral: Those at the vanguard of the charge should occasionally look behind them and see if anyone is following.

Now one has to wonder, given the cost of running a high impact television add campaign for several months, what better use the IEA, AHA, etc. could have made with that money (perhaps some paper for the school copy machine.) One can also speculate that if the various groups were confortable with the risk of investing that sort of capital, then perhaps the anticipated payback (payoff) was larger than what was actually made public.

As as for the Governor, his lament that the only recourse after the failed GRT will be to delete billions in services to reign in the budget—well that is what the blowdried, empty-headed troll should have done in the first place.