All posts by itsallmadness

A Really Subjective View of Atlantic City Casinos

There are two basic ways to make money in a casino: the “Circus Circus” small bettor/grind out every dollar approach and catering to the high rollers as the Aladdin (now Planet Hollywood and owned by Harrah’s) tried to do with the London Club, which had the first million-dollar chip in the gaming industry. If you are going to cater to high rollers, casino management has to be willing to live with more variance in the casino’s “win” month to month. William Bennett, former CEO of Circus Circus, took an ax to the baccarat tables after they lost too much to some high roller.

Atlantic City started as a day-tripper place because only 300 rooms were required to qualify for a casino-hotel license. For about a year, Resorts International had a lock on the casino market in Atlantic City because they were the first to open. When Atlantic City casinos first opened, and you took one of the buses that went to the casinos, you got back more than your bus fare in quarters and a free buffet coupon. In the summer of 1977, a friend of mine who looked 21 did nothing but ride the bus back and forth to Atlantic City all day to collect the extra money because he couldn’t find a summer job. By the time that I went there last in 2008, the refund had dropped to about half of your bus fare on weekdays, a third of it on weekends, and maybe $5 off the buffet. If you took the Greyhound bus out of Baltimore, Silver Spring or Washington, DC, as I have, Trump Plaza was the first casino drop-off and the last place to be picked up, which allowed people to maximize the time that they spent gambling. I learned that it is better to be picked up at the first pickup place so that I could choose my seat. The order of stops in Atlantic City was the main bus station, casino #1, and casino #2, with this order reversed on departure.

The Frontier Casino in Las Vegas had their workers strike for six and a half years, ending in 1998. This doesn’t make the failure to settle the strike at the Taj Mahal right, but it is not unprecedented. There have been books written about Donald Trump and the building and management of the Taj Mahal. For instance, three of Trump’s top managers for the Taj Mahal were killed in a helicopter crash in 1989. The dominant color in the Taj Mahal’s decoration is red, which is geared to attract the Chinese and Koreans because they think that red is lucky. I can say that the rooms in Trump Plaza were nice, but I never stayed at the Taj Mahal.

Casinos are a high fixed-cost business, and Trump overpaid for all of his properties, if you compare construction costs per square foot for comparable properties, adjusting for when they were built. He wanted the prettiest buildings, and didn’t understand gamblers, many of whom would trade lower table minimums and lower hold percentages for a pretty building. Trump Plaza sold for $20 million in 2013, and it cost $210 million to build in 1984. Trump Marina sold for $38 Million in 2011. If you look at the sales on a “per hotel room” basis. they are comparable prices.

A trend that crept into the gaming industry sometime in the 1990s was that every department had to make money. This gets to ridiculous degrees, such as allowing a pit boss to give away only ten packs of cigarettes per shift to players at one casino in Cripple Creek, CO. The longer trend of flat to declining wages affected the gaming industry, but even so, we spent more on gambling than any other leisure pursuit. Looking at the player club formulas for complimentary goods is instructive. In 2008, one had to gamble $5 on the slots to get one cent of credit toward complimentary items at Harrah’s properties. There were also efforts to increase the house edge on table games, such as paying 6:5 for a blackjack rather than 3:2. Resorts International had a deal in 2010 or so where you were paid 90% of your bet if you won on blackjack. To bet only $5, you had to put up an extra fifty cents. if you won, you’d be paid $5, but they would take the fifty cents.

Trump would have done well to do what Steve Wynn did: build a casino and sell it for a profit some years later, but this would have cost him the opportunity to continue to extract money from the company. Wynn opened the Golden Nugget casino in 1980 in Atlantic City, but sold it to Bally’s in 1987. The former Golden Nugget had three other owners/managers before it closed permanently in 2014. It is easy to ask what could have been. Had the money that was supposed to go to Atlantic City redevelopment actually been spent on redevelopment over the first 30 years or so of casino gambling in Atlantic City, it would be a far different place. Unlike Las Vegas and most other towns where casino gambling is legal, casino workers didn’t move into town(or a nearby town) to a large degree, and there was still satellite parking for them about two miles outside of town as of 2008.

“It’s Deductible”

People will chase tax deductions or preferences, even when it isn’t in their best interest. The value of deducibility of expenses or donations declines as the marginal tax rate declines.

I might make a tax preparer’s head explode when they see how I do my taxes, becuase I choose not to take advantage of tax deductions that I am allowed. Because I am a thousand dollars or so over the limit for being able to itemize, but Colorado requires me to add back what I deducted for state income tax on my federal return to my “Colorado income” for the purpose of calculating my state income tax due if I itemize deductions, it turns out to be a wash not to itemize. The $300 or so that I would pay in “extra” state tax if I itemized would be exactly offset by my federal tax savings for itemizing, so why fill out an extra form? A further benefit of not itemizing is that any state tax refund that I receive does not have to be declared as income the following tax year.

Lots of people confuse tax deductions with tax credits. Donating to charity “saves” me 32.62% of the amount of the donation if I itemize, and I should be more diligent about tracking charitable donations, considering the seemingly endless food drives that are held at work. Even there, I run into the $500 limit on non-cash deductions. I’d prefer to buy a case of tuna (or some other high-demand item) for the local food bank, but I can usually buy it a lot cheaper than the price that they want to charge me for the convenience, and often sufficiently cheaply that the tax benefit of direct donation is wiped out. The food bank should prefer getting 25 cans of tuna at $0.65 each to $25 in cash from me when they are charging $1.50 per can for tuna donations.

Many people ignore the standard deduction. I call it the “house minimum”, because that and your personal exemption gives you the amount of money that is protected from federal income tax regardless of whatever decisions that you make. I’ve had a bunch of people whose returns that I’ve prepared be frustrated that charitable donations that they made saved them NOTHING on their tax bill because they could not accumulate enough deductions to overcome the standard deduction.

The jobs that go unfilled

I work in an office that is beginning to be hit with a wave of retirements. Over the last couple of weeks, we have lost four employees: one to transfer and three to retirement. At full strength, my office is about 40 people. We have an additional three vacancies due to people transferring to other jobs over the last six months, for a total of at least 15% of the office.

Two of the jobs to be filled involve shift work, which is hard to get people in their forties and fifties to do. Because the job is supposed to be half shift work and half office work, one makes only about 10% in shift differential and holiday pay, which results in a lot of disruption for not that much extra pay. Still, the remaining people who work shift have seen their percentage of shift work increase from 50% to about 67%. What makes this job difficult, which I hold, is having to manage projects while working on shift because I am not allowed to work overtime, and when I have to cover an extra shift for someone, that time is taken out of my office time. One thing that management is resisting is formally documenting requests for compensatory time, which is probably an FSLA violation. I do not trust what I call “trust me” comp time, where we work extra time and take time off the next pay period, because sometimes that can’t be done, and the fact taht we worked the hours is undocumented. Having to work nights and weekends makes it difficult to meet with my counterparts. At 50% shift work, I had estimated that I am only 60% as available to people working a normal schedule.

I have to be curious about the percentage of jobs that Dude and New Wave Princess failed to get that simply were not filled. I’ve written before about how in federal government, jobs now are graded at least one grade lower, which has a $10-15K impact on the salary. Another impact is the slowness of filling even existing job openings. we had one of our crew leave in September. The recruitment closed in November, and there has been no decision made concering whether to hire someone or cancel the recruitment as of today. They are paying for people to relocate, as they must, because southeastern Colorado is not a popular place to live.

One can argue that working for the federal government is different, and it is. We are staffed to have 11 engineers on shift, and have only nine of those positions filled in any way. If we don’t hire people, the money gets turned back to the Treasury. It is not as if this money is available to be distributed among the staff as bonuses. We are going to a new compensation system where the bonus pool has to be “at least 2% of salary”, and given the three-year pay freeze that recently ended, and the 1% pay increases that we have gotten in 2013 and 2014, I don’t expect it to be any higher. To put it into context, a federal employee gets an average pay increase of 1.5% annually due to longevity increases. These go away under the new compensation system, though we would still get whatever general pay increase that Congress approves.

On the “Make Him Move” price …

When you are trying to buy something that is not listed for sale, it is reasonable to expect to pay some premium over the value of the item. We see this all the time when companies are taken over. These deals also do not necessarily close in a mater of days. When Dell went private recently, it took over a year for the deal to be completed.

Even though Bro is the one being sued, there is a presumption of innocence in our legal system. This is at least some of the reason why he is being given his choice of dates of when to meet. It is also unreasonable to expect him to be cooperative in this matter, because he has the same stakes that you do: if you lose this house, you are unlikely to be able to afford to buy another house unless you pick one of the “ten cheapest places to live” real estate markets. He is not a “motivated seller”, so other motivations have to be found. I don’t know whether there is the possibility of the judge being called in immediately should Bro blow off the next meeting, or whether more time has to be allowed to try to come to an agreement before the case reaches court.

What are the consequences of the administrative dismissal of the case? Usually when a case is dismissed, it can be refiled. Was the instruction to you to have some sort of arbitration or negotiation with Bro and his lawyer before the court would hear your case? Right now, you are in a position where you have to try to get Bro to agree to a buyout price, presuming that the “hammer” of going to court and seeking a partition of the property still exists. Another question that I’d ask is whether homes of your type and condition are selling above or below the appraised value.  This would affect the price that you would offer him.

Though you don’t want to bring all the drama with you and Bro up to your lawyer, it would be worthwhile to mention that this isn’t the first time that he has failed to pay his part of the costs, and you have enough data to make a case for being “slow pay/no pay” to be his standard operating procedure. If memory serves, you had a tax lien on your house a couple of years ago, so he put ownership of your house at risk through his actions and wound up costing you more money, because you had to pay interest to the holder of the tax lien.

One thing to check is whether the form of ownership of your house is “joint tenants with right of survivorship”. If it is, that’s good, because should Bro die, you inherit his interest in the house, even if his will leaves it to someone else.



Why the employed “don’t get it”

Even as jobs get more unpleasant for the currently employed, there is a huge incentive to believe that unemployment won’t happen to them. The alternative is just too depressing.  It is easier for the currently employed to believe that something is wrong with the unemployed than to believe that they would be in a world of hurt if they had to find another job. I’m in the latter camp. I KNOW that I would be in a world of hurt if I had to find another job and could no longer work for the government in some capacity.

I work in a specialty that if all goes well, will be obsolete in about a decade.  The skills that one learns in engineering are highly transferrable, but people get nervous when they learned that you have spent your career in organophosphorus chemistry (insecticides, among other things), toxicology and related areas.  Had I published more papers, I might be all right, but what I can publish is restricted by my employer. I also don’t have the doctoral degree that is required to get an equivalent job in industry.

This isn’t “real” unemployment, but it looks like the furloughs are going to happen in federal government. There are some exceptions, but none of them apply to me.

People are really focusing on the “up to 11 days of unpaid leave” that Department of Defense employees will have between July and September, and have lost sight entirely of the fact that the sequestration required by the Budget Control Act of 2011 lasts another nine years. It is entirely possible that we will be going through this nonsense again, beginning in October.  For me, the furloughs mark a fundamental change in employee-employer relations between the federal government and its employees.  We’ve been under a pay freeze for three years, but most federal employees have been able to get longevity raises during that time.

What I find really interesting are the concessions that various credit unions are willing to make when people get furloughed. Several are willing to waive the premature redemption penalty on CDs,. which is 3 to 12 months of interest, depending on the maturity. I guess one faxes or mails in the final furlough letter, and you can cash in your CDs penalty-free, provided that you have any.

The question that the unemployed might well ask is why the steadily employed would require such a concession. Does losing a little over two weeks of pay make THAT MUCH of a difference? It isn’t entirely kindness on the part of the cedit union. If people leave the money in checking, the credit union goes from paying 1.5-3% to 0.1% interest, and it might turn out to be a wash or a slight profit for the credit union.

Why I Believe that the Madness Will Continue

1. Wages  tend to be sticky both on the way up and on the way down.  We’ve had a longer than average down cycle, so it will take a longer and stronger than average recovery for people to recover to their previous level.  At best, our recovery will be “L-shaped”, or in other words, a drop to some lower level and then a flatline from there. There are enough people out of work that there is nothing to put pressure on employers to raise what they pay people, and they may think that there is still money to be squeezed from prospective employees through lower pay rates , reduction in staffing and elimination of benefits.

2. Price inflation is being hidden by reduction in package sizes. A sixteen-ounce package of food used to cost the same as a twelve-ounce package of the same item does now. Goods are made more cheaply rather than have their price raised to maintain quality.

3. Rents are no longer cheap compared to buying in many markets, but people who otherwise might buy a house will put it off due to economic uncertainty and increased difficulty in getting a mortgage with less than a 20% down payment.  They might have figured out that they are better off to use the money that might have gone to closing costs to pay off debts and that they may need to move in a few years to take the next job, or even just to reserve it as an emergency fund. Landlords can screen tenants based on credit records, charging them a few times what it actually costs for the credit report as an application fee ($5 fee for a credit report versust $25-50 application fee) ,  and most people who have bad credit aren’t able to pay the larger security deposit that would reduce the landlord’s risk.

4. Personal debt of all kinds, which reduces one’s mobility, but student loans in particular because the need to pay them to avoid penalty fees forces people to delay the purchases that would normally be made in early adulthood, such as a car , furniture, or certain durable goods, and later on, a house. This flows through the economy, reducing demand in other sectors. Bankruptcy reform failed, in the sense that the economy got bad for long enough that many people who didn’t qualify for Chapter 7 bankruptcy (discharge of debt in return for surrendering most property outside of retirement plans) eventually did because their incomve fell to the median in their county or lower, which is the income level required to avoid the “wage-earner” bankruptcy that requires you to pay a good chunk of your debt. If one has been out of work for a period of years, it might  be worthwhile to try to get student loans discharged under Chapter 7. This would take shopping for a court that is receptive to this idea and require that you disclose any medical problems that make ift difficult for you to work at other than white collar jobs. What you’d have to prove is that you have no prospect of getting a job for the foreseeable future. As Elizabeth Warren noted, we are the only country where you have to save up to go broke. This is why bankruptcies peak in the February-April time frame. People have their tax refunds, so they can file for bankruptcy.

5.  Innumeracy. We don’t do math well, but we “have to have it now”. Whern you can’t wait, you will have to pay at least full price, if not a premium price.  It’s true that a mutual fund company collects their fee whether or not you make money, but there often is a performance element that reduces the fee collected in down years.  You still lose, but not quite so much. The “rule of 72” is useful. Divide the rate of return that you get into 72 to calculate how long it will take for your money to double. If you’re making an average of 6% in a mutual fund and paying 2% in fees fora net of 4%, it will take  18 years for your money to double compared to 12 years if you didn’t pay the fees.

6. Financial fragility. Somewhere around half of all households cannot raise $1000 within a month to pay an unexpected bill. This means that if they had to move, they also wouldn’t be able to pay security and  utilty deposits at the new place without getting back their old deposits, which usually takes at least a month. If you are lucky, you have family who will take you in for a while.

On Getting a Federal Job

I didn’t want to work for the federal government, but it was the only organization that would hire me back in the Reagan Recession. There is a certain taint to going to work in what I call Weapons World that makes it hard to get other jobs, even when you have tried to cleanse yourself by getting advanced degrees. I have masters degrees in business adminsitration and chemical engineering,  My agency paid for the tuition and the books.  

The basics: if you have a bachelor’s degree in any field, you qualify for a GS-5. Ifyou have a 2.8 GPA or better, you qualify for a GS-7.  Fear not, most jobs that require a college degree carry noncompetitive promotion to at least GS-11, so you can look forward to promotion to GS-7 in 26 weeks and GS-09 52 weeks after that, and promotion to GS-11 52 weeks after that. In 130 weeks or less, your salary will increase by at least 50%. This is how it works if you are applying purely based on education. If you have experience in the field, you can be hired at a higher grade. For instance, masters degree plus a year of experience is qualifying for GS-11, as is bachelors degree plus three years of experience.

An interesting thing about federal employment is that your degree does not matter all that much.  One can qualify for federal engineering jobs by having 60 semester hours in math and science.  Though my engineering degrees are in chemical engineeirng, I have been a chemical, general, and mechanical engineer and am currently classified as an industrial engineer. I have also been classified as a physical scientist. I was offered a job as an electrical engineer some years ago on the condition that I get a masters degree in electrical engineering, and I would have gotten tuition support for that.

If you have a masters degree, you automatically qualify for a GS-9 job. If you have a doctoral degree, you qualify for GS-11 jobs, and if you did a post-doctoral fellowship, you will be hired as a GS-12.  The doctoral level is the only situation where your degree matters. If you are applying for a GS-12 engineering job and are qualifying based on education and not experience, you have to have the degree in that field. One of the better things about the federal government as an employer is that there is transparency concerning pay. You can go to and look up the salary range available. If you have previous experience, you don’t have to start at set 1 of the pay scale, which has 10 “steps” in it, each of which are worth about 3% of the step one pay.

The federal jobs portal is . Like other similar systems, you put a resume on the portal and you apply for jobs. Announcements tend to be open for anout two weeks, but nearly every one will say that they reserve the right to hire additional people from this list.  They found that keyword search didn’t work particularly well, so every application that the machine says that the person is qualified gets a review by an actual person. If you decide that you want to work for the post office, you will be referred to the post office’s portal by the job announcement. The same is true of the Bureau of Land Management and other agencies of the Department of the Interior.

It is a long process, but there is some feedback. Within a couple of weeks of the time that the announcement closes, you will receive a “notice of rating” where you will be told whether or not you are qualified for the job and whether or not you have been referred for selection. My experience is if you are not called for an interview within two weeks of being referred, you will not be interviewed.

 I believe that an important consequence of sequestration will be that only local hires will be permitted as exceptions to an agency’s hiring freeze. They want to avoid paying people’s moving costs, which can be substantial because one can receive reimbursement of real estate costs, moving of household goods under a government bill of lading (you don’t even see a bill), as well as 60 days of temporary quarters allowance, which covers your hotel bill up to a certain amount and gives you an allowance for meals. All of the jobs with the Veterans Adminsitration state that they do not pay for moving expensse.

It may well be more worthwhile than usual to look at the federal agencies in your area to see whether they are hiring. At worst, they are developing a standing register of candidates for jobs.

Having a Business Isn’t the Same as Getting Paid

Dude and New Wave Princess want to sell luxury items.  I use the word “luxury” to describe artwork and training because they are items that are not immediately necessary, and in the majority of cases, can be deferred indefinitely.  Running a business has problems similar to getting a job, except you are selling your artwork or classes one at time rather than getting a salary for an indefinite period of time. This will make your income stream “lumpy”, rather than a check every two weeks.  You might argue with me that something is better than nothing, and I’d agree, up to a point. For instance, starting a business doesn’t immediately solve the issue of not getting benefits.  The cost of providing health insurance and other benefits just shifts to you.

There are also costs to running your business that are not borne by employees, such as the need to pay 15.3% of your net to Social Security taxes up to the maximum, and you can deduct the cost of things that I cannot, such as art supplies or room rental for the classes. You might decide to organize yourself as a limited liability corporation, though this is more important for NWP than for Dude.

If anything, people are going to be more particular about artwork than they are about hiring employees.  Taste is arbitrary. Upwards of 90% of people will have no interest in what you do, and those who are interested will probably want you to drop your price.  Anchoring, which deals with what we think something should cost, will kick in, and because you are unknown, you will attract only the “Starving Artists” rate, not the several hundreds of dollars per cartoon that you want. 

In the training world, what sets New Wave Princess Enterprises apart from the “Dummies” books or things that one can get online for free?  Much of the value added of an instructor is guidance and forcing a person to acquire certain skills within a certain amount of time. Where I work, we have “training week”, where we take all of the mandatory annual training at one time.  This is fun stuff like drug abuse awareness and sexual harassment awareness.  A local rehab hospital presents the drug abuse training, probably in the hope that if any of us need drying out, we will think of them. I managed to miss “Heat and Cold Stress”, so I talked the training coordinator into giving me credit for it by taking a more comprehensive course industrial hygiene course that I could get on line.  I did the same for a waste management course that is required.  I had taken the course, but the sign-in sheet got lost, and no sign-in sheet, no credit.

If you’re pricing a training offering, you need to charge something above what you think that your hourly rate sould be to cover the preparation time.  The question that I’d be asking is what value you offer that isn’t easily met within a given company.  Above a certain size, a company may decide to have their own training department, so your market may well be the same small companies that are rejecting you as an employee.    If anything, selling your training offerings may well be an endeavor that requires more of an “in” with managers who can decide to hire you than getting a job.

Another thing to consider with training is the cost of the pay of the people who will be taking your course. This usually is a greater cost than what you will be paid.  Even at $10 an hour, 20 people in a one-day training course is a loss of $1600 to the company. Have you considered private tutoring? This might work better in a college town or an area where a lot of children go to college.

The larger question that I am trying to ask is how do you generate demand for things that are more or less optional and where demand is very elastic?  The guy who ran the birthday parties has the advantage of having children have a birthday every year, and in a lot of cases, the child wanting to have a party.  Neither of you have the options of passively selling via a website. It’s necessary to go out to the art and craft shows or cold call companies about their training needs.


Extended Unemployment Is the First Casualty of Sequestration

Starting this month, extended unemployment payments will drop by 10% to comply with sequestration. The cut needed is 5% of the annual amount, but the cut has to be compressed into 6 months, so that’s why the cut is doubled.

Since 1986, unemployment payments have been fully taxable as ordinary income.  The exception is 2009, which provided a $2400 exemption of unemployment payments from federal tax as part of the stimulus package.  If you didn’t take that exemption and you received unemployment payments in 2009, it is not too late.  You have until 15 April to file an amended return.  Amended returns are one of the simpler tax forms.  All that you have to do is fill out the old and new numbers on Form 1040-X, which has to be filed as a paper return, and the IRS website has the form ( You would get whatever taxes that you paid on that $2400 plus accrued interest from April 15, 2010 until the date that the form is reviewed and processed by the IRS.  You also have the option of filing an amended state return if your state taxes unemployment benefits. If you are owed money at the federal level as the result of filing an amended return, it is common to be owed money at the state level.

The basic rule on filing amended returns is that you have three years from the time that the return was due to file the amended return.   2009 returns were due by April 15, 2010, so you have until April 15, 2013 to file the amended return. An interesting thing about failing to file a tax return is that it extends the amount of time that the IRS has to audit you.  Suppose that you didn’t file your 2011 tax return until December 15, 2012, and you didn’t have an additional extension approved by the IRS.  They would have until December 15, 2015 to audit your 2011 return. Normally, the deadline for an audit where the IRS does not suspect fraud on your part is three years from the time of filing. They can go back six years when they suspect fraud.

There was a huge jump in the number of tax returns with reported unemployment compensation between 2009 and 2010.  11.3 million tax returns reported unemployment compensation totaling $83.5 billion dollars.  2010 saw 14.3 million tax returns report a total of $120.3 billion in unemployment compensation. The higher average amount of unemployment compensation reported in 2010 may reflect the $2400 exemption,  higher-income people losing their jobs, or some mixture of the two.

I don’t believe that unemployment insurance payments should be taxable income. We paid the UI premiums with after-tax money,  so payments should come to us tax-free, much as health insurance payment to doctors.  The argument for taxing unemployment payments is much the same as that for taxing Social Security:  you didn’t pay taxes on the employer’s share of UI tax while you were working.





Waiting for the Sequestration Axe to Fall

I was going to call this “Waiting for the Furlough Axe to Fall”, but that draws too much attention to the 14 days without pay that I expect to take between mid-June and the end of September.  What we are forgetting is that the Budget Control Act of 2011 lasts for 10 years, so barring amendment or repeal of the law, I expect sequestration to have an impact on government spending through the end of September 2022.

Here are my assumptions for how things will go over the next few years:

1.  Items that are protected from sequestration, such as Social Security, food stamps, and Medicare/Medicaid will continue to be protected, though there is likely to be a change to how inflation is calculated to reduce the growth in Social Security payments.  Payments to providers for Medicare/Medicaid are likely to be  reduced.  There may be tightening of restrictions to qualify for food stamps/TANF as well as greater enforcement efforts.  States do have the option of using different income levels to qualify for benefits than what the federal government publishes. 

2.  We will have a drawdown of military forces, as happens every 20 years or so.  This will have several outcomes, such as cancellation of weapons programs and the offer of separation incentives for military and civilian personnel.  More money will need to be provided for repairing and maintaining military equipment at the expense of new systems.  Offering separation/retirement incentives just shifts costs to another account, though the cost is less than having the person remain employed full-time. The hiring freeze that is in place at DoD will remain in place for several years, with new hires requiring approval 2-3 levels above the hiring authority.

3. Further implementation of the Affordable  Care Act (ACA, i.e. “Obamacare”) will put additional stress on Defense and other programs to find savings to offset the cost of the expansion of Medicaid.  The federal government is supposed to pay for the ENTIRE cost of the Medicaid expansion for three years, with the states taking over a small protion of the cost after that. Right now, the main change is that people who contribute to a health savings account had their maximum contribution cut from $5000 to $2500.  This cost someone who made a maximum contribution about $600 in extra state and federal taxes. Health care premiums have been going up in price in anticipation of implementation of the ACA, in part because the ACA requirese that at least 85% of premiums be spent on actual health care services, not adminsitration costs.

4. Non-defense federal programs will at best tread water.  The emphasis will be  maintaining or completing existing programs rather than undertaking new initiatives. Remember, in the first few years, all that is being cut is growth from the “baseline budget”.  It’s in years 3 and later that more painful cuts will have to be made.

There was a lot of excitement over having to take 22 days of unpaid leave, an amount that has since been reduced to 14. I’d rather take unpaid leave than have to work the time with a 5.4% pay cut. Either way, I lose out on 5.4% of my salary, but at least furloughs allow me to maintain my hourly rate. I didn’t see this as the event that would have a major impact.  I was looking at future years, although from the prism of my current job.

Ideally, agencies should be planning for FY14, which begins in October, and being more forthcoming about what they expect to happen well in advance of the beginning of the fiscal year.  I would expect the number of support contractors to decline, but that might just be wishful thinking on my part. I can understand furloughing federal employees rather than contractors now because of the notification requirements under the WARN Act that would need to be met and the fact that not letting the contractors work as scheduled would put the contractor in a position to make a claim against the government for more than the money that would be saved.  There should be plans being made now to reduce costs that will have an impact on both procurement and personnel.

For instance, the Army needs to find $50 billion in savings in FY13.  Furloughing civilian employees for 22 days only gets them 10% of that amount because both military personnel and contractors are not subject to furlough. One step that the Secretary of the Army took was to defer depot  maintenance on equipment for the rest of the year.  Congress appropriated money to fund depot maintenance, much of which supports “reset”, which is fixing vehicles and equipment so that they are ready for the next deployment cycle.  I expect upgrades of military housing to be deferred, though necessary repairs will be made.

Until you begin digging into the budget, it seems like it should be no big deal to cut 5% or 10% from the budget, even with protecting a sizable chunk of the budget from cuts.  What we don’t see are the fixed costs of government. It isn’t as simple as saying, “Army, you can have 10% fewer people and systems.”  Most of the costs are incurred in operations and sustainment, not research and development or production, in part because weapons systems can last for decades.  How long have we had the Colt 1911 .45 caliber pistol? The B-52 bomber has been “extended” to last util something like 2042.

The need to generate savings in the “out years” may well hasten the reduction of the U.S.  presence overseas, though it won’t be fast in the sense of deploying the Army to Iraq was.   We have spent hundreds of billions building military bases in Iraq and Afghanistan that will be turned back to those countries.

I think that sequestration has the potential to have a far greater effect on the economy than the debt ceiling battles or the expected tax increases that were put into effect  early this year could have for a simple reason: sequestration removes the stimulus that was passed early in Obama’s first term, although by a different route and at a different rate.  I am not sure when that stimulus package is set to expire, but we do face the double whammy of sequestration and the end of that stimulus.

Our Host’s Breakfast is Still Legal

Justice Milton A.. Tingling Jr. of the State Supreme Court in Manhattan has struck down the restriction on sugary drinks larger than 16 ounces, calling the limits “arbitrary and capricious” 

Mayor Bloomberg would go crazy out here in Colorado, because the fountain drink machines at Loaf ‘N Jug, a chain of convenience stores owned by Kroger, also dispense flavored sugar syrup that can be added to the soda.  Oddly, Colorado has the lowest incidence of obesity.  Correlation is not causation.

Isolationism 101

It is attractive to think that we can save money on a national level by withdrawing our military from other countries or cutting off foreign aid or ending offshoring of jobs. What we see reflects national priorities, and the country doesn’t matter too much.  If one goes to a British or German grocery store, tea, bread, and cheese are relatively cheap relative to U.S. prices in a British store and grains, vegetables and chocolate are relatively cheap in a German grocery. Walk into a U.S. grocery store, and chances are that you will be met with a display of soda and snack foods as the specials of the week.

The main thing that “free trade” does at the consumer level is to roll back or eliminate tariffs on imported goods.  The government misses out on the revenues that they would raise from the tariffs, but people will get somewhat cheaper goods. Another way to get cheaper goods is to reduce the cost of production.  This can take the form of reducing wages or using cheaper ingedients and even reducing the size of the package while keeping the cost of the package constant. This is not an exhaustive list.

One reason that countries or regions of the same country trade goods is because certain areas make certain goods better or more cheaply.  The prospective buyer sees value in the other region’s goods. At different times, foreign-made goods can be seen as either a superior or inferior good.  People are willing to pay more for a BMW than for a Kia. As long as we insist on cheap goods, it will be diffficult for jobs to return to the U.S. because goods of acceptable quality can be made elsewhere.

One can argue that the U.S. provides a huge subsidy to the rest of the world because we have such a large military and that we maintain a military presence in most countries. I don’t know how often the status of forces agreements that the U.S. has with other countries are renegotiated.  These are what allows us to maintain a military presence in the country. We were heading for the end of a status of forces agreement in the Phililppines some years ago when Mount Pinotubo erupted.  The Philippines wanted us out anyway, but the fact that the base was destroyed in the eruption probably allowed us to avoid any termination costs under an “Act of God” clause.

We used to have many more military bases in Germany than we do now.  The Army base at Heidelberg is scheduled to be turned back to the Germans, which is why US Army Europe headquarters was relocated to Wiesbaden. Maintaining bases in Europe isn’t cheap. There is no end to the litany of damages that the Germans seek to charge.  It’s a lot like what happens to you in England if you run over a sheep that is crossing the road:  you have to pay not just for the sheep, but for all of its offspring, so killing one sheep can cost you twenty times the value of the sheep in damages.

I expect the military to offer certain incentives to its personnel to leave or retire early within five years.  The last time around (1992-94), someone who volunteered to separate received a pro-rated pension for twice their length of service provided that they had more than 10 years of service , so someone wth 15 years of service got a pension for 30 years that was worth about 30% of their base pay. The separation incentive for a civilian is much less generous:  $25,000 and a five-year ban on federal employment. However, this matters less if you are immediately eligible for retirement.

People who want us to take a more isolationist stance often don’t look at the unintended consequences. We are going to abandon a lot of military bases in Iraq and Afghanistan, but it doesn’t deal with what to do with the people.  I’m happy to let the contractors take it on the chin, because they made at least 3-4 times what the soldiers did, plus got much of their income tax-free, as any cmtractor who works overseas does.  If you are a contractor who works overseas under a status of forces agreement, you get an exemption from U.S. income taxes of about $100K plus don’t have to pay taxes to the host country. If they didn’t have the sense to save their money, too bad for them. For every military slot that you cut, there is somewhere around 5 support billets that go along with it.

Unfortunately, it looks like federal employees will take the hit of budget reduction, at least this year. In part, this is a function of contracts having been signed, but in the case of Department of the Army, iis also a result of being “overstrength”.  Military personnel can’t be furloughed by order of the President, so civilians have to make up the budget cut. Other agencies expect far fewer days of furlough than the 22 days that Department of the Army employees have been told to expect.  22 days is the maximum amount of days that a federal employee can be furloughed without it being considered an adverse personnel action. 

Want to bring the troops back home?  Look for a spike in unemployment, both at home and abroad, because we employ foreign nationals overseas.  This is not an argument not to do it, but understand that the jobs that will go away will be good-paying jobs with benefits, not McJobs. It’s a macroeconomic problem that I can’t address adequately in a blog post, given the effect on the economy of military spending. When Congress wanted to get the B-1 bomber funded, they made sure to put a piece of the work in every congressional distrcit.

6800 People Are Waiting for Instant Background Checks to Buy a Gun in Colorado

I wondered what the effects of the latest rampage shooting would be, and I found out yesterday when I went to pick up a pistol that I bought. I thought that I was doing badly when I was told on Tuesday that 3400 people were waiting for the “instant background check”. To my surprise, they had gotten through the backlog to do my background check by late Thursday.  The gun dealer told me that a waiting list of 10-15 people is the norm.

Part of the reason for the backlog is holiday gift-giving, but a larger reason is the debate over increasing restrictions on guns and ammunition. Obama has been great for the gun industry, as people bought more guns during the first three years of his administration than the entire G.W. Bush administration. Ammunition prices have only begun to decline from the price increases that began when he was nominated, and I wouldn’t be surprised to see prices begin to go up again.  A Ruger Mark III (.22 caliber target pistol) that cost $180 in 2008 is now $283.

A big part of the argument over increasing gun restrictions centers around extended magazines.  A Glock 17 holds 17 rounds, and the gun comes with an extra magazine.  Extra magazines can be purchased.  If one preloads both magazines, they have 34 rounds, which is more than the 30-round extended magazine that they want to have regulated.

We Need a National Lottery

I favor consumption-based taxation and taxation based on one’s inabilty to do math.  The average state-run lottery keeps 50% or more of the value of tickets bought.  Most states have multiple lottery games running at any time, so it isn’t a problem to have multiple games.  The problem is where to sell the tickets. One could go to commission sales, and give 5% of the sales price of the tickets to convenience store owners. We already have the infrastructure to do this, and it’s just a question of adding another game.

Were it allowed, I would be sorely tempted to have slot machine parlors much like those on military bases abroad at every Social Security office.  They need not be large, twenty machines or so. Maybe the lottery ticket sales and slot parlors could be combined.  Ticket sales at government offices would not have to pay the 5% commission because the person tending the slot parlor would be on salary, or at least an hourly wage.

The reason that I call for a national lottery is not entirely because I am a crackpot, but because people feel like they need to get something in return for their tax dollars.  A national lottery could compete favorably with state lotteries by paying out a mere 75% of what is collected in ticket sales.

Getting My Day in Court is Not Always Satisfying

To my great surprise, the handyman who stole my mower showed up for court today.  An even greater surprise was that he changed his plea to no contest, which has the effect of a guilty plea.  He was fined $375 and a judgement for $203 was entered in my favor.  Now I get to sue him for the money in small claims court.

I predict that in two months, he will be working off his fine as jail time.  It seems that it takes about that long for failure to pay a fine to turn into a warrant for one’s arrest.

What are the questions on the ballot in your state?

One can bemoan what a non-choice Obama versus Romney offers, but there are other issues on the ballot.  Here are the ballot issues for Colorado:

Amendment S: Increases the number and types of state employees exempt from Colorado’s civil service system; Change personnel and hirng procedures for filling vacancies in the state personnel system; expand hiring preferences for veterans;adjust the terms of service and duties for members of the State Personnel Board and the standard to remove certain members.

I plan to vote against this question.  I oppose veteran’s preferences.  We have had an all-volunteer military for close to 40 years.  As with affirmative action of other types, it is time to end this preference, not expand it.  If defeated, veterans will continue to be able to use veteran’s preference of five points on their initial hiring.  If passed, they will be able to continue to get the preference for all subsequent jobs. Once is enough if they are any good at what they do.

Another provision of the measure allows an additional 325 employees to be made exempt employees, which may point the way to a greater number of political appointments, because the exempt employees are usually the directors of a department.  It also allows two members of the 5-member personnel board to be removed by the governor.  Currently, three members of the panel are appointed by the goernor and two are elected by state employees. It is not clear whether the goernor can remove the members elected by the state employees.  If he can, he gets to “pack the board” with members who are receptive to his ideas.

Amendment 64: Regulates the growth, manufacture, and sale of marijuana in a system of licensed establishments overseen by state and local governments.  It allows anyone over 21 years of age to possess or transfer up to one ounce of marijuana to another person 21 years of age or older, keep up to six marijuana plants for personal use, and other provisions.  Supposely, tax will be charged for a permit, and the first $40 million raised ANNUALLY will go to build new schools.

I plan to vote for this measure. My feelings about allowing marijuana are not nearly as strong as my feelings against veteran’s preference.  Currently, one is fined about $300 for possession of marijuana as an administrative violation.

Amendment 65 is an attempt to overturn Citizens United and establish escampagn spending limits (unspecified) and disclosure of donations.  Essentially, if passed, the people are telling the legislature to propose, support, and ratify an amendment to the constitution that allows Congress and the states to limit campaign contributions and spending.  Sounds good to me. I’ll vote yes, but will be shocked if it takes less than 20 years to get the amendment passed.

In my former home state of Maryland, I watch Queston 4 with some interest.  It is a referendum on granting in-state tuition to illegal aliens.  The difference between in-state and out-of-state tuition for the Univeersity of Maryland is about $18,000.  The state estimated that granting in-state tuition to illegal aliens would cost about $3.5 million per year.  I suspect that is the first-year cost, because $3.5 million covers the difference in cost for only about 200 students, presuming that the students get no financial aid. 

All the Hidden Taxes

As we head into the last laps of the Presidential election,  it seem appropriate to consider how our tax system is structured.  The people who argue that the tax system is too complex are correct, but not for the reason that they think.  The marginal tax on income is higher than we think because of the large number of other taxes that we pay.  Pigouvian taxes, like the taxes on cigarettes and liquor, raise a surprisingly small amount of revenue, yet they are the ones that people feel most strongly (and feel most strongly about ) because they are rapidly passed through to the customer.  I like to joke that the truest market basket that we can use for the cost of living is ten gallons of gas, a carton of Marlboros, and a case of Bud or bottle of Jack Daniels. 

One tax that I dislike is tax on unemployment compensation. I’ve never qualified for unemployment compensation, but taxing it seems to be mean-spirited at best, and it doesn’t raise that much money. If I buy insurance against nearly any loss, I am not taxed when the insurance company pays me for my car being totalled or my house being damaged.  At the same time, I also believe that the amount that is charged for unemployment insurance should be much higher, and that people should be able to opt out.  It should be self-funding, not something that is largely dependent on federal funding.  Unfortunately, this means that unemployment insurance rates would either have to go up or people would need to work longer to qualify for it, and the amount of time that they would receive benefits would be reduced.

Another hidden tax is the increasing reliance that towns have on various fees, like the $150 ticket for that red-light camera.  What most people don’t know is that the revenue is split between the camera operator and the town, and that’s a lot of the reason that the ticket is so expensive.  If you have a good volume of traffic, as Washington DC does, the ticket is fairly cheap because most people won’t fight it and a lot of people will run the light or speed.

Another interesting tax is the ability to buy a deferred verdict for your first misdemeanor or traffic violation conviction in some jurisdictions.  One pleads guilty, pays the fees and fine, and if you keep a clean record for six months, the guilty verdict is not entered and it is effectively suspended until then, unless you get picked up on another charge.  The people who would benefit most from this are the least able to pay the fines, and if you need a payment plan, it costs you $35 extra.  There are opportunities to work off one’s fines at $10 an hour, but that doesn’t do you any good unless you have a day or days off during the week.  Work crews do not go out on weekends.  If you are booked into the county jail, it costs you $30 to be booked, though that fee is refunded if you are found not guilty on the charge.  A lot of arrests in my town are actually just the issuance of a summons. The county jail has about three times the number of inmates that it was built to accommodate. 

I don’t expect the reduction in FICA taxes from 6.2% of income up to $106,500 to 4.2% will survive into 2013, and we’ve already seen a reduction in the maximum contribution to health savings accounts from $5000 to $2500 to health savings accounts effective in 2013.  I believe that 2010 saw the removal of over-the-counter drugs from the list of items that you could use the account to reimburse your costs.

I liked the “Making Work Pay” tax credit that was available in 2009 and 2010 more than the FICA tax holiday because it was a lot cheaper and the greatest amount of the tax cut went to people who made $60K or less if you were single.  It phased out above that level. You needed to make something like half-time minimum wage to get the maximum amount, which I think was $800, and everyone would get $800 ($1600 for married filing jointly) until they hit the phase-out amount for their filing status.  I had the pleasant surprise of the IRS telling me that I qualified for a couple of hundred dollars for the “Making Work Pay” tax credit with my 2009 return.  I had figured that I wouldn’t be eligible for it, so I didn’t bother to research it.

One thing that people often don’t understand is that tax deductions aren’t worth what they think that they are.  Suppose that I have $10K in itemized deductions. I’d get $5950 for the standard deduction in any case, so I save only about a thousand dollars on my federal taxes compared to not having the deductions.

The coming thing will be to broaden the tax base.  Rates won’t change, but taxes will increase.  

We Have Less Privacy than We Think

There is a system called P2C (Police to Citizen) that is in use in a variety of towns across the country.  You look up your local police department’s website and see whether or not they offer it or a similar system.  I was wondering whether there was a police report on an event that I had been told had occurred, and I didn’t believe the person who told me.  P2C offers an interesting service to people: you can search their database to see whether people have gotten certain kinds of traffic tickets, like DUI, or are under investigation for a crime. There wasn’t a police report on the incident that I was told had occurred, but I learned that the person who told me about the alleged incident was under investigation for fraud.  I also learned that someone who I was considering hiring to trim the trees in my yard had been convicted of domestic violence.

There are over 3800 entries on the “wanted” list in my town, and the vast majority are for people who failed to appear in court or failed to pay their fines.  Suppose that half of the entries belong to people with more than one nonpayment or failure to appear for traffic tickets, loitering, theft, or other misdemeanors. There’s still about 2000 people who have issues wth the police.  This is about 2% of the population, and probably about 4% of the adult population.

I have mixed feelings about this system.  In some ways, it is just an electronic verson of the police blotter, but if you have a common name, it’s easy to make a mistake and think that someone is in trouble with the law who isn’t. One thing that helps is that the entries have the person’s age and other descriptors, so you can tell John Jones who is white and 25 from John Jones who is black and 50 years old.

Sarah Palin Had Better Legs

My television is still sitting on the floor where the movers left it last March, so I doubt that I will be watching either convention.

It’s a strange election year for the Republicans, at least from my perspective.  The Republicans have nominated a ticket that reminds me of my history teacher, who modeled underwear for the Sears catalog, and the guy who ran the AV club. 

We never really do leave high school. 

Job Creation, Multitasking, and Stimulus

I moved from Germany to Colorado a couple of months ago, and have been buying a house and getting settled.  One of the disappointments of my house was that I had to replace the bathroom floor.  It cost me $800, including a new flange for the toilet.  Carpeting in a bathroom is a huge mistake, particularly when one of the residents uses a commode.  I’ve been tearing up the carpeting to be sure that there are no more surprises.  So far, so good.

Did I create a job?  I hired two people to do the work, one for the plumbing and the onther one to put down linoleum, which made me think that jobs are not so much created as demanded, and companies are not willing to keep a stock of people on hand for work that MIGHT need to be done. The “nice to have” tasks are falling by the wayside, and this can be tracked in many occupations.  The one that I see most is the decline of adminstrative personnel. Had I had the time (and another bathroom to use while I made the repair), I could have done the work myself.  I might have saved $400 or so, but I didn’t have the time to do the work immediately, because I had to pick up my car in St. Louis.

Another point about hiring people is that I took referrals, because I didn’t know anybody in town who did such work, and I may well have gotten hosed on prices.  No matter.  What I do know is that the sinking feeling when I sit on the toilet is now gone.  I won’t end up in the crawlspace under my house unless someone puts me there or I go there voluntarily.

When one moves from overseas, their vehicle goes to a “vehicle processing center” (VPC) , and there are about 10 around the country.  I was told that the closest one is St. Louis, but it’s in Dallas. I could have had my car shipped to me for $650, but I was given a week off to get the car, so I went to get it. The St. Louis VPC is in Pontoon Beach, IL, which gave me the pleasure of getting from the St. Louis airport to there, which required a train, a bus, and a taxi ride.

I usually bring something to read wherever I go, and one of the statistics that I came across is that we have on average 150 things that need to be done. I came up with 50 things for my “things to do” list when I first arrived. I know that I missed a lot of things, but these were the tasks of highest priority. I don’t believe that it is possible to multitask. We can be aware of certain things and that gives you an edge in getting things done, but that isn’t the same as doing them.

I consider “economic stimulus” to be the big lie of our time.  I paid cash to get my bathroom floor fixed, and we can argue about what the multiplier effect will be of the money that I spent.  The only money that gets spent that has a positive economic effect is money that comes from savings, not money from debt.  It takes over a dollar of debt to get an increase of a dollar in GDP.  Withdraw the stimulus and GDP collapses by the amount of the stimulus.