Taxes: Who they really affect

One of the big news stories in the past week has been how Apple used tax loopholes to avoid billions of dollars in taxes.  On the surface this seems like a big scam on Apple's part, but it has much to do with tax laws.  This New York Times article explains the situation in greater detail.

According to Senator Carl Levin, D-Mich, “Apple successfully sought the holy grail of tax avoidance. It has created offshore entities holding tens of billions of dollars while claiming to be tax resident nowhere.”  One might think how Apple could not have residency nowhere, but this is where tax laws come into affect.  In the United States, companies pay taxes based where they are incorporated, while in Ireland, companies pay taxes based on where they are managed and controlled.  As a result, Apple was incorporated in Ireland, but was managed in the US in order to "neatly fall between the cracks of the two countries' jurisdictions"


Obviously everyone can blame Apple for avoiding taxes, but what if we consider taxes themselves.  Apple is a big company that avoided taxes, but I'm sure that there are many other companies that deploy the same tactics to prevent giving up over 20% of their profits.  As a result, there needs to be some universal unity in order to prevent such instances.  Although it is difficult to do because certain governments are constructed for specific tax jurisdictions, the UN should at least make some mandatory guidelines.  For example, if in Ireland companies paid taxes based on where they were incorporated rather than managed, Apple would be required to pay taxes to Ireland.  A simple addition of a universal tax code would minimize tax avoidance.

I have to say, I give Apple props for being able to figure out this maneuver around taxes, and it only proves that taxes need to be mandated internationally.  Additionally, even if Apple had needed to pay taxes in Ireland, the rates are significantly lower than in the US.  So for now, companies are going to continue to find ways around tax laws and there's nothing that the government can do about it

How do you think the government should handle tax avoidance?  And how can the government fix the problem of tax avoidance?  Feel free to comment below.

It's Simple Math... For Some

The past week in math class we learned about probability, and I noticed many of the problems addressed the concept of expected value. Expected value is the margin of profit in any given game.  As I began to solve many of the problems, I calculated the odds of winning the lottery (By the way, I wouldn't recommend participating). As I suspected, the old adage was true, "the lottery is a tax on people who are bad at math". This article gives some background about the probabilities of winning and why people play in the lottery.

Mathematically speaking, the odds of winning the Powerball are one in 175,200,000. To put this in perspective, "you're more likely to die from a bee string (one in 6.1 million) or be struck by lightning (one in 3 million)"! The average Powerball jackpot is $95 million and the average cost of a ticket is $2. I calculated that the expected value from purchasing each ticket is -$1.46. This means if someone bought one ticket everyday for 10 years, like many people do, they would lose $5320.83 on average with still only a .0021% chance of winning the jackpot over the 10 years.

So why do people buy lottery tickets? They could be behind on payments, have family tragedies, or be unemployed. Alternatively, maybe people play these games because of the hope that money buys happiness. For that one lucky winner, their life is changed forever. People love the chance to win, a clear American value. This parallels to an era we discussed in class, when the British traveled to America to start anew in the 1600s. Many took risks in search of riches or freedom. Even 400 years later, risk taking is an important component of the American identity. People will do anything to change their life forever, even if it is completely irrational. If I went up to someone and said, "would you throw away $532.90 a year?" they would think I was crazy. However, if I said, "do you want to buy a lottery ticket with the chance of winning $95 million?", most people would accept.

In reality, I'm basically asking the same question. So why do people fall for lottery trickery? I think the lottery does a great job advertising to those most likely to purchase tickets. They are convincing these vulnerable people that this is their chance to get out of debt, become rich, etc. Unfortunately many of the lottery players do not realize how slim their chances are of winning. And even if they did know the odds, I suspect many people would continue to buy lottery tickets.

Why do you think the lottery has grown into a multi-million dollar business? And why do you think people buy lottery tickets? Feel free to leave comments below.

Corruption in the IRS?

This weekend there was a big story sweeping the news.  It was about how the IRS in Ohio was handling certain tax exemptions regarding organizations that identified as Tea Party or conservative.  The IRS was specifically not offering exemptions to those organizations when they applied for them.  This article explains the situation in greater detail.

On the surface this appears entirely political and there is no excuse for targeting political affiliation for tax cuts.  However, the commissioner of the IRS that has just recently resigned, Steven Miller, said that "while 'intolerable', it 'was not an act of partisanship'".  But how much should we trust one of the men that was supposedly involved in this scandal?

It seems as if this scandal was clearly intentional, drawing skepticism with whether President Obama was involved.  Obama claims that this act was "inexcusable", trying to emphasize that he was not involved.  But who do we believe?  The president, the IRS, the organizations wanting exemptions?  This is a very sticky situation and until more details come out it is difficult to target who is too blame.  Nevertheless, this was unconstitutional and warrants serious repercussions including a criminal investigation for those involved.  It is completely unjust to determine tax exemptions on political affiliation and this sort of activity must be monitored in the future.

The purpose of the IRS is to enforce the tax laws, not to determine a political agenda.  In this case, the IRS went beyond their bounds to discriminate against conservatives and Tea Party organizations.  What if, however, the IRS began auditing based on race instead of political affiliation?  Would this draw more attention?  I certainly believe that this would become a significant national issue that would create more controversy.   This example shows how certain issues are prioritized based on controversy.  As a result, race auditing would receive more media attention, making the issue seem more prevalent.  It is a shame that certain controversies are only recognized if the media chooses to cover them, even if the same felony is committed, but it's all about the money.  And race controversy sells.

How do you think this issue would be different if it was a particular race being targeted as oppose to support of a political party?  And how much do you think the media has to do with the attention of certain events?  Please comment below.

Not Part of the Game

When many people talk about applying to colleges, they talk about "playing the game".  This "game" is based on choosing the right college to apply to early decision, doing particular activities, and stuffing your resume.  But do colleges actually care about all of this stuff in reality?  This article explains how some of these tactics actually work against your favor, especially if you are on the wait list.

One counselor of undergraduate admissions, Ms. Brown said. “There’s one parent who calls up and yells at me: ‘I can’t believe this happened! This is a horrible thing!’ And then he calls 10 minutes later and says, ‘I’m sorry.’ Then he calls and says, ‘I know you don’t like me. I’m being a complete pest.’ ”  This would not help someone's son or daughter that was trying to get off the wait list.  Because of tactics like this and others such as sending in projects and videos, colleges have begun to send letters to people on the wait list telling them which activities would not help their cause.  There was one girl that even emailed the admissions office daily.

These people sound like their doing crazy things, but think about how much you prepare to go to college and how important it is to go to one of your top choices.  Some people would do literally anything to get into their "dream college".  This is what America has come to; if you don't get what you want, you beg until you get your way.  Obviously this is not the case for everyone, but I find it outright ridiculous that some people would email the admissions counselor every day in order to get into a college.  It's mind boggling.  

Why do you think people will do anything to get into their first choice college?  And do you think it's moral to do such actions?  Please comment below.

Education for all?

On Monday, I turned in my Junior Theme, the paper that many consider your "most important paper".  My topic was consumer debt, but I was also thinking about doing something about education.  I came across this article and thought it was very interesting and telling.  It is about how the gap between education of the rich and poor have increased, particularly in test scores.

This was one significant stat: "In the 1980s, on an 800-point SAT-type test scale, the average difference in test scores between two such children [rich and poor] would have been about 90 points; today it is 125 points".  When considering standard deviation, this 35 point different is actually a bigger gap.  One would expect wealthier people to receive better education, but why should the gap between rich and poor education rise?  Shouldn't it remain consistent?

I think that nowadays, people spend extra money on tutors and resources in order to improve test scores.  I know that I took countless tutoring sessions for the ACT, which definitely improved my score.  I highly doubt poor children have this luxury or even option.  But why does it even matter that the gap is getting wider?  I'm not completely sure, but I would say that it contributes to a greater difficulty to move up social classes, as well as increasing the difference in income down the road.  So this is a national issue and should be concerning to the government, who is trying to improve the education of the country nationally.

Why does it matter if there is a big gap between the rich and poor test scores?  And why do you think the gap has widened?  Comment below.

Down We Go

Just recently, the first quarter US GDP was released.  The GDP, or Gross Domestic Product, basically represents the income of the country as a whole.  This number determines how much the government can spend and in many ways, the power and prestige of the country.

This quarter, the GDP was $3.0306 trillion, almost the exact same number as four years ago.  This doesn't seem like a cause for concern, but adjusted for inflation, it is 6.5% lower than 2009.  The chart to the right indicates the GDP adjusted for inflation since 1955.  This shows how the current GDP is significantly lower than in the past.  Much of this can be attributed to the recession but also the struggling economy of the US.

Unfortunately, it is not very easy to fix the economy.  Citizens must spend in the economy and the government must reduce spending in order to decrease federal debt.  This will take time but unless it is addressed soon, there will be nothing preventing the GDP from decreasing continually.  If America wants to retain its label as a superpower, we must get our act together and fix this mess.

What do you think would be the best remedy for tour economic problems?  Has America's reputation been tarnished because of our economic issues?  Please comment below.

The Age of Technology

I was browsing through the New York Times today and found a very interesting article about a recurring theme of Excel coding errors.  This may not seem important, but these errors tend to be on major projects and research that affect the whole country.  Here is the article.

A few examples of these errors are as follows:  "In this age of information, math errors can lead to disaster. NASA’s Mars Orbiter crashed because engineers forgot to convert to metric measurements; JPMorgan Chase’s 'London Whale' venture went bad in part because modelers divided by a sum instead of an average."

These are significant errors that lead to disaster and losses of millions of dollars.  Yes, technology has certainly improved many different areas, but we must be cognizant of the possibility of errors.  For example, there was a study done by two economists at Harvard.  This research was determining if there was a correlation between debt and economic growth.  The conclusion of this study was that once debt reaches 90% of the GDP, economic growth slows significantly.

This study came out a few weeks before the Greek crisis, which seemed to follow suit with the study.  As a result, almost everyone took the 90% threshold as fact, not theory.  News stations were referencing the 90% rule when advocating government spending cuts.  These cuts would lower debt, but also get rid of benefits for the unemployed.  And why was the reason this idea arose?  The Harvard study.

When researchers at U Mass looked over the data, they found an Excel coding error.  When corrected, there was absolutely no correlation between 90% of the GDP in debt and economic growth slowing.  What is to be learned?  In an age of technology, people are relying too heavily on electronic devices and programs that may have mistakes.  The 90% fiasco was a huge deal and could have seriously affected millions of Americans even though it wasn't a proven theory. Americans jump to conclusions when they hear an idea.  This can lead to problems.  Technology is beneficial, but we cannot rely too much on it.

Do you think Americans rely too heavily on technology?  Why or why not?  And what can we do to prevent these errors and misconceptions?  Please leave comments below.