Misadventures with taxes

I began my tax preparation this year with my mind on President Obama looking to tax the wealthiest Americans a bit more to pay for a reduction in taxes on the rest of us. For expatriates, taxes are a sore subject. American expatriates, unlike citizens of just about any other country, are required to file tax returns no matter where we live in the world, an we have to claim back foreign taxes, as either a credit or a deduction. The notion behind all of this is that you can’t simply move off shore to avoid paying U.S. taxes. Fair enough, except that of course you don’t get to avail yourself of nearly any of the services you are paying for.

The way this works is that we get a deduction for housing and a credit for tax paid. In the end the idea is still that if you’re not working in the U.S., you shouldn’t have to really pay much. The deduction for housing was limited based on where you lived. This year, we in Europe are treated to an extra insult. Because the American dollar did so poorly overall in 2008, we all expected that the Department of Treasury would adjust the housing limit accordingly – but they didn’t. That amounts to about a 10% additional tax on us. And of course there are penalties for not prepaying based on the currency fluctuation.

I might not mind so much, except that as an American citizen I still cannot buy mutual funds, just because I live outside the U.S. There are many other services I don’t get, that perhaps I would enjoy. Like courtesy at the American consulate in Zurich.

Should we limit bankers’ salaries?

Bureau of Economics Today the Voice of America reported (amongst others) that President Obama will seek to cap executive pay at $500,000 for any company that accepts bailout money. This after a storm of criticism has washed over Citigroup and Bank of America about bonuses, corporate planes, and my favorite, trips to Las Vegas.

While it certainly seems to me that anyone who requires a bailout should at least have some humility, few CEOs in my own experience do. What they have is a competitive urge and drive to succeed. While in theory humility and drive do not conflict, in practice I am hard pressed to name a CEO who has both, with one exception that proves the rule, Warren Buffett.

Were we to impose humility on CEOs I would be concerned that we would end up with second string players in a Superbowl situation. On the other hand, bonuses in the face of a bailout are insulting to those taxpayers who effectively have paid them. And so some balance should be struck. My own thinking is that these guys should be capped so long as (a) they’re taking money, and (b) their company is not profitable. Shareholders shouldn’t get bonuses either, however. And so while a company is taking money it should not issue a dividend, and the money it takes shouldn’t come for free. I wonder whether the U.S. should require options of a certain amount or actual stock. This way we share in the company’s successes as well as failures.

What are your thoughts?

Is that fat blathering idiot right about something?

rush_limbaugh Of course we’re talking about Rush Limbaugh. In an Op-Ed piece in the Wall Street Journal he argues that a stimulus package should satisfy both “supply-siders” and “Keynesians”. He also makes the argument that Obama didn’t win the election by that much.

I find both arguments unpersuasive. Let’s start with the last one first. No matter how you break down the percentages of the presidential election, Obama won. I don’t recall Mr. Limbaugh making an argument that President Bush should reach out to the Democrats when Al Gore won the election in 2000. In addition, Republicans had their clocks cleaned in both the House and the Senate. A sufficient mandate exists that the Republicans will not stop President Obama. As I’ve previously written, congressional Democrats will be opposition enough. Limbaugh knows this, which is why he then tries to base his argument on a poll, which says that 59% of Americans think Congress and the president will spend too much. Whatever. Nobody ever got thrown out of office for growing the deficit.

But is Mr. Limbaugh correct when he suggests that both supply side and direct government investment in various efforts is the right way to go forward? Normally, I would view taking both roads as failing the Yogi Berra test: when you come to a fork in a road, take it. And yet this is often something that politicians can’t do. They often can’t make a stand. This is, for instance, why no declaration of war has been made by the Congress since World War II.

The theory behind supply-side economics is that when businesses have lower costs (say through lower taxes), either they will receive more revenue, in which case they will invest it and end up hiring more people, and thus help GDP and jobs, or they will cut their prices, in which case the consumer will spend the money somewhere else and also increase GDP and drive businesses to create more jobs. This assumes that the obstruction to investment today is somehow related to a lack of cash. This is not the case, today.

Many companies are sitting on fortunes that they are not spending, and those that would like to spend – generally start-ups, are unable to get credit from banks. No amount of tax cuts will help a start-up right now. No amount of tax cuts will cause companies to expand in the current environment. Everyone is scared that the consumer lacks cash.

And so while under some circumstances it might make sense to play the supply-side game, the more direct approach is to address consumer confidence by seeing that they have have jobs. The problem with government spending models is that they tend to produce jobs that we as Americans don’t think much of. When was the last time you worked on a crew that built a road, for instance?

Some of the president’s initiatives go into health care and education. It is a sure bet that such money will find its way back into the economy. In fact, nearly all of the programs will bring money to the economy. But a restructuring seems inevitable.

Sadly Mr. Limbaugh couldn’t get past his own partisan blinders to offer a candidate assessment of the situation.

Secure SmartPhone? No Such thing

iPhone Today’s CNN reports that President Barack Obama will supposedly get a secure smartphone that would be similar to his Blackberry. The Sectera Edge, made by General Dynamics, has already received a seal of approval from the National Security Agency. There is only one problem: either it’s not that smart or it’s not that secure. You can have either one, but you can’t have both. Smartphones are those phones that can provide some form of general purpose computing function. It is that function that is subject to abuse. While it is possible to develop and provide a general purpose computing function that is perhaps even provably secure, it will also be provably useless.

Another problem with the Sectera Edge is that it lacks the ecosystem that Mr. Obama may be used to with the Blackberry, or others might be used to with the iPhone. I imagine that very few applications have actually been written outside of GD. Looking at the iPhone, only a fraction of the apps for the iPhone are developed by Apple.

What’s the cure for Steve Jobs’ Illness?

Apple A lawsuit? That is what some shareholders are rumoured to be considering, because they feel as though they were kept in the dark about the struggling CEO’s health. While Jobs is known to be an aggressive man in many respects, his health is something he may have very little control over, as we probably know lots less than we don’t about the human body.

One thing we do know is that stress isn’t good. And would could be more stressful than having to worry, not only about one’s continued survival, but also about having answer depositions about that subject? What if such a lawsuit prevails? Would it mean that it is now tortous to become ill or to simply to be optimistic about one’s own chances?

Many AAPL shareholders have done remarkably well, thanks to Jobs. The least we can do is let the man deal with his illness in peace.