Trying to Like Trump

I tried it for a whole week. Much to the dismay to my facebook friends and my coworkers, I pretended to like Trump. I talked him up. I tried to identify all his good qualities, trying to understand why so many people like him. After all, he really could be our next president.

My Trump supporters friends praised my experiment, and my Trump-disliker friends sent me private messages trying to convert me back to their side, or they figured I was laying on the sarcasm. I felt a little bad, but I let them know that it was only a fun experiment.

The best part came at the end of my week when I was asked to take down all my Trump pictures at work, as there was a concern I might be offending Trump supporters.

Anyhow, what did I learn?

Trump supporters are not idiots. Yes, I know that exit polls show that less-educated people tend to vote for Trump, while college-educated people tend to vote for anyone else, but if you stop and listen to what they say, it makes sense. Instead of dismissing them as violent rednecks, you could learn something from them.

Trump can bring in more jobs. This might possibly be the only place I agree with Trump, and is one area where he may be successful, but what he says is nothing new among Republicans. Instead of trying to force corporations to create jobs through punitive measures, the government can help to create an environment that will encourage corporations to bring the jobs back to America. This can be done by closing special-interest loopholes and lowering the corporate tax rate.

Trump is an excellent dealer. Sure, Trump has made some major mistakes in life, but on the most part, he's turned a million dollars into billions. He may possibly be able to win over the establishment Republicans and Democrats, and help them work together -- if he tones down his ego.

Ironically, many people think that Trump is "anti-establishment," but as my wife and others like to point out: His wheeling and dealing would help him feel right at home in office. He'd do all the back-door deals that establishment politicians do all the time. In fact, Trump has already played the corporate side of politics, which basically makes him "establishment" from the other side.

Trump is not racist to black people. Maybe he is, and maybe he isn't, but all I've been able to find is circumstantial evidence. Sure, there are plenty of video clips of black people being treated poorly at Trump rallies, but then again, the "Black Lives Matter" group protests everything and everyone. When a majority of protesters are black at a Trump rally, then that's who's going to be roughed up. If you watch carefully, you'll see that Trump treats white protesters the same way. So, yeah. Trump is equal-opportunity when it comes to that.

More Republicans like Trump than they do any other one Republican candidate. The numbers don't lie. Most Republicans hate Trump, but they refuse to rally behind just one alternative. Cruz is too radical for many conservatives. Kasich seems too unknown. Rubio would have been nice, but he needs a few more years to grow up. Trump can rally the troops and get them out to vote. He also seems to execute effective campaign strategy.

I still don't like Trump. Part of me hopes that if Trump becomes president, all the good things I listed would come out, and the bad things would tone down considerably, but the realistic side of me seriously doubt this will happen. Even after a week of considering his good traits, I still see that my concerns about him far outweigh the good. Does that mean that I failed in my experiment?

Trump still shows he would perform terribly in regards to foreign relations. He still wants to build a wall across the whole geographic border against Mexico, which even the Border Control leaders themselves say is unnecessary. He wants to apply religious tests on immigrants in the name of safety, which goes against fundamental American principles. He still agrees with the idea of requiring ID badges for Muslims, that we should use waterboarding and worse kinds of torture, and that we should kill the innocent family members of terrorists. I fear that if he's elected, he would push away our Muslim allies in the fight against terrorism, and ISIS would become much stronger, making us much less safe.

I think Trump would make a terrible leader, worse than Obama in his first term. His big ego would likely cause Democrats to close up such that it would be their turn to be the obstinate party in Congress. The way he disrespects opponents is childish, unnecessary, and nonproductive. Could you imagine him getting into a pissing match with Putin or Kim Jong Un?

And I still see that Trump incites violence at his rallies in two ways. He directly encourages supporters to hit protesters, saying he'd pay the legal fees, which in turn incites a violent response from his opponents. Luckily, this has been toned down considerably, but I think these protests may become more numerous if he actually becomes president. It would all depend on what he actually does once in office.

Finally, I'd like to point out that there is no "silent majority," but rather an "angry minority." Trump supporters are still outnumbered, but they are very loud, and very supportive. They have a real chance at winning.

As for me, I don't seem to have a candidate who I feel represents my beliefs. Cruz is close, but he's not as moderate as I would like. Trump definitely would not represent me. In fact, I've already left the Republican Party to become an independent, in anticipation of the Republicans allowing Trump to win.

Oh well, at least it was a fun experiment, and it will be fun to watch what happens next.

We Need a Moderate President -- Always

The following is an article I wrote in Feb., 2016, but forgot to publish. Even though some of the information is dated, I believe the concepts are timeless. 

Our nation is falling apart. All you have to do is take a look at your facebook news feed and you'll see multiple graphics that try to explain why Republicans or Democrats are wrong. Then there are the comments as people fall in line with what they're taught to say. Republicans hate the poor. Democrats take money away and give it to lazy people. Republicans don't create jobs. Democrats don't create jobs. Etc. Etc.

It all makes me wonder. Why do most of us feel that we must choose one side and believe everything that party stands for? Why are we all taught to hate the other party so much and accept the norm of vilifying them? Why are other "third" parties created whose main platform seems to be to hate the main two parties? ("There both wrong, choose us instead.")

The funny thing is, it's perfectly healthy to have opposing viewpoints. It's only unhealthy to hate each other. I'll come back to this in a moment.

A few years ago I read Ayn Rand's Atlas Shrugged. You can read my whole review here, where I complain that the characters are too binary. (For those of you who are reading the book right now, you may want to skip a few paragraphs, as I'm going to spoil the end.) The characters fall into two camps:

• The Camp of Dagny (The Republicans): Noble people who believe that we should be rewarded according to our works. These people stand by their word as they earn an honest buck.
• The Camp of James (The Democrats): Corrupt shifty-eyed people who try to earn money where there is no work. They try to take money from the rich and give to the poor.

You can tell which side Ayn Rand takes. As for me, I hated Dagny, and I hated James. I hated John Galt, and I hated the idea of taking all of Earth's best and brightest and collecting them into a secret society away from everyone else. That was really the only way to save the world?

My favorite character is one you've probably long forgotten. His name is Mr. Thompson, the "President" of the government. He's often called the most boring and nondescript mediocre character, but I think he was the only one in the entire book who had the proper perspective. He knew that Dagny's camp had warnings that needed to be heeded, but he also knew that their ideals would hurt a lot of people. He wanted to save the entire world, and he saw the solution as incorporating ideas from both camps.

Dagny's solution was much like what both the Republicans and Democrats say today: "Stay out of our way! Let us do everything our way. No compromise. You guys are losers. We know the right way to do things. Just go away and let us do our job." In the end, Dagny, and John Galt, et al, withdrew to their secret society and let the rest of the world crash, even though it would mean innocent deaths and poverty everywhere.

That's an awful ending. It's short sighted, arrogant, and selfish.

With all that said, I thought Ayn Rand had some really good ideas in there, but if we were to adopt her ideals 100%, it would destroy our government. It's just unsustainable over time.

Coming back to reality (all you Atlas Shrugged readers can come back now), I think the same is true with any one party. If we were to follow any one party's ideals 100%, it would become unsustainable. A Democrat world would kill the American Dream and lead us to mediocre socialism. A Republican world would favor the rich, use up world resources, and lead us to a corporate-run government. Still, both parties have great ideas. The government we have today is a merging of good ideas from both parties. That's what makes our country so great.

Stephen Covey's 7 Habits mentions something called synergy. This is something higher than compromise. When you have two competing ideas, compromise involves each side sacrificing something for the common good. Both sides are a little better off, but still a little unhappy. Covey says that when you compromise, one plus one adds up to something less than two.

Synergy, on the other hand, is a process where two opposing sides work together to find some third solution that satisfies both parties. This is where people explain their concerns, listen to their opponents and decide what is really important, and then coming to realize what solutions meet the most concerns. Then you end up where one plus one adds up to something much more than two, perhaps even more than ten.

A good president should be able to facilitate this process. How many times have you heard a candidate say, "I will work across the aisle"? If they're sincere, then they are the president you want in office. In history, the most successful presidents tend to be moderate in nature. That is, they may be left-leaning Republican or right-leaning Democrat.

Think about it. If we were to vote in an ultra-left candidate like Bernie Sanders, what do you think his chances are of working with the Republicans? And if we were to vote in an ultra-right candidate like Ted Cruz, how well could he work with the Democrats?

Our current president, Obama, has tried several times to push forward bipartisan efforts, which is noble, but unfortunately, he has been quick to condemn Republicans in his rhetoric, which only serves to close up communication and end all chances of synergy (or even just compromise). W Bush and Clinton seemed to enjoy much better success reaching "across the aisle."

However, even if Obama were more successful, he'd still be a Democrat. There will always be people in parties that see anyone from an opposing party as an enemy, thus lowering chances of synergizing. That's why I'd like to propose a new party just for executive branch offices: The Moderate Party. Or perhaps a more exciting name: The Synergy Party.

Most "third" parties have their distinguishing platforms. The Green Party wants to save the world. Libertarians want more freedoms across the board. The Tea Party wants less government and seems to like Ayn Rand, but with religion added.

The Synergy Party would have no distinguishing platform except for this: It would stand for bringing together ideas of other parties, and facilitating a process of synergy, to actually get work done, and to maximize the happiness of all constituents.

Now, isn't that the type of president you'd like to vote for?

P. S. For an example of synergy, I invite you to check out this tax plan that I put together with the help of several different actuaries via an online message board, where we are roughly 50/50 Republican vs. Democrat. It combines ideas from both major parties, and I think it ends up being a fairer and simpler tax across the board.

Article Update: In hindsight, I see that I had intentionally left out the candidate who ultimately won. It's no secret that I never wanted Trump to become president, but the funny thing is, he may have been the best candidate to achieve my moderate dream, considering both his Republican and Democratic views in the past, and his potential to help make deals that benefit the most people.

While I believe he has this potential, he definitely has a long ways to go. After his first 100 days, Democrats (and even some Republicans) remain scared to death of him and his more questionable ideas. As much as Trump would like Democrats and everyone else to step in line with his vision, it is really up to him to find a way to reach out, resolve concerns, and unify the nation. No one else can do this but the President himself.

If Trump can find a way to humble himself, stop blasting his opponents, stay off of his Twitter account, and all around act presidential, then I believe he could pull this off and be a great leader. If he can't do this, then we'll just have to wait another four years, and hope that we can survive that much longer.

The Prius Tax -- Seriously??

North Carolina is currently considering levying a tax on hybrid and electric cars.  Virginia and Washington already have similar taxes, and more states may follow.

The idea is that the owners of hybrid and electric cars consume less gas, and end up paying less in gas taxes than their neighbors.  So, to recoup the missing taxes, North Carolina would like to tax an extra $50 a year on hybrids and $100 a year on electric cars.

As a Prius owner, I am surprised at this idea of a misplaced tax.  Why create a disincentive to drive a fuel-efficient car?  Stephen Colbert had the following to say (starting at around time 2:20) ...



As a concerned citizen, I resolved to write a letter to my local representatives.  Here is the letter that I sent ...

Dear <representative>:

As you work to finalize the 2013-2015 state budget, I hope you would seriously reconsider removing and keeping out the “Prius tax” … that is the proposed annual $50 registration tax for hybrid cars and $100 for electric cars.  I believe this is an unfair tax – one that penalizes rather than one that makes things “fair.”

I understand the underlying concept behind the proposed tax.  The idea is that owners of fuel-efficient cars consume less gallons of gas and pay less in total gas taxes each year.  But at the same time, they drive the same number of miles as other drivers, and cause the same wear-and-tear on the roads.  So, the less efficient car owners end up subsidizing the owners of more efficient cars.  The idea is to make things “fair” by charging an extra flat fee on hybrid and electric car owners.

Let’s do some quick math.  Assume a car travels 10,000 miles a year.  A hybrid gets an average of 45 MPG, and a conventional car gets 25 MPG.  The hybrid owner uses 222 gallons during the year and pays (around 37 cents a gallon) $82 in taxes.  The conventional car uses 400 gallons and pays $148 in taxes.  At first this doesn’t seem fair, as the conventional car owner is paying $66 more in taxes than the hybrid car owner.

To make things fair (according to the idea behind the proposed Prius Tax), the hybrid owner pays an extra $50, so as to bring him up to $132 for the year … much closer to what the lower-gas-mileage car owner paid.  And then everyone would be paying their “fair share.”

However, there are some other factors to consider – the sum of which demonstrates how the Prius Tax would shift an unfair burden of taxes and punish a consumer for trying to save money through obtaining higher fuel efficiency.

Incentives Against Fuel Efficiency

When I first heard of the “Prius Tax,” my first gut reaction was, “Why in the world would my elected representatives institute a disincentive against fuel efficiency?  Why would they reward the gas hogs?”

During a time when Republicans and Democrats alike are promoting fuel efficiency, it’s a surprise that anyone would consider any disincentive such as the Prius Tax.  A consumer considering whether to buy a hybrid/electric car vs. a conventional engine car may choose to buy the conventional car to avoid paying an extra annual tax.  This would slow down the sales of hybrids/electrics and would increase fuel consumption and our reliance on foreign oil.  This situation would be against the urgings of both President Obama and former President Bush.

Similarly, because of the recent economic downturn, many families have “hunkered down” and have become more efficient in their general spending.  They have given up eating out and have learned to cook their own food.  They have given up buying luxury items.  They now make existing items last longer.  These families end up paying less in sales taxes, thus being subsidized by the other families who haven’t cut spending.

Would it then be correct to reward our frugal families with a “frugal tax” so as to get them to pay their “fair share” of the sales taxes?  It should be clear that the answer should be no.  If the family were charged an extra tax, then perhaps they would have been better off not being frugal … thus an incentive is created to be wasteful.

If one can see the ill-placed incentives and/or harmfulness of levying a “frugal tax” then hopefully one can also see the similar ill-placed incentives and harmfulness in levying a “Prius Tax.”

Most hybrids (and some electric cars) are purchased by middle class families hoping to save money in the long run through paying less in gas consumption, while at the same time doing their own part to help conserve gas and cut down on pollution.  Is this the constituency you really want to hit with an extra punitive tax?

Hybrid and Electric Car Owners Pay More in Other Taxes

Additionally, while hybrid/electric car owners pay less in gas taxes annually, they pay more in other taxes, which helps make up most of the difference.

Hybrids and electric cars cost more to make.  A consumer considering to buy a car will find that hybrids cost on average around $3,500 more than a comparable conventional engine car.  The premium for an electric car is much higher … around $15,000.

When cars are first registered, North Carolina charges a one-time Highway Use Tax of 3%.  The hybrid owner pays an extra $105 more than a conventional car owner.  The electric car owner pays an extra $450 … most of which goes into improving North Carolina roads.  Assuming a person owns a car for ten years, this would translate into a $10 annual tax on hybrids and $45 for electric car owners.

North Carolina residents also pay annual property taxes to their local city and county governments.  These moneys go into local public services, including the upkeep of local non-state roads.  (And it so happens that most drivers drive most of their miles on non-state roads.)  With an average rate of 1%, the hybrid owner will pay an extra $35 a year in property taxes, and the electric car owner will pay an extra $150 a year.

Electric car owners pay a further tax on the extra electricity they use in charging their cars.

Revisiting the original scenario, the conventional car owner still pays $148 taxes a year in gas taxes.  However, the hybrid owner is now up to paying $127 in gas taxes (including the other additional taxes on the hybrid car premium).  The electric car owner is now paying $195 a year in additional taxes on the electric car premium (not even including taxes on the extra electricity they consume).  The hybrid owner’s total gas bill is now much closer to everyone else.  And the electric car owner is actually paying more.

If we were to add the Prius Tax, the hybrid owner would then pay $177 a year (more than the conventional car driver), and the electric car owner would be paying $295 a year, which is double of what the conventional car owner pays.

State Gas Taxes Cover More than Wear-and-Tear on the Roads

North Carolina has one of the highest state gas taxes in the nation.  As of 2012, North Carolina ranked 8^th with around 37 cents.  This isn’t far behind New York, the 1^st state, with around 50 cents.  It’s remarkably higher than Alaska, the last state, with around 8 cents.

The taxes are so high partly because funds from North Carolina’s gas taxes are allowed go to other expenditures other than those related to transportation.  For example, funds are allowed to transfer from the Highway Trust Fund and Highway Fund into the state’s General Fund.  Governor McCrory’s proposed budget calls for the transfer of 6.63% of transportation funds into “Other State Agencies,” which is much more than the anticipated gain from the Prius Tax.

If funds are really lacking for the purposes of repairing wear and tear, then in my opinion, the North Carolina legislature should first disallow transfers from the transportation funds before they even consider asking for the Prius Tax.

Incidentally, Governor McCrory’s proposed budget does not include a Prius Tax, and even goes so far as to say one goal is for “no new taxes” (on page xvi “Highlights of the 2013-15 Budget”).

Not All Cars Are Created Equal

Finally, please consider these last considerations.

Hybrids and electric cars are not the only fuel-efficient cars on the road.  There are several conventional-engine and diesel cars that have higher MPG ratings than do some hybrids.  For example, the diesel engine 2013 Volkswagen Passat averages 37 MPG, while the hybrid engine 2013 Lexus LS 600h averages only 21 MPG.

Without the Prius Tax, the hybrid Lexus is “subsidizing” the Passat.  Would it be fair to levy a $50 tax on the Lexus who is already paying more in gas taxes than the Passat?

If anything, North Carolina should consider using the car’s MPG rating in deciding whether to levy this new tax (rather than based on whether or not it’s a hybrid).

And if paying the fair share of “wear and tear” is really an issue, then the Prius Tax fails to recognize the extra damage caused by trucks.  These huge 18-wheeled vehicles cause much more damage to our roads in proportion to the gas taxes the drivers pay.  If we were to continue the logic behind the Prius Tax, then we would also need to levy a Truck Tax, so as to make sure everyone pays their “fair share.”

With all these factors under consideration, I hope you can see how unfair and misplaced the Prius Tax is.  It would unfairly target a specific type of car that may or may not have better fuel economy than the average conventional car, while ignoring eighteen-wheelers, which cause much more damage to the roads.  The tax would primarily hurt middle class families who are trying to conserve fuel and save money in the long run.  It would create an incentive against buying fuel-efficient cars.  And it already is fuel for comedians, as evidenced by Stephen Colbert when he recently said, “I think North Carolina should go after all freeloader transportation that uses public roads but doesn’t pay into the system. Pedestrians should be hit with a walking tax. Bicyclists should be hit with a bicycle tax.”

Alternatives to the Prius Tax

There are several alternatives to the Prius Tax that would help North Carolina receive the funds it needs while also matching taxes more fairly with expenditures.

#1) Increase gas taxes: This would be easier to levy while maintaining proper incentives for everyone to not use as much gas.

#2) Repeal the gas tax entirely and levy a higher flat registration fee on all vehicles equally.  That is, if the legislature believes $100 is a fair tax to levy on electric cars that use no gas at all, then it should be equally fair to not charge anyone gas taxes and instead increase everyone’s annual registration fee by $100.

#3) Instead of being repealed, the gas tax could be reduced, and a flat extra registration fee levied on all vehicles.  This would maintain some income still coming from out of state.

#4) Increase the Highway Use Tax for everyone … after all, isn’t that what the tax is created for?

#5) Replace the gas tax with a miles-driven tax for every vehicle.  There are several ways to determine/estimate miles driven in a year.

#6) Tax tires more.  The use of tires is somewhat proportional to miles driven.

#7) Increase other taxes so that funds going to “Other State Agencies” would come from the appropriate taxing vehicles instead of from the transportation funds.

Thank you for taking the time to consider my concerns.  I wish you luck in settling the budget as soon as possible, but I also hope that you will do so while considering what is the most fair.  Please do not institute the Prius Tax.

Sincerely,

Mel Windham

Nate Isn't That Great

The election is over, and for some strange reason, Nate Silver's prediction achievements are being lauded--almost as if we have some new Einstein in our midst.

After all, Nate correctly predicted the outcomes of all 50 states.  Do you know what the chances of that happening are?

It turns out to be much higher than what one might expect.  Nate was not the only one to predict all 50 states correctly, but he's the only one you'll hear about, because he's the one who works for a major newspaper.

You see, Nate used something called a Monte Carlo simulation.  These are neat models where you input some "known" variables and allow random fluctuations to change the outcomes.  You run thousands of election simulations through the random generator, and you study the outcomes.  If a majority of the simulations show Obama winning, then overall, you expect Obama to win.

If you go to Nate's site and scroll down to the graph that shows "Electoral Vote Distribution" you can see the outcomes of each of the individual simulations.  It appears that a couple had Obama winning only 200 electoral votes at one extreme and as high as 370 at the other extreme.  The higher the line on that chart, the more simulations there were that resulted in that electoral count outcome.

The highest line is at 332.  20% of the simulations showed this count.  This is EXACTLY the count that Obama got.  Wowzers!  The second highest line is at 303, which basically gives Florida to Romney.  That outcome occurred in 16% if the simulations.  If you take the average of all the outcomes, that gives the expected outcome of 313.

This is all neat and all, but one problem with Monte Carlo simulations is that the mode or mean (depending on how you set it up) is already set BEFORE you run the simulations.  That is, it will be determined by the non-random inputs you put into the model.

The biggest inputs into Nate's model were poll results.  As each newer poll gave more up-to-date information, Nate updated his model.  And guess what!  The mode (highest point) of his simulation outcomes MATCHED the polls.

In other words, it wasn't Nate Silver who predicted the outcome, but it was the POLLS.  Nate only compiled the information with neat bells and whistles, and passed that information to us, the consumers.

Now, as a mathematician, I totally ate up Nate's predictions.  I love the stats that he compiled, and how he showed which states had the biggest probability of switching to the other side, and how much sway each individual voter had on the election.  That's all cool stuff.  Yet, that's not what he's getting press about.  Rather, it's the fact that he correctly predicted all 50 states.

But he didn't do that.  I'll say it again ... it was the POLLS.

If you don't believe me, follow this simple exercise.

First go to Nate's site and scroll down to the map.  Look at his predictions.

Next go to CNN (or your favorite news source) to check out the actual results.  Compare the maps and say, "Ooh Ahh!" over Nate's predictions as you confirm that every single one of the states matches.

Next go and view CNN's own projections from a couple of weeks before the election.  These are predictions from using poll data plus whatever cool math tricks they use.  Just in case the link is broken, I'll point out that their projection excludes eight "battleground" states: NV, CO, IA, WI, OH, VA, FL, NH.  Now, if you compare CNN's projections in the remaining 42 states, you'll see that they accurately predict each one.

And finally, visit my newly found actuary friend's site.  His name is Patrick.  At the top, you'll see his projections.  All fifty states matched perfectly.  Not only that, scroll down to his histogram, and you'll see that it's very similar to Nate's.  The mode is 332.  Next comes 347 (most likely giving NC to Obama) and in third place comes 303 (giving FL to Romney).

I've been enjoying my friend's site and eating up his stats and comparing to Nate's stats.  But while Nate's in the spotlight, my friend (who doesn't work for a major newspaper) isn't.

Now that you've compared the results of three different projections, what do all three of these have in common?

Amazing accuracy to predict the actual outcome, and the reliance on POLLS.

While Nate and Patrick and others should continue to do what they do and produce cool stats, let's give credit where credit is due and let's acknowledge where the true predictive power comes from: the POLLS.

Update 11/12/2012:  After having seen videos of Nate Silver after the election and seeing that he is not gloating, I would like to add that Nate appears to be a wonderful person and a professional mathematician.  Please note that I do not believe that Nate made any errors in his projections, and neither did he use faulty methods.  

It's just that the one feat of predicting the point estimate of each of the 50 states was actually the easiest thing to predict, as the polls already had this covered.  Anyone could have taken the average of the latest major polls in each state, add up the electoral votes, and arrive at the same "correct" prediction.  That part isn't particularly impressive.

But if you haven't already, I invite you to dig into Nate's blog and look at all the other cool stats.  It's very difficult to gauge the accuracy of what "could have been" but you can be impressed with all the complexity and coolness.

And then visit my friend Patrick's blog, whose model isn't quite as complex, but is still nonetheless pretty cool.

I'm Willing to Give Obama Another Try

With four years of gridlock and stagnant economic growth, Obama somehow pulled it off.  He won reelection, and now he will be our leader for another four years.

I stayed up late to listen to Romney's concession speech.  He gave a speech similar to John McCain's four years ago.  A few excerpts ...

The nation, as you know, is at a critical point. At a time like this, we can’t risk partisan bickering and political posturing. Our leaders have to reach across the aisle to do the people’s work.

... We look to job creators of all kinds. We’re counting on you to invest, to hire, to step forward.

And we look to Democrats and Republicans in government at all levels to put the people before the politics.

I believe in America. I believe in the people of America.

It's basically a call to support the elected leader.  Work together to form mutual solutions to benefit the people.

And then Obama gave his acceptance speech.  The words he read are good and full of promises that would lead our country in the right direction.  Especially promising are his ideas of working together.  A few excerpts ...

I just spoke with Governor Romney and I congratulated him and Paul Ryan on a hard-fought campaign.

We may have battled fiercely, but it’s only because we love this country deeply and we care so strongly about its future. From George to Lenore to their son Mitt, the Romney family has chosen to give back to America through public service and that is the legacy that we honor and applaud tonight.

In the weeks ahead, I also look forward to sitting down with Governor Romney to talk about where we can work together to move this country forward.

... Now, we will disagree, sometimes fiercely, about how to get there. As it has for more than two centuries, progress will come in fits and starts. It’s not always a straight line. It’s not always a smooth path.

By itself, the recognition that we have common hopes and dreams won’t end all the gridlock or solve all our problems or substitute for the painstaking work of building consensus and making the difficult compromises needed to move this country forward.

But that common bond is where we must begin. Our economy is recovering. A decade of war is ending. A long campaign is now over.

And whether I earned your vote or not, I have listened to you, I have learned from you, and you’ve made me a better president. And with your stories and your struggles, I return to the White House more determined and more inspired than ever about the work there is to do and the future that lies ahead. 

I really hope that Obama has become that "better president," as if he remains the same, the predictions I spelled out earlier will play out.  If instead, Obama reaches out across the aisle as he promises, then some of those losses can be mitigated.

Since Obama seems sincere, I'm willing to have hope that he will do what it takes.  Perhaps we'll all survive these next four years.  But then again ...

Four years ago, Obama gave a similar acceptance speech.  A few excerpts ...

I just received a very gracious call from Sen. McCain.  He fought long and hard in this campaign, and he’s fought even longer and harder for the country he loves.  He has endured sacrifices for America that most of us cannot begin to imagine, and we are better off for the service rendered by this brave and selfless leader. I congratulate him and Gov. Palin for all they have achieved, and I look forward to working with them to renew this nation’s promise in the months ahead.

... Let us resist the temptation to fall back on the same partisanship and pettiness and immaturity that has poisoned our politics for so long. Let us remember that it was a man from this state who first carried the banner of the Republican Party to the White House –- a party founded on the values of self-reliance, individual liberty, and national unity. 

Those are values we all share, and while the Democratic Party has won a great victory tonight, we do so with a measure of humility and determination to heal the divides that have held back our progress.  As Lincoln said to a nation far more divided than ours, “We are not enemies, but friends…though passion may have strained it must not break our bonds of affection.” And to those Americans whose support I have yet to earn -– I may not have won your vote, but I hear your voices, I need your help, and I will be your president too.

These are great, yet very familiar words.  If anything, I sense a little more passion in his 2008 speech.  At first, I liked Obama, and I believed him when he said he was going to usher in a new age of bipartisanship.  I had hope. 

And yet, I'm scratching my head as to why Obama seemed to do the exact opposite over the last four years.  As soon as he got in office, he told the Republicans, "I won, you lost."  He continued blaming Bush with everything under the sun, and attempted to discredit Republican-leaning establishments, and needlessly vilified several parties (including the US Supreme Court during his first State of the Union address). 

Was Obama lying about bipartisanship in his 2008 speech?

Then there was hope again in early 2010 when a special election gave us Scott Brown, the 41st Republican Senator.  With this election, Health Care Reform appeared to be dead in the water because of the likelihood of a filibuster in the Senate.  For a brief instant, Obama looked sincerely humbled as he announced that he was going to have to work with the Republicans to get Health Care passed.

But that's not what happened.  Nancy Pelosi and others convinced Obama to allow them to take a different path and to bypass Republicans entirely through the reconciliation process.  Again, it appears Obama was lying about wanting to reach across the aisle.

After the fact, Obama "listened" to Republicans and vowed to pursue health care tort reform.  And last I heard, we're still waiting for anything to come of it.  I guess that's what you call "listen and ignore."

So, how does the saying go?  Once burned, twice shy?  I hear the words coming out of Obama's mouth in his 2012 acceptance speech, and again I'm hoping that he'll really follow those words this time, but I'm not so optimistic as before.  This time, words alone won't cut it.  I'd like to see some real action this time.  Show us some real bipartisanship.

For example, if Obama is listening to the public, he'd notice that in the CNN exit polls, 49% of those polled believe that the 2010 Health Care Reform Law should be repealed either in part or in its entirety; while 44% believe it should stay the same or be expanded.  If Obama is truly listening to his constituents, then he'd realize that the Law at least needs to be revisited.  If Obama and Congress would do this, then that would show me that Obama really means what he says about bipartisanship.

But let's see how Obama's doing so far after winning the election (talking about wanting to raise taxes on the rich)...

"On Tuesday night, we found out that the majority of Americans agree with my approach and that includes Democrats, independents and a lot of Republicans across the country..."

Ouch!  I really hope we're not in for four more years.  Obama--prove me wrong!

Obama's Going to Win and We're Screwed

With Obama almost certain to gain a victory, I'd like to take this time to make a few predictions as to what we're likely to see over the next four years.  And also to broadcast why I'm not voting for Obama, and why I'm not jumping on the bandwagon that will contribute to what's about to happen.

Four years ago, Obama made a lot of promises.  Now in 2012, many people are still out of work.  People are still paying high taxes.  They are still paying high costs for healthcare, or still not able to afford it.  A lot of people are disappointed.

In the current election, Obama is making the same promises and then some.  It's as if he's doubling down on his promises, and for some strange reason, it appears to be working.  There are millions are people saying, "The last four years have been disappointing, but I'm voting for Obama again anyway."

This sentiment is echoed in yesterday's idiotic endorsement from the Economist.  Even though they admit that Romney gave a spark of hope of being that better president in the first debate, they'd rather "stick with the devil" they know and reelect him.  I really don't understand this.

So, what's going to happen over the next four years?  More of the same, only worse.

Obamacare is going to do the most damage.  When it goes into full force in 2014 (only a year and two months away), people are finally going to understand what's in this plan, and they're going to be screaming.

The poor who make just enough money to be ineligible for subsidies are going to say, "You mean we have to pay for it?  We can't afford it."  Some will elect to take the annual tax (it's not a fine as per the Supreme Court) because it'll be cheaper.

Businesses are going to cut jobs and/or cut down employee hours to be below 30 hours to get around the requirement to provide healthcare.  There are already businesses seriously considering this TODAY.  When this actually begins to be a common practice, Obama will then begin an initiative to punish any businesses engaging in these "evil" practices and all hell will break loose, while sales of Atlas Shrugged will go through the roof.

Insurance companies will be forced to keep their rates at an artificially low level--so low that in a few years, the cash flow coming in will be insufficient to pay out claims.  These companies will either choose to stop writing health insurance, or just go insolvent.  Since future insurance bailouts are a definite no-go, this will ensure the introduction of the public option, which will eventually become the ONLY option, and the national anthem will be officially changed to be "O America."

 

Unemployment is going to continue to be a big issue.  It's going down now due to natural economic forces despite Obama's anti-corporation policies.  It may even get down to around 6% in 2013, but with Obamacare and higher taxes on the rich and small businesses on the docket, I expect unemployment to creep up again, and wouldn't be surprised to see it top out over 11% before 2016.

It's going to be called a Triple Dip recession.  I consider myself to be very fortunate to have kept my job during these tough times, but I have actual fears that I may not survive the next dip.  A vote for Obama could be voting me out of work.

Obama remains the King of Deficit Spending.  Keynes would have been proud of of his accomplishments.  The graph above shows the federal government's budget surplus or deficit through the years (unadjusted for inflation).  The biggest surplus happened during the Clinton years.  Bush had a pretty sizable deficit.  But see that big dip down to 1.4 Trillion?  That's Obama.  He didn't just "inherit" such a large deficit.  He CREATED it.  And Obama's nonchalant attitude on the Letterman show when asked about the deficit is very disturbing.  He said he didn't know what the national debt was and that "we don't have to worry about it in the short term."

What will happen in the next four years?  Will he continue not caring?  Are we to be the next Greece?  Some experts say our debt is actually healthy, but I don't know.  If we had to handle that large a debt by percent personally, we'd probably have to declare bankruptcy.

The Feds can print as much money as they need.  Print too much and the dollar becomes worthless.  Hyperinflation could become a reality.  In such an environment, we would have to be paid daily and spend that money immediately or lose it.  People would burn dollar bills just to stay warm.  Exciting!

Fortunately, experts predict the Feds will step in and not let this happen.  It definitely wouldn't happen in the next four years.  But what this does mean is that there will come a time where the US can no longer do any "Quantitative Easing" and there will be no further recourse to delay our debts.  This will invariably lead to higher taxes.

Iran will get even closer to building nuclear weapons.  Obama says that he's doing enough to stop this from happening, but I'm not convinced.  Romney appeared to much more concerned about this than was Obama in the third debate.

Also, as was evidenced in that debate, Obama seems unwilling to handle issues "all over the map."  He wants to handle one issue at a time.  He wants to remove our troops out of Afghanistan by 2014, no matter what.  His business-like approach to accomplish this concerns me, as it doesn't take into account any adverse situations that may arise between then and now.

Obama would rather bring our troops home and put them to work building bridges and schools.  (He actually said this in the third debate, and I'm surprised no one has jumped on it.)

It would be great if we could live in this imaginary world of peace, but unfortunately, the world is in turmoil.  If we withdraw completely, we do so at our own risk.  We can't count on a live and let die approach.  Our enemies will attack no matter what we do, and the question is, are we going to be ready?

There you have it ... my predictions.  In a nutshell, four more years of disappointment.  We will all witness the continuing failures of trickle-down government.

It'll be fun to come back to these predictions in 2016 and see how many came to pass.

And should Romney somehow win WI or PA or OH and squeak out a win, it'll still be fun to see how many of these predictions still come to pass despite how great I think Romney would be.  Or how many things would actually get worse.  But alas, Romney's chances to win wane daily now.

What gets me is, I don't think that these predictions are too hard to see.  I see several different people yelling these concerns as loud as they can, while a majority of the people close their ears and hold their nose while they vote for "more of the same."  I wish they could understand exactly what they're getting before it's too late.  I'd like to avoid this great call to impeach Obama when there exists no impeachable acts that he committed.

So why are so many people voting for Obama despite all these negative indications?  I think the answer comes down to one simple word: greed.  I'm not talking the "Wall Street" type of greed, but rather the "entitlement class" type of greed.  Everyone that's voting for Obama has been promised something.  But yet, when I try to pin down Obama's plan to deliver, it seems like nothing but a bunch of empty promises.

Obama promises to tax the rich more, but is very unclear as exactly how this will benefit the poor.  He mentioned in one of the debates that he already gave the middle class a tax cut, but I do my own taxes, and I didn't get one.  The only new "tax cuts" I can think of were two recent temporary measures: a "Make Work Pay" benefit of $800 a year per household for two years, and a Social Security tax holiday of 2% over the past two years.  If these were tax cuts, then they wouldn't be going away after two years.  Obama's current tax plan does absolutely NOTHING to cut down taxes on the poor and middle-class.  It is simply to increase taxes on the rich.  At least Romney's tax plan would reduce taxes on the poor and middle class, so I'm really at a loss as to why people think they're better off with Obama on this issue.  In four more years we poor and middle class people are going to be paying the SAME taxes (plus the "I can't afford medical insurance" tax I mentioned above), and we are still going to be crunched.

Obama promises that women will be better off with him as president.  These last couple of weeks, he and his ads have been bringing up abortion and equal employment and so on.  But what exactly can Obama deliver?  Abortion is already legal and is here to stay, and the president, whoever he may be, would have little power to change it.  And by the letter of the law, women already have equal employment opportunities.  There is still a question of practice, but again, there is very little a president can do.

Obama now officially supports gay marriage.  He announced this only a couple of days before picking up major contributions from gay donors at an already planned Hollywood fundraiser.  And yet, can anyone name one thing that Obama promises to do for gay people?  Don't they realize they're being played?  They're only going to be irate in four years when there still isn't a federal law enforcing the acceptance of gay marriage.

Obama promises citizenship to illegal immigrants.  This is an unmet promise from 2008.  He did try to get the Dream Act to pass, but that legislation was problematic.  He also gave an executive order giving a small subset of immigrants citizenship in the past couple of months.  How conveniently close to an election!  The funny thing is that Romney has a much more viable plan to provide an easier path to immigration.  Make them legal and make them pay taxes.  Again I'm at a loss as to what Latinos expect Obama will deliver as he was unable to deliver in the last four years.

So, Obama makes a whole series of empty promises, and he does this well, playing on that natural "entitlement" greed we all seem to have.  In some cases, Romney even provides better options, but he doesn't emanate that same sense of hope that Obama's good at doing.

So, yeah.  Obama's going to win, and we're all screwed.

The Mel Tax Plan

With the Presidential election only a few months away, there's a lot of talk about tax policy.  What's fair?  How can you get the rich to pay more?  How can you lessen the burdens on the poor?  Who deserves to get tax cuts?  What about corporations?

In talking it over with several actuarial types via an online forum, I have put together this summary of ideas, which I believe to be a fairer tax system.  It doesn't incorporate too many changes to the current system.  It causes the rich to pay more and the poor to pay less.  It considers corporations.  It brings jobs back into the US, and it even helps to save Social Security.

This can be accomplished by a simple three-point plan.

• Lower the corporate tax rate.
• Increase capital gains taxes to be equal to or more than the standard income tax rates.
• Abolish the Social Security payroll tax (employee portion) and replace it with an uncapped income tax rate increase across the board.

I'll leave it to the tax experts to work out the fine details, but let me explain the thoughts behind the plan, and why these simple changes would benefit everyone.

Problem #1) The current tax system is so COMPLEX.  There's no way to predict how many taxes a person will pay in a year unless you consider countless variables.  One poor person may benefit from a tax credit that another poor person is ineligible for.  There may even be a filthy rich person eligible for that same tax credit.  A well-meaning tax expert may intend to close the rich guy's loophole and eliminate his benefit, but in the same vein he'd be hurting the poor person who currently depends on that same benefit.

With the economy as it is now, it would be a bad idea to remove ANY of these tax cuts.  All three changes that I've listed above are ACROSS THE BOARD changes while the poor and middle class continue to enjoy their child and mortgage interest credits and what have you.

Problem #2) The current tax system rewards and encourages speculation while at the same time penalizing those who actually work for their money. 

When you earn capital gains, you didn't work for those gains.  You invested money.  Someone else took that money, ran with it, took on the risks, and made money FOR YOU.  It makes no sense to charge a higher tax rate on income that is actually gained through HARD WORK than on income earned by speculation.

Here I turn to the concepts of Ayn Rand: One should be rewarded for their hard work.  If you work long hours for your company, or if you build an awesome product, or if your work provides jobs for hundreds of people, then you DESERVE to earn profits up the wazoo.

Investing money in a venture is all good, and should be encouraged, but to charge a lower tax rate on earnings gained by mere speculation is UNFAIR.  It provides no real incentive to make most people want to invest more money, and even provides an incentive for one to "leave their day job" for the more lucrative hobby of playing the stock market.

Reagan, one of our favorite Republicans, understood this concept.  Democrats are currently calling for higher capital gains taxes.  I say, "LET THEM HAVE IT."  It's fairer and better matches proper incentives.

Some of you may say, "But what about double taxation?"  Well, keep on reading.  I'll get to that.

Problem #3) The US corporate tax rate is WAY too high, and for no good reason.  It pushes US jobs away to other countries and gives incentives for foreign entrepreneurs to stay out as well.  It introduces double taxation and slows corporate growth.

Some complain that GE paid next to nothing in taxes last year.  If you realized how taxes affect corporations, you wouldn't care.  The reason?  Because corporations are NOT people.  If you tax a corporation, you're not lowering the profits that line the president's pockets.  Rather you are lowering the revenue available to the corporation to use for its own purposes.  This can manifest itself in several different ways...

• In order to maintain a level of profit, a corporation may RAISE PRICES to compensate. 
• A corporation may CUT EXPENSES to maintain that level of profit.  This most likely results in LOST JOBS.
• A corporation may send JOBS OVERSEAS to take advantage of foreign corporate tax rates that are much lower.
• A corporation may PRODUCE LESS, as the higher costs of doing business may make it not worth it to pursue certain ventures.

In short, if you really want to hurt corporations by raising their taxes, they're not going to be hurt.  Rather, they're going to pass on the hurt to the rest of us through one of those four tactics listed above.  It's not because they are evil and selfish, but only because every corporation has an obligation to make as much money as possible for the shareholders.  If they don't perform in this duty, the shareholders will remove their money and invest in someone else who can.  It's only game theory.

Corporate taxes are also a form of double taxation.  Corporate gains are taxed, and then the capital gains that are passed on to investors are taxed.  The costs of this double taxation are also passed on to the consumers.  To avoid this double taxation, we must choose which party should be taxed more.  I say, REWARD THE PRODUCERS and TAX THE SPECULATORS.

If you lower the corporate tax rate, corporations will compensate and pass on the savings through one of the following four tactics.  Remember that each corporation will try to maintain the same level of profits...

• A corporation may LOWER PRICES, as now they can afford to and competitive pressures kick in.
• They may INCREASE EXPENSES, which mainly means JOB GROWTH.
• They may BRING JOBS BACK TO THE US--especially if the new US tax rate is lower than our foreign neighbors. There would no longer be incentives to set up shop overseas for tax benefits.  Plus, foreign entrepreneurs would have incentives to ADD EVEN MORE JOBS IN THE US.
• They may PRODUCE MORE, as now they have more money to invest in R&D and the like, and benefit both themselves and the consumers.

Either way you look at it, lowering the corporate tax rate is win/win/win/win for us, the consumers.  In contrast, lowering the capital gains tax benefits no one but the rich guys.

By the way, this is a concept our favorite Democrat, President Obama, is in favor of.  The Republicans are calling for lower corporate taxes, so I say, "LET THEM HAVE IT."

Problem #4) Social Security is by far the largest tax burden placed on the lower and middle classes.  Including the employer-paid portion and ignoring the current 2% tax holiday, Social Security eats up a whopping 12.4% of your earnings, unless, that is, you happen to be RICH.  And to add to the hurt, Social Security pretends to be some kind of savings plan.  But it is a terrible plan that returns only 1% back to you, and perhaps 2% if you're lucky.  (Click here for a more detailed analysis.)  It returns income under what is currently consider to be the poverty level.

Further, it behaves as a "pittance tax," such as those described in the Bible.  If you're poor, a "pittance" is a lot of money that could break the family budget.  If you're dirt rich, then the same "pittance" is just a drop in the hat.  Since Social Security is capped, the most you (and your employer) can pay in a year is around $13,000.  If you're making millions of dollars, this really is a "pittance."

Most of you reading this are paying 12.4% (well--10.4% with the tax holiday, but how long will that last?).  Presidential hopeful Romney, on the other hand paid less than a FRACTION OF A PERCENT to Social Security, as that $13,000 is nothing to him.  Romney paid a lot higher "income" tax rate than the rest of us (which does not include payroll taxes), but if you throw in Social Security, we come close to the same rate if not more as Romney.

Is it fair for the rich to be taxed so little for a benefit they won't need when they retire, while at the same time the poor get taxed so much for a benefit that won't keep them above the poverty line when they retire at 72?  I'd much rather revoke this highly ineffective "savings" program.

But a more viable option would be to stop treating it as a "savings" program, and rather treating it as the socialist program it is.  Finance Social Security through income taxes instead of payroll taxes.  Employers would keep paying their share (which I'd leave capped for now), because there would be no immediate guarantee that employers would increase everyone's salaries to compensate.  But take that 6.2% (or 4.2% with the tax holiday) that the employees are paying and move it into the income tax.  This would have two major impacts.

• It would REMOVE the cap on contributions that the rich pay toward Social Security.  In other words, they'd be paying 6.2% instead of 0.1%.
• It would actually DECREASE the overall tax burden on the poor, as the higher "income" tax liability would allow more tax credits to kick in.  That is, the higher "income" taxes the poor people pay would be offset by the savings from not having to pay the payroll taxes.

Let's look again at the overall effect of the three proposed changes.  The lower corporate taxes would benefit everyone through job creation and "true" economic stimulus.

The dirt poor people would see lower tax rates through the Social Security change.

The filthy rich people would see higher taxes come out of their capital gains taxes, and to help fund Social Security.  Romney would see his tax bill go from 13.9% to something more along the lines of 30%.  This happens to provide similar results as Obama's ridiculous Buffett Rule, except I believe that the tax burdens in this modified plan are more fairly matched with where the burdens should lie and preserve the appropriate incentives to produce.

There you have it ... this plan leaves a few details to be worked out (we wouldn't want to raise capital gains too high or lower the corporate tax rate too low), but I believe this three point plan would be easy to implement and nudge us all in the right direction.

Fixing Social Security - The Private Lockbox

I wouldn't go so far as to say Social Security is broken, but it sure could use a few improvements.  Some say that funds collected for Social Security should be stored in a lockbox to ensure that people receive payments when they retire.  Others say that funds collected should be invested in risky private ventures so as to increase the rate of return.  What I propose is a mixture of these two ideas: the Private Lockbox.

HOW IS SOCIAL SECURITY DOING RIGHT NOW?

Let's do a simple test.  For this exercise, all you need is the latest Social Security Statement the government sent you.  (It's usually a four page document with green lines on it.  It says "Your Social Security Statement" at the top.)

I've created this spreadsheet (created on a Mac - no viruses) that will allow you to type in your information and see how well Social Security will perform for you.  The spreadsheet presents an alternative scenario where: instead of your money going to the government, it is placed into an interest bearing account.  When you retire, the account pays your benefits.  This alternative scenario allows you to compare.  If you run out of money before you die, then Social Security as it stands now is the better deal for you.  If you don't run out of money, then you would be better off investing your money yourself.

Here's how to fill in the spreadsheet.  (Note that this spreadsheet isn't meant to be printed out.  If you really want to print, you will have to setup up the print layout yourself.)

• In cell B1, type the year you were born.  (Don't lie - no one's going to see this but you.)  
• In cell B2, type how old you want to be when you retire.  You only have three choices: 62, 67, or 70.
• In cells F3 through F5, type the promised Social Security monthly benefits as spelled out at the very top of page 2 of your statement (Retirement section).  You should see different benefits for ages 62, 67, and 70.
• In cells C9 and down, type the "Your Taxed Social Security Earnings" numbers from the very top of page 3 of your statement.  Copy those numbers exactly as they appear, and be sure to match up your wages with the correct year.  The spreadsheet starts at age 14.  If you worked before then, just leave out those early years and fill in your wages starting with the year you turned 14.
• In cell J1, type the wages you made in the last year listed on your statement.  This replicates their assumption that you keep making your last year's wages until you retire.
• Finally, check cells C9 and down again.  It should show that your last year's wages continue until you retire.  If it looks messed up, copy and paste the correct numbers and/or just type those wages until it looks right.

Now that you have the spreadsheet filled out, are you ready to have fun?  Let's start off with 0% interest.  In cell B4, type 0%.  And for retirement age, let's type 67 in cell B2.  With 0% interest, you simply put money in the bank.  It doesn't earn any interest, and you start taking the money out when you retire.  Column F shows the balance in your savings account at the end of each year.  When that goes negative, you've run out of money.

In the example that comes with the spreadsheet, this poor person (we'll call him Bob) runs out of cash at age 80.  When I type in my personal numbers, I run out at age 79.  I suspect that you will find in your situation that you would run out of cash about the same time.

I don't know about you, but I intend to live older than 80 years.  I wouldn't want to run out of savings.  At 0% interest, Social Security is the better deal.

Now let's change the interest rate in cell B4 to 1%.  This is a decent interest rate.  When do we run out of money?  Bob runs out at age 83.  I also run out at age 83.  This is probably right at the life expectancy of someone who makes it to 67 years old.  Though I want to live beyond 83, this looks like a breaking even point.

How about 2% interest?  Bob runs out at age 89 and so do I.  This is starting to push it.  I don't want to get too wrinkly.  The savings account is starting to look better than Social Security, but not by too much.

Now let's try 3% interest.  Bob and I run out at age 103.  There's no way I'm living that long!  I'd definitely choose the savings account alternative.

Something funny happens at 4% interest.  Go ahead and type that into cell B4.  After Bob and I retire, our savings account is GOING UP.  This is because the interest alone on our savings is enough to support the benefit payments.  We will never run out of money!  Do I think I could find a safe long-term investment that can return 4%?  Um ... yeah!  Social Security is left in the dust.  (Watch that some of you comment to me that your personal numbers don't show this.  Just let me know and I'll stand corrected.)

Finally, if you keep in mind that the average long term returns on the stock market are 12%, go ahead and type that number into cell B4, and see what you get.  Bob becomes a multi-millionaire!

From this exercise, I estimate that Social Security's rate of return is somewhere between 1% and 2% (and that may be a little generous).  I don't know about you, but I think I could do much better on my own.

I feel as if the government has forcibly taken a few talents from me (excuse my Bible reference), and have buried them in the ground. If I live long enough, I'll eventually get them back.  But what good will they be?  There's no way I'll be able to live off of my Social Security check alone when I retire, and it feels like I've put so much into it.

Though Social Security promises a steady monthly check, it's my opinion that as it is now, it is an inefficient solution to providing security for our elderly.

THE FIX

There are two main solutions which would work.  #1) Do away with Social Security altogether.  OR #2) Introduce higher returns.

Solution #1 just isn't going to happen.

This leaves Solution #2, which means investing in the private stock market.  That's the only way to get higher returns.  However, this introduces risks.

For example, during times of plenty, Grandpa Sam could be rolling in the Social Security dough from his investments and come out a millionaire.  And then when the next market crash comes (and it will come), Grandma Julia loses all her benefits.  This doesn't seem fair, seeing how they put the same amount of their hard-earned cash into Social Security taxes.

We can have both the security and the high returns by using a plenty/famine approach, much like the story of Joseph and the grain in the Bible.  During seven years of "plenty," Joseph collected grain from all sources.  Then when seven years of "famine" came, he was able to distribute the stored grain (at a profit - no doubt) and help everyone survive.

Likewise, let's say that the stock market earns an average of 12% a year in the long-term.  Let's choose a guaranteed return of 6%.  When the stock market's doing well, the government would store the excess earnings in a very large contingency reserve (a fancy term for lockbox).  When the stock market crashes, the government would dip into the contingency reserve to pay out the same level of benefits.

Could we use a 6% return on what the government takes in Social Security taxes?  Let's look at Bob's situation.  If he retires at 67, he's only going to get $1,250 a month.  That doesn't buy very much.  At 1.5% interest, the savings account scenario runs out of cash at age 85, which is well beyond the life expectancy.  At 6% interest, Bob's benefit can be raised up to $4,700 a month to get the same results.  Now that's something I could live off of when I retire.

If the government could somehow guarantee an 8% return, then Bob could raise his benefit to a whopping $8,500 a month.  Wow!  At 12% (unreasonable and too risky to guarantee), the benefit goes up to $28,600 a month.

THE FINE PRINT

This analysis of mine is nowhere near perfect.  There are other concerns I don't consider, such as the idea of government controlling private stocks.  This could be somewhat offset by disallowing voting rights to government entities.

Also, there's the issue of having such a large Social Security contingency reserve while other funds are suffering.  I could see a large temptation to dip into the reserve to fund other projects.  This could be offset by setting an upper limit on the contingency reserve.  If the reserve ever gets tapped out, the excess "excess funds" could be allowed to go to other budgetary needs.

Even if we were to begin now with such a plan, it could take decades to build up the contingency reserve.  If a large market crash happens too soon, the government could be looking at a major loss.  This risk can be easily mitigated by easing into higher returns.  That is,  now we're getting around a 1.5% return.  We can raise that to 2% for a couple of years.  (Everyone's benefits go up.)  If the stock market's doing well, then we can raise it to 3%, and so on until the contingency reserve is sufficiently large to support a 6% return (or whatever the magic number is).

Also, my analysis includes the employer-paid portion of social security taxes.  Not only does this represent the total money that the government collects, but it also represents (in a perfect market) the higher wages the employer would pay if no Social Security taxes were taken out at all.  In actuality, if Social Security were to disappear, your employer probably would not pass on the full 6.2% savings to you, but rather give you a slightly lower raise.

Finally, this proposal does have the added benefit of putting more money into our economy through investing in private businesses.  This has to be a good thing, especially if it produces more jobs and even higher returns.  Sure there would be a lot of fine details to iron out, but I'm sure the fine men and women of Congress could figure it out.  To me it seems a no-brainer that this proposal is the way to go.

Aspiring Writers Can Deduct Business Losses

There's a first time for everything.  Since I put in sufficient money into forwarding my fledgling writing career in 2010, I can actually deduct business losses.  This is a good deal for the starting aspiring writer.  (But also keep in mind that once you start making money, the IRS will get their payback through self-employment taxes.)

And since I'm an actuary, I chose to do my taxes on my own (as I do every year).  I had to learn how to fill out these new forms: Schedule C (Profit or Loss From Business) and Form 4562 (Depreciation and Amortization).  It took me several hours this week to figure it all out.  Perhaps some of the knowledge I've gained can help you fill out your own Schedule C/Form 4562 more quickly.

This article gives the best advice I could find on the web.  It contains general tax advice geared directly to freelance writers.

Okay, let's look at Schedule C.  I put my name and SSN at the top.  I enter:
A) Freelance Writer (you can put whatever title you want here - just make sure it sounds business-y)
B) 711510 (the code for artists/writers)
C) blank - I am my own business.
D) blank
E) blank
F) Accounting method = Cash.  This means that I will account for all income in the year that I receive it (instead of stretching it out over several years).  For expenses, I'll do the same, with some exceptions noted below.  "Accrual" is meant more for people that buy and sell a whole bunch of stuff.  Most writers will use "Cash" accounting.
G) Yes, I materially participated in my business.
H) I just began my business (started getting serious/going to conventions/etc.), so I check this box.

Part I) Income - I didn't receive a dime for writing in 2010, so this section is one big fat zero.  (Warning, if you go five years without reporting a profit in at least three of those years, the IRS may come after you and try to make you pay back these taxes.  Hey, if I don't start selling to magazines/etc. by then, they can have their taxes back!)

Part II) Expenses - Okay, everything above this section was easy.  To fill out this next part, you just need to know what all your expenditures were, and what category you want to put them in.  (There seems to be a little variation as to where different people put things, but it all adds up to line 28 in the end.  Just be consistent where you put things year to year.)

This is where I put stuff:

#8) Business Cards.
#9) Mileage for using car (I only put in mileage to the conference I attended.  It wasn't worth it to include the 1 mile trips to the post office - but if you keep track of that kind of stuff, this is where it goes.)  This year, the mileage rate is $0.50 per mile.
#13) Depreciation - see instructions for Form 4562 below.
#18) Postage and paper supplies.
#22) Other supplies (like the cool moleskine my wife bought me).
#27) See Part V below for a list of "Other Expenses".

A note about line 30: Most of what I found on the web seems to indicate that writers don't take the time to calculate the business use of your home.  It's a lot of work for very little return.  I just put zero like all these other folks.

#32) A confusing line.  Most of us will check 32a (all investment at-risk), which is what you're supposed to check unless you happened to invest your money in certain not-at-risk investments (listed in the IRS instructions).  Chances are, none of us will ever do that in our writing business.

Part III) Skip.

Part IV) Since I claim mileage expenses in line 9, I answer all the questions in this part.  I estimate my total 2010 mileage on my car.  I write down the conference round-trip mileage, estimate commuting to my day-job (52*5*round trip mileage) and subtract to get "Other".  About the commuting miles, I considered writing "0", as I don't commute to my writer's business.  But since the IRS instructions say, "commuting is travel between your home and a work location," I take that to include my day job.  In either case, it doesn't affect the deduction.  Only the business mileage is deductible.

I answer questions 45-47b all "Yes".

Part V) There are certain expenses that don't go into the Part II categories.  Here I list:
Conference Fees
Membership Dues
Subscriptions to Trade Magazines

I could also add books that I've bought for "research", but I have to admit that I bought those three books for fun.

Note that since there is no Income for me, I end up with a negative number in line 31.  I have a business loss, which directly reduces my AGI on 1040.  That's good, as it means less tax liability and a bigger refund (or lower payment).

Okay, now let's look at Form 4562, which you need to fill out line #13 above.

Now, this is the hard form.  This is the scariest thing I've ever seen in my life.  This is what makes even the smartest actuaries cower like little babies before going down to H&R Block.  What's pretty sad is that the math behind the form is pretty basic stuff.  It's just knowing where to put the stuff that's so hard to figure out!  I still don't know where everything goes, and I know just enough to help out with my specific situation.

There are certain expenses where you are forced to use the "Accrual" accounting instead of "Cash."  That is, if a certain asset you buy has a useful life over several years, then you need to stretch that expense over the useful life.  This includes computers, software, cars (if you buy a car specifically for business transportation), houses, offices, etc.  In my case, I have two types of expenses I can claim:
#1) A computer which is used 10% of the time for the writing business.
#2) Computer software bought this year used 100% for the writing business.

Let's see how I fill out this form.
Part I) Section 179.  This is a special exception that allows you to claim the full amount of the expense during this year.  If you skip down to line 11 and 12, you'll see that no business income means you can't claim Section 179.  That describes me, so I leave this section blank.

Also, the website I mention above advises against using Section 179, as you're probably better off deferring the deduction to later years when you start making a bigger profit.  In other words, if you claim 179 now when you're not making as much, you may end up paying more self-employment taxes later when you have bigger profits.

Part II) The IRS instructions say that computer software (not claimed under Section 179) goes into line #16 using 3-year straight line depreciation.  This means you simply take how much you paid for software this year and divide by three.  You also claim this the next year and the next.  If I were to buy more software in 2011, then I would keep track of everything in a spreadsheet.

Part III) I don't have anything that falls under MACRS Depreciation.  (Run for the hills!)

Part IV) This adds everything up, including Part V which we've haven't gotten to yet.  Really, IRS, have you ever heard of linear processing?  I hope you guys never write a sci-fi novel!

Part V) The IRS instructions define what's included in "Listed Property".  This includes the computer I mentioned above.  Note that I could have claimed Section 179 on the computer and the software, if I had a profit and if I chose to do so.  Since I didn't use Section 179, the computer has to go here in Part V.

Since I only use that computer 10% for writing, I must put it in line #27.  Here's what I put in each column:
a) Computer
b) Date when I started using it for writing
c) 10% business use
d) the full price of the computer
e) 0.10 * the full price of the computer (yes, I only get to deduct a tenth of the price - bummer!  I could tell the kids, "Sorry, no more computer for you.  You didn't eat your broccoli."  Hmmm....)
f) recovery period = 5 years (always use this for computers)
g) S/L for straight line depreciation
h) divide (e) by (f).

I get to include this over the next four years as well.  Note that I can change the % for business in later years (especially if the kids don't eat their broccoli).

I left Section B blank, as that info is contained on Schedule C and I only have the one car I use for writing business.

Part VI) I left this blank.  This appears to be for something else - one of those sections where you'll know if you have to fill it out.  The examples I've seen have all left that section blank.

Okay, there you have it.  If you've gotten this far, then I'm a better writer than I thought.  Who else could captivate an audience who hopefully never has to fill out any of these forms?

And if you have to fill one of these out yourself, happy tax filing!
Mel