We don’t need an opposition; we’re the Democratic Party

CNN reports today that Senator Max Baucus has been targeted in an ad campaign over his current health care proposal. As I live abroad it is hard for me to express strong feelings over the current debate, other than to say that the fastest way to hand Congress to the Republicans is for Democrats to kill health care reform. We can argue over the wisdom of Obama putting this issue front and center, but now that it is, he and the Congress have to deliver or there will be very serious consequences next Fall. In fact, it would be a repeat of 1994, only here the consequences would be worse. Back in 1994 President Clinton didn’t have a filibuster-proof majority in the Senate, and Senator Dole took advantage of that fact.

Open, honest debate is good. It should be something that everyone allows for, and it was something that Republicans have traditionally suppressed. However, that debate needs to be respectful, with a recognition that there are many sides to this very complicated issue. Having seen several national health care systems up close and personal, I’ll just point out that each has its problems. You cannot have both universal healthcare and the choice of every healthcare option for everyone. The numbers just won’t add up. I’ll also mention that in America the argument is not between the government choosing and consumers choosing, but rather between government-regulated insurance choosing and insurance companies choosing. Consumers already have very few choices, and 46 million people have none.

Ground Southwest?

Airplane This Monday’s Wall Street Journal reports that Southwest Airlines has been flying 82 planes for years with parts of unknown quality in potentially critical locations. The report states that the pieces in question are supposed to “protect movable panels on the rear of the wings from hot engine exhaust.” That’s an obfuscated way of saying that the parts protect the aircraft’s flaps. Flaps are deployed at both takeoff and landing. If those fail, several bad things can happen:

If flaps on one wing fail to extend as expected, when the other side deploys, the plane could pitch.
If the flaps on both sides fail to deploy, the plane will not slow to a normal landing speed.
In the most unlikely event that the integrity of the flaps themselves fails, all manner of bad things could happen.

Most failure modes involving flaps are probably recoverable in and of themselves. However, these sorts of failures happen close to ground, leaving little time to react to problems.

The authors write in the article, however, that, “Both Southwest and FAA agree that the parts, some of which have been on the planes for up to three years without causing apparent problems, don’t pose an imminent hazard.”

While it’s good that they’ve not spotted a failure, many failures go undetected for years, during which metal fatigue sets in. Often there are indications of impending failure, such as cracks. Southwest has indicated that they will increase their inspections between now and the time the parts are replaced.

Here’s the rub: because the construction method of these parts is untested, one wonders whether inspections are sufficient to mitigate the problem. This leaves the FAA with a dilemna: make life miseerable for hundreds of thousands of passengers while SWA corrects the problem or take a risk with the lives of a few hundred people.

One way or another, SWA should face a stiff penalty for putting travelers at risk, and forcing the FAA into this situation.

New Research: Social Security Numbers (SSN) are Entirely Predictable

Cybercrime New research published in yesterday’s Proceedings of the National Acadamy of Sciences has dramatic implications for Americans and identity theft. Alessandro Acquisti is an Associate Professor of Information Technology and Public Policy at Heinz College of Carnegie Mellon. He has spent the better part of two years with his colleague Ralph Gross, looking at social security numbers as both identifier and authenticator, something we have all known was a bad combination. Professor Acquisti demonstrates just how bad of an idea it has been in the last twenty years. In that time there have been two significant policy changes that have made numbers extremely predictable based on two pieces of information:

birth city
date of birth

The policy changes involve release of something known as the Death Master File (DMF), which was intended to prevent someone from expropriating a dead person’s identity, and the Enumeration at Birth (EAB) initiative, which has had the effect of allocating SSNs shortly after birth. These combined with the facts that SSNs have structure based on location, and that the less significant components are serialized in allocation, and it makes for a predictable SSN.

This gets worse. While it may be possible to fix this problem for future generations that use SSNs, either by randomizing all or lesser components, or by not filing applications upon birth, the millions of people who have assignments in this time period are in an extremely difficult spot, because the workaround is a change of number. This argues for a new form of identity that separates authentication and identity, but the effort to do so requires that the finance, education, and medical sectors (not to mention government) change their means of identifying individuals. This will be no easy task.

This research is a remarkable piece of work by Professor Acquisti and his colleagues.

Tax Time! Here we go again!

paperwork Some time ago I wrote about the difficulties that expatriates face when we calculate our taxes. As an American I don’t mind paying my fair share of taxes, even though I don’t live in the country, and even though America is practically the only supposedly-civilized society to tax non-resident citizens.

And as I wrote even more recently, I began the process in early March, trying to sort through this year’s paperwork. For those keeping track, this year’s taxes look to weigh in at about 350 grams, or just over 3/4 of a pound. Here are some things we expatriates have to do:

Keep track of every day we spend in America for business. This is the chunk of change the U.S. gets. I think the idea is that someone shouldn’t live just across the border in Vancouver, for instance, and then commute to Washington.
Don’t just assume Turbotax will do the right thing with the standard deduction. In fact, this isn’t just an expat thing: if you are subject to alternative minimum tax (AMT), the standard deduction is taxable, and so if you have some deductions it is sometimes better to itemize. The change from last year is that more expatriates pay AMT this year due to America’s deflated currency.
Keep track of the largest sum in each foreign account for the year. This is because the Department of Treasury wants to know if we’re laundering money (we aren’t). This one is particularly important to manage because the government claims they can seize accounts for which information is not correctly reported. It’s also not made easy for investment accounts, where portfolio values vary by the day. This is a change from last year.
Allocate deductions between those that are related to foreign income, and those that are not. The change from last year is that many could have used the standard deduction.
Properly calculate exchange rates for both income and taxes paid or accrued. For those who have to do this, www.oanda.com has a lovely web site for this purpose. Perhaps the most annoying thing for expatriates is that many of the fields we fill in need to be converted to dollars. What’s more, in Europe it is not uncommon to have multiple currency accounts, making everything just a bit trickier. This is particularly true in Switzerland where some securities are only issued in euros.

And so, the average expatriate has to fill out the following forms:

1040 (no 1040a or -EZ);
Schedules A, B, and possibly D.
Four copies of Form 1116 for Foreign tax credit (general, passive) both normal and AMT;
Two copies of Form 2555 for Foreign Income & Housing Exclusion;
Form 2441 for children;
Form 6251 for AMT;
Treasury Form TD-F 90-22.1 for foreign bank accounts;
a plethora of explanation statements for currency conversion and allocations.

If you own a home, there’s more paperwork. If you have other income, such as royalty income of some sort, you have more paperwork. If you have a disability, there’s more paperwork. If you have a home office, there’s more paperwork.

This is all for federal taxes. Nominally many states such as California would then like you to repeat the effort. If you have any deferred compensation from when you lived in the U.S., such as stock options, you will end up having to file state returns just to reclaim excess withholding. Some states want you to file for merely having attended a professional convention or conference (what some people call the basketball tax).

And so you might say, “Eliot, isn’t your time worth more than doing all of this paperwork?” No. The cost of accountants who prepare expatriate tax returns runs into the thousands of dollars for us, and ours is a relatively simple return. Often times employers will pay for these returns. If so, it’s a good deal for the employee.

Also, all of this does not take into account the taxes we must file in Switzerland. Here we do use an accountant. While my German has improved somewhat, each country has their own rules on where to fill in what column. I will say this about Zürich: they provide free copies of tax software to anyone who has to file.

Latest GM SUV: Big and 30MPG

I don’t have all the details, but a quick look at this article shows that GM’s plight was, at least in part, avoidable. The base model comes with a 182 horse power 2.4 liter engine, and gets you 30 mpg. There is no reason in the world that GM could not have produced this vehicle two years ago. In doing so, they would have seen demand shift from some of their other lines, but also from Ford, Toyota, and Dodge. In addition, they could have easily picked up some gas guzzler trade-ins. Why did they wait? It’s quite simple: they have absolutely no foresight. The GM motto could be “what works today will work tomorrow”. Of course, that motto doesn’t work.

This to me supports the Obama position that if these guys want help they have to change. I remain uncomfortable about the government running a company, and when this administration can force out long time CEO Rick Wagoner, that is what is happening.

Where then is the balance? When should the government not use its coercive power when it doles out money to broken companies? When should it let them fail? And what does one do with the thousands upon thousands of individuals who have been mishandled by bad leadership? I don’t know, but somewhere somehow they have to shoulder some of the burden. Some of this is their poor decision to tie their fates to people like Wagoner, who really did need to go.