Category: taxes

Don’t Conserve – Use the Water You Need

by smallivy, posted in Commentary, Small Ivy's Big Ideas, taxes

If you live in a desert with a very limited water source and there are a lot of people around, ignore what I am about to say.  If you live in a place where water falls from the sky regularly, let me be a Green heretic and go against the common wisdom by saying:

Use all of the water you need.

Doing so makes the most sense financially, and really sets us up to be able to provide for future needs.  Here’s why:
A utility needs to maintain a certain amount of equipment.  They also need to do functions like billing and customer service.  All of these things require a certain number of people.  Once you get past a certain threshold of water production, the number of people needed does not change that much if you increase the amount of water needed.  You still need a certain number of people to maintain the equipment, and usually you’ll just buy the same numbers of larger equipment if you need more production, rather than buy more pumps, motors, etc….  The larger equipment in fact will usually be more efficient, meaning the cost to produce each gallon will decline as the utility produces more water.

 

              

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The other factor is that most of the cost is people, not electricity or other resources.  Sure, you will use more electricity cleaning and pumping more water, but again the cost per gallon produced will probably decline as you use bigger, more efficient equipment.  Unless the number of customers changes dramatically, you’ll also still need to be paying the same number of people to send out bills, maintain equipment, and do other administrative tasks.   In fact with modern computer tools, things like billing cost about the same whether you have a million customers or two million.  Customer interaction things like the service desk are the only areas where more employees may be needed.  If you cut the use per customer, you’ll save a little on electricity, but you’ll still have all of the other costs.  Since the utility will be producing fewer gallons, yet their costs will stay about the same, you’ll end up paying more for less water.

So lets say that you decide to turn off the water while you soap up in the shower, then just turn the water on briefly to quickly wash off, cutting your shower water usage from 20 gallons per shower to three gallons.  You might be able to cut your water bill by doing this.  But let’s now say that everyone in the town does so, such that the utility now sells 5 million gallons of water each year instead of 10 million.  They still have the same equipment, which they’re probably paying off on a 30-year bond or something.  They also still have the same number of customers, meaning they will still need to send out the same number of phone calls and send out the same number of bills.  They also have the same number of homes to supply, meaning they’ll need to do the same number of repairs and upgrades.  They might even discover that sewer line repairs will become more frequent since there will be less water mixed in with the sludge, causing pipes to clog.  The result will be that you’ll end up paying the same amount each month for your water bill as you were when you took a regular shower, yet you’ll have a miserable shower in the morning instead of a pleasant one.

 

 


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Utilities are also loath to cut employees, so they probably won’t slash staff even if they didn’t need as many people.  They’ll also still need to pay off the equipment they bought when there was more demand, so they’ll still need the same amount of money to operate.  They have no competitors so it isn’t like customers will transfer somewhere else if prices are raised, and the regulators aren’t likely to demand that they cut staff or swallow the costs of equipment they purchased when there was more demand, so the utilities can just say they need to raise prices due to cuts in usage and they’ll be able to do so.  You use half of the water, but your bill stays the same since the price per gallon doubles.

So instead of conserving and saving, use what you need.  This doesn’t mean that you should be wasteful with water.  Don’t leave a hose on, running water down the street all day for no reason.  Don’t leave the shower running through the night while you sleep.  It just means to use what you need to live a comfortable life so that the utility will set themselves up to produce that much water.

 


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But what about the power usage?  Shouldn’t we save the energy needed to make water?  The free markets have a great way of figuring out ways to meet needs.  If everyone cuts back to nothing, such that the amount of power we produce is easily made using existing technologies and infrastructure, we’ll never see improvements.  We want people to be building the infrastructure and developing the technologies we need to supply the power needed int he future.  If we use the amount we need (again, not being wasteful), we’ll see people come forward to build the needed infrastructure and make power more efficiently and with resources we don’t currently use extensively like biomass, solar, and wind.  So we can either conserve and be miserable, never providing entrepreneurs and industrialists with the incentive to improve things, eventually needing to cut back even further as populations expand, or we can use what we need and provide the funding and incentive to make cold fusion or cars that run on water.  I say use what you need.

Follow me on Twitter to get news about new articles and find out what I’m investing in. @SmallIvy_SI

Disclaimer: This blog is not meant to give financial planning or tax advice.  It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA.  All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

A Bad Idea from Amazon

by smallivy, posted in Personal Finance, taxes

Amazon’s Socialist bent is showing with their announcement this week that those on EBT cards will be able to get Amazon Prime at half of the cost per month that they charge regular customers.   Their thinking is probably that they can get some people who don’t subscribe now to sign up and maybe help those in need get access to television shows and movies, as well as free shipping for head phones and iPhone accessories.  But you need to wonder what effect this will have on their regular customers who now will be charged twice as much as others who are already receiving money for food, housing, cell phones, and other things, especially when that money is coming from taxes those paying regular price for Amazon Prime are paying.  If I had an Amazon Prime account, I’d cancel immediately, or at least demand the discount.
If Amazon is unsuccessful in luring many EBT customers, which would be a good thing since if you can’t even manage to feed your family, you probably don’t need to be buying things on Amazon, this hopefully would just go down as another bad marketing idea.  If they are successful, however, and don’t see a big backlash from their regular customers, that would be a really bad thing for Capitalism and the standard of living in America in general.  Imagine if others then followed suit, charging customers based upon their income instead of the  value of the goods and services they were receiving.  One person would pay a dollar a gallon for gas, where the next person would need to pay ten.  The same would go for milk, and food in restaurants, and cars, and so on.

              

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As always happens when you start a Socialist program, the first thing that will happen as Amazon starts this program and it attracts a lot of people is that prices for regular users will go up.  Imagine if a lot of people start paying less than the cost of shipping and providing the TV shows – Amazon would need to raise the price of the standard service to make up the difference.  As prices rise, there will be fewer people paying full price as they dropped out of the program, which will make the price go up even more.  This will cause even more people to drop the service.

For an example of this, look at the cost of college.  As more and more students get a break from tuition, the cost for everyone else goes up faster than inflation.  This results in fewer people paying the full rate, until now it might cost $40,000 in tuition alone to send your child to a four-year instate college if you don’t get some sort of discount.  This then provides an incentive for people to not do well economically since doing to leads to you paying more for the same goods and services.

 


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And this is where programs such as the one by Amazon will hurt the standard of living in America.  If you incentivize people to not work and not produce, there is less to go around.  This leads to scarcities and high prices.  You want everyone at least doing something to contribute to society. Right now we have it pretty good with lots of choices and easy access to low-cost goods through places like Amazon.  That may not be the case if Amazon changes the way prices are set in America through their actions.

Follow me on Twitter to get news about new articles and find out what I’m investing in. @SmallIvy_SI

Disclaimer: This blog is not meant to give financial planning or tax advice.  It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA.  All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

A Tax System for a Productive Society

by smallivy, posted in Personal Finance, taxes

As President Trump rolled out his tax plan, one area that corresponds with his campaign promises is a cut in the corporate tax rate.  During the campaigns he said he would cut it to 15%, maybe 20%.  Now it appears that he is eyeing a cut to 15% from the existing rate of 35%.  This has caused some to declare that the rich corporations are getting richer at the expense of the poor.  Yet really, since businesses just pass through costs to consumers, and a tax is just a cost, who is really paying the corporate income tax?

The cuts on the individual side in the Trump plan are a bit less exciting.  Many rates would stay about the same, except there would be a virtual exemption for the first $24,000 of income.  The top rate would only fall from 39.5% down to 35%.  Still, we’re hearing the usual calls from progressives of how the rich are getting a big tax break while the poor and middle class get nothing.

Really, though, what is the purpose of taxes?

The purpose of taxes is to raise the money needed for government functions.  But oddly, some people seem to feel that taxes are to be a punishment for those who make “too much money.”  Originally it was probably just the idea that those who make more would be able to pay a greater portion of costs, kind of like when your parents pay when you go out to eat while you’re in college or just starting a first job.  Or maybe it’s more the thought that those who don’t make much won’t be able to pay much if anything in taxes.  That idea morphed into the idea that those who had more burdens, like children to raise, health expenses to cover, and a bigger mortgage payment, should be given a break since they have less money available to pay taxes.  Somehow along the way it became virtuous to have obligations and make little money and evil to have few obligations and make more money.

              

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Now the thinking goes:

1.  If you make little money or no money, you should not pay taxes and maybe even get money from the tax system.  You should also get a lot of services even though you have paid nothing for them.

2.  If you make more money, you should pay more in taxes and pay at a higher rate.

3.  If you make a whole lot of money, you should pay really high rates.  Maybe above a certain amount you should just have it all confiscated.  (After all, who needs that much money?)  Not only that, but you should also not get to deduct your obligations, and you should not get to partake in many of the services provided by your tax dollars, at least without paying again.

As an example of denying those who make above a certain amount access to services, both Bernie Sanders and Hillary Clinton favored providing free college, but only to those making less than $125,000 per year.  The wealthy would be paying most of the taxes, providing the money to pay for those colleges, yet their children would not even get to go to those colleges without paying again.  After all, why should some son of a billionaire get to go to college for “free” just because his parents paid for it?

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Note that nowhere in the calculus is the amount of effort an individual puts out included.  If someone does nothing all day and therefore makes no money, he is still rewarded.  If someone works 100 hour weeks to make $150,000 per year, he is punished.

Effort is punished.   Resting is rewarded.

But what do we want people to do in a society if we want a wealthy society with lots of wealth to go around?

We want people to do things.

We want them to grow crops so that there is food to eat.  We want them to build houses so that there are places to live.  We want jobs, so we want people to start companies and grow them to the point that there are lots of jobs.  We want lots of managers and supervisors, since those are higher paying jobs, so we want big companies.  In general we want almost everyone working, using their time to make things, so that there are more things to go around.

But think about the tax system described that rewards you for doing little or nothing, but penalizes you for doing a lot.  If you lay around on the couch, you get free stuff and money.  You pay no taxes.  You are considered noble.

If you spend a lot of time working and creating things, you are considered less noble.  You are made to pay more.  You get less free stuff.

If you start a big company and employ a lot of people, you are evil.  You are made to pay a lot as punishment for your sin of making a big company that employs a lot of people.  You get no free stuff, even though you are providing the money that is providing that free stuff.

The current system encourages people to do little or nothing.

You would not want to do too much, or you would be punished.  You get to keep all of the dollars you make between $0 and $20,000, but only 85 cents on the dollar between $20,000 and maybe $80,000.  You also don’t get as much free stuff as you make more money.  Over a certain level, you only get to keep 60 cents for each dollar you make.  If we go back to where we were in the 1950’s before President Kennedy started reducing the top tax rates, at a certain point you would only get to keep ten cents for every dollar you make.   This system does not encourage people to produce and do the things.


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This system does not encourage people to be productive, which is what you want to have a wealthy society with lots to go around.

So what would a system that encourages people to produce, and make jobs, and build big businesses with lots of high paying jobs look like?  Well, it would not penalize people for being productive.  You would not get to keep a smaller portion of each dollar you make as you cross certain income thresholds.  This sounds like something like the flat tax or the Fair Tax,  In fact, maybe there would be an incentive to make at least some minimal amount – to produce at least something – so that everyone would at least spend some of their time working to produce something.  Maybe a flat tax where receiving any sort of aid required that you have some minimum income level (based on your physical and mental capability to make an income), or a Fair Tax where you get the prebate if you earn a certain amount of income each year.  (Go to Fairtax.org for information on the Fair Tax.

So, while progressives may push back against lowering corporate income taxes and lowering the upper tax rates, realize that doing so brings you closer to a tax system that provides what you want in a society:

  1. Lots being produced.
  2. Lots to go around,
  3. Lots of jobs.

Follow me on Twitter to get news about new articles and find out what I’m investing in. @SmallIvy_SI

Disclaimer: This blog is not meant to give financial planning or tax advice.  It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA.  All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.