Category Archives: economics

H & R Block Stans are the Worst

A year and a half ago, I posted a rant about the H & R Block ad claiming that Americans who prepare their own taxes overpay by a billion dollars, and that this is a reason to use H & R Block. To summarize, my complaint was this: That billion dollars amounts to an average of about $21 per return. And, by H & R Block’s own numbers, they charge an average of $77 per return.

So, if you go to H & R Block, you will pay on average $56 more (collectively to H & R Block and the IRS) than if you do your own taxes.

Since then, this has become the most commented-on post on my blog, with the overwhelming majority of comments coming from people who work for H & R Block coming to defend their honor (or something). When these comments first started showing up, I thought it might be an astroturfing campaign my H & R Block, which would be sort of a mark of honor, in a way. However, I think that these are genuine, organic comments, which makes me sort of sad.

I always find slavish jingoism depressing, whether in the context of nationalism, or sports, or college loyalty. But in the context of your employer — an employer that does not actually treat the people who work for it all that well, based on many of the comments — is some serious Stockholm Syndrome shit.

Many of the comments cover the same ground. So, rather than responding in the comment thread, I thought I would address things raised in the comments here. Note that these are not actual comments, but paraphrases of whole classes of comments.

Comment: But tax professionals have to study hard every year to keep up with the changes in the tax code!

Fine, I believe that’s true. I fully believe that you have skills and knowledge that I don’t have. It’s just that if the cost to me of using those skills is $77, and the cost of not using them is $21, that’s not a strong incentive to use them. Plus, as I noted in the original post, part of the reason why you need to study so hard each year is because of lobbying done by H & R Block and others to keep the tax code complicated. So yes, you are a hard-working cog in a well-oiled extortion racket. Who’s a hard-working cog? You are!

Comment: I’m not ripping anyone off. In fact, I only get paid a small fraction of the customer fees.

I am perfectly happy to assume no ill will on the part of any of the tax preparers themselves. It’s an annoying ad campaign is all. So the post was really aimed at the marketing department. Also, based on the numbers getting thrown around in the comments, you should all become freelance tax professionals. You could charge half of what H & R Block does and take home more money.

Comment: What about the time it takes to prepare your return? Isn’t that worth something?

Yes. In fact, I made exactly this point in the original post. There are plenty of legitimate reasons to pay someone to do your taxes. Top of the list is that you don’t enjoy doing it, and would rather spend your time doing something else. A+ on basic economics. C– on reading comprehension.

Comment: Aren’t you actually a rival company trying to take down H & R Block, or an ex-employee with a grudge?

No. I’m just a guy who sat through that damn “Get your billion back, America!” ad one too many times.

Comment: If you underpay your taxes, you’ll have interest and penalties.

This is a good point — in fact the only sensible point that came up in the comments that was not addressed in the original post. It’s not just a question of maximizing your deductions. If you make a mistake and underpay, you could wind up owing a lot more. One could do a similar calculation. If, on average, it costs you an extra $56 to have H & R Block do your return, how does this compare with the average penalty size? I don’t know the answer, but your taxes are at all complicated, it’s something to factor in.

Comment: Actually, we’re tax professionals, not CPAs!

Um, okay. I don’t even know where this is coming from. Maybe the fact that I cited statistics from the National Society of Accountants? Maybe one of the other commenters erroneously referred to the tax preparers working for H & R Block as “accountants” or “CPAs”? In any event, I apologize for any confusion, and for inadvertently overrepresenting the credentials required to work for H & R Block, I guess?

Comment: If you don’t like the price, you don’t have to pay.

This I did not know. It would take a special kind of asshole to come in, let someone work through their taxes and fill out the forms, and then take it home without paying. However, if you are comfortable with this, I guess you should definitely take your taxes to H & R Block!

Comment: Something something averages don’t matter every return is different blah blah.

Yes, some people will come out ahead, when the tax preparer finds a huge deduction they were unaware of. Other people will come out worse than the average. That’s how averages work. If you have good reason to know which group you would be in as a customer, that should inform your decision. If you don’t, then the average is useful.

Note that it still may be worth it to pay someone to do your taxes, as it will reduce your variance. In much the same way, you will, on average, pay more for your insurance than you’ll get back. The reason you buy insurance is to hedge against the big losses. Similarly, if there is a possibility of a big error in your taxes, hedging may be the right thing, even if it costs you more on average. However, if we’re talking numbers in the tens or hundreds of dollars, you’re better off playing to the average — over the course of several years, you might expect things to, you know, average out.

When I wrote the original post, I had no opinion one way or the other on the competence of the people who actually do your taxes at H & R Block. However, the nature of many of these comments does give me pause. If the lack of attention to detail and incoherent innumeracy on display here is typical of the people who work for H & R Block, you might look elsewhere.

H & R Block Wants to Rip You Off

So, for the past few weeks, you’ve probably been seeing those ads from H&R Block. You know, the ones where they tell you breathlessly that Americans who are foolish enough to prepare their own tax returns are missing out on a billion dollars. A BILLION DOLLARS!!

The implication, of course, is that the amount paid to the IRS by people who do their own taxes is a billion (BILLION!!!) dollars more than it would be if they had H&R Block do their taxes.

Let’s assume that’s correct. What does it mean for you, the taxpayer?

According to the IRS, about 145 million income tax forms were filed in 2011. According to Pew Research, about a third of people do their own taxes. That means there are just shy of 50 million self-prepared income tax returns filed every year.

So, that billion (BILLION!!!!!) dollars amounts to about twenty-one (21!!!) dollars per self-prepared return.

According to H&R Block’s 2013 Report to Shareholders, during their fiscal year ending on April 30, they prepared 22 million US returns, for which they brought in $1.7 billion, which is an average of $77 per return (including returns that users prepare using their online tools, at prices ranging from zero to $50, depending on the complexity of the return).

That average is actually on the cheap end overall. According the the National Society of Accountants, the average tax preparation fee for returns without itemized deductions is $152. Nevertheless, speaking in averages, H&R Block’s argument is that you should pay them $77 so that you can pay $21 less to the US government.

There are legitimate reasons to use a tax preparer. For instance, there’s the calculation of how much time you would save by paying someone to do your taxes, and how much your time is worth to you, factoring in how much you like or dislike doing your taxes. What pisses me off is the way these ads exploit the fact that a billion is a large number to imply a big payoff.

It’s like saying, “Americans spend millions of dollars every year on snow shovels. So you should hire me to shovel your driveway. I’m not going to tell you how much I’ll charge you, but you can (probably) safely assume that it will be less than millions of dollars!”

On a related note, keep in mind that, like other corporations that make their money from tax preparation, H&R Block spends millions of dollars every year lobbying congress, much of it to oppose legislation to simplify the tax code.

This Spam REALLY Doesn’t work right now

So, like you, I get a lot of spam e-mail, much of it some variant of the Nigerian 419 scam.

Here’s the one I got today:

Dear Sir
I want to invest in your country. Anyway, my name is. John Mark from Liberia presently staying in Ghana.Already, I have gone through your profile, and I considered you to be credible and competent enough to handle a big project of this nature,which is the reason why I decided to contact you.
Personally, I would like to go into business partnership with you, so that you can assist me to invest and manage my fund there in your country.
The only thing I am considering is the tax, I don’t know how much tax the Government of your country will take from the funds that I want to invest in your company and I don’t
know if there will be any other requirements from us. I intend to invest jointly with you.
The purpose of this mail is to open up communication with you to enable us know each other as regards to our plan to invest our money properly with you.
God bless you as we will be looking forward to hear from you urgently.
Yours faithfully,

John Mark

Here’s the thing. If you’re trying to scam an American right now, when the government is shut down as a result of a crazy-ass blood feud over Obamacare, and when we are just a couple of days away from defaulting on our Federal debt, when the fiscal practices that led to the 2008 crash have, if anything, intensified over the course of the recovery (which was only a recovery at all for the very richest Americans), you can’t lead with “I want to invest in your country.”

That opening pegs you as a scammer, or, worse, a moron.

Student Loans Driven by Professor Salaries? Bullshit.

So, over at the Jubilee Now blog, there’s a new post that calls bullshit on the idea that skyrocketing college tuitions and student loans are driven by (the completely understandable and unavoidable) rise in faculty salaries.

Of course, there is a much more straightforward connection between tuition and the availability of student loans. The post includes a nice explanatory analogy:

You don’t need a smoking gun to understand the relationship between access to loans and rising tuition prices. It’s not necessary to prove that colleges made the decision to raise tuition because they knew students could just take out loans. You can see it all right there in the market incentives. It goes back to the concept of “third-party payments”  – that is, that if there’s a third party involved a transaction, someone other than the buyer and the seller, it’s going to skew the incentives influencing both.

To see how, let’s do a what-if. Imagine you took an 18-year-old into a grocery store and said, “Okay, you have to decide right now what food to buy for the next four years. Now keep in mind that without food, you’ll die. And that the best food, though it may be expensive, will keep you the healthiest in the long run. If you’re super-healthy, you’ll be successful and paying off the cost of the food will be easy.  Here’s a big bucket of money. Now, what do you want to buy?”

What do you think this would do to the cost of food? Do you think stores would rush to stock rice and beans so as to efficiently meet the demand for healthy food? Or would we see a proliferation of gently braised filet of farm-coddled salmon, garnished with an aggression of hand-picked asparagus and a frisson of Himalayan fennel?

An aggression of hand-picked asparagus, indeed! Preach it!

This GIF is the perfect metaphor for contemporary capitalism

So, have a look at this gif. This nifty optical illusion was the winner at the Best Visual Illusion of the Year Contest 2010. (Link includes the video this gif is taken from, as well as the other finalists from that, and other years. Warning, only click the link if you can afford to spend the next couple of hours obsessively getting your mind blown. Boom!)


How is that like capitalism, you ask?

The central economic myth of America is that it is a frictionless meritocracy. If you work hard, you’ll get ahead, no matter who you are, no matter where you come from. The corollary of that is that the people who are ahead got there through hard work, that they have earned everything they have.

In fact, the right-wing version of the myth goes further. It says that the rich have become rich in spite of the obstacles that have been put in their way, like the minimum wage, a (barely) progressive tax structure, organized labor, and government regulation.

In that version of the myth, wealth flows towards the top, just like those balls in the gif roll towards the center. This somehow magically happens, in spite of the fact that those ramps are clearly pitched down away from the center, in spite of the fact that those greedy redistributionists are continually trying to steal the hard-earned money of millionaires and billionaires to pay for their “roads” and their “education.”

What is revealed when the structure is rotated is that, no, actually, those ramps are pitched down towards the center. The ramps are just cleverly constructed so that, when viewed from just the right angle, it looks like they slope the other way, and that the balls are rolling uphill.

What the 2008 financial crisis, and the various more recent events — from interest rate manipulation (LIBOR) to money laundering for terrorists (HBSC) to the impotence/complicity of government regulators (too big to fail / too big to prosecute) — have shown is just how sharply the ramps of our economic system slope towards the center, despite the protestations of the plutocrats who sit at the bottom of that well gobbling up all of the wealth that falls in.

At the moment, the battle over the future of our economy and of our civilization is focused on this issue of perception. The people who benefit from the current rigged system are working as hard as they can to ensure that you keep on looking at our economic system from that one special perspective, the one where the rich are miracle workers who can make balls roll uphill.

So do yourself a favor. Take a walk around our economy. Look at it from a variety of different angles. Sure, look at it from the point of view of the investment banker, of the white-collar professional, of the successful small business owner. But also look at it from the point of view of the recent immigrant with poor English, of the college graduate with $100,000 of student debt and an offer of an unpaid internship, of the single parent of a child with a crippling developmental condition, of the victims of predatory lending schemes, of the third-generation homeless.

You’re going to discover that the economic playing field really is not very level. But I think you’ll discover that if you look at it from anything other than a position of extreme privilege, the slope of that playing field is not necessarily in the direction we are taught to think it is.


Cognitive Biases and the Trouble with Moral Local Shopping

So, the other day, after picking my son up from school, I stopped in at the local hardware store to pick up something or other, maybe a sack of nuts few screws. The nuts screws would have been cheaper at Lowe’s or Home Depot, but I try to shop local when I can. That is, I am happy to pay a higher price for the satisfaction of feeling like I’m supporting the local economy rather than a big corporation, for a sense that the employees are well paid and well treated (whether true or not), and with the idea that sometimes it’s really convenient to have a local hardware store, and it would be a shame if it went out of business and I had to drive over to Lowe’s or Home Depot every time my nut sack screw drawer was empty.

Now, as often happens when you run an errand after picking your son up at school, we were in the middle of shopping when he announced that he needed to use the bathroom. So, I found one of the very nice employees there and asked if he could, you know, use the bathroom.

He said no. More specifically, he said that normally he would let us use it, but the assistant manager was in the store that day, and he was worried that the assistant manager would tell the owner, who had a policy that customers could not use the bathroom. He apologized, and recommended that we go across the street to Dunkin’ Donuts, where they have nice, clean bathrooms, and they don’t give you a hard time, even if you come in to use them without buying anything.

Okay, so what the hell?

The standard story that we tell each other and ourselves when we are bemoaning the loss of little mom-and-pop stores is that these big chain stores are run by heartless corporations, that local business owners know and care about their customers, that they see them as people, rather than just sources of revenue. Why then do Lowe’s and Home Depot have open, well marked bathrooms, while my local hardware store has frightened employees who steer me towards Dunkin’ Donuts?

Of course, this isn’t really about bathrooms. Let me tell you another story.

A couple of days ago, I found a cool looking coffee shop that seemed to emphasize ethical sourcing of its beans, and was staffed by a bunch of people with various tattoos, piercings, and hair dyes. My initial thought was, “Hey, this is cool. I could work here instead of Starbucks, and I could encourage people I know to come here, too.”

As you probably know, the way wifi works at Starbucks is that you click a button in your web browser, agreeing to terms of use, and that’s it.

At this place, they had access to a paid wifi service. Now, they offered free access as well, but I had to go back up to the counter, wait in line again, and ask for the password, which was handed to me on a small card, and gave me access for two hours.

This, like the bathroom, is not a big thing. It’s a little thing, but it’s an annoying little thing. I can’t even tell you how much I paid for my coffee, or whether it was more or less than I would have paid at Starbucks. AND, given the choice, I would favor the smaller business on general principles, but this little thing left me soured on the experience.

My point is not to argue that Lowe’s, Home Depot, and Dunkin’ Donuts are offering public bathrooms as part of a philanthropic effort to prevent public urination and bladder infections. I’m sure that these corporations are just as calculating and heartless as we all imagine them to be. There is only one reason for these corporations to provide nice, clean public bathrooms: the costs (in space, supplies, and cleaning) are outweighed by the benefits (in customer satisfaction and loyalty).

Remember a few years ago Starbucks did not have free and open wifi. For a while they put time limits on it, or required that you use a Starbucks card to access it. So why did they make it so easy now? Well, presumably for the exact same reason that Dunkin’ Donuts lets you use their bathroom: because it makes financial sense.

Sure, there are downsides to having free, unlimited wifi at your coffee shop. Sometimes you’re going to get a customer who milks a single cup of coffee for six hours, taking up a table and an outlet. It has to be hard not to look at that customer and get resentful, to feel like they are ripping you off, getting away with something. But here’s the thing. Whatever that customer is costing you, you are more than earning back from the people who came to your coffee shop because you have free, unlimited wifi. Maybe you even earn it back from that same customer, who uses your table all day on Monday, and then picks up his coffee to go on Tuesday, Wednesday, Thursday, and Friday.

The problem is that the guy who is sitting there using the wifi all day is cognitively salient. After all, he’s sitting right there! All day! It is easy to sit there and brood about how he is cheating the system, getting away with something. The extra customers you get are less salient, because it is easy to imagine that they would have come in anyway. If someone is on the wifi for only half an hour, why would it matter if you have a two-hour limit?

I suspect the difference is that open, unlimited, easy-to-access wifi makes you feel welcome, while limited, closed wifi makes you feel at best like a supplicant and at worst like a would-be criminal who is being scolded in advance.

Why am I so sure that free, open, unlimited wifi is the financially smarter move? Because big corporations like Starbucks and Panera, with lots of data and people who are trying to maximize profits, deliberately switched to the unlimited system.

What puzzles me is why small business owners don’t look at this and say, “You know what? If I am going to compete with these big stores, I should set up free wifi and a nice bathroom. I should try to make my customers feel as welcome and comfortable as I can.”

I suspect that there are two problems here. The first, which I have already alluded to, is one of cognitive biases. It is true in a wide range of contexts that negative events impact us more strongly than positive events: it is emotionally more painful to lose five dollars than it is emotionally gratifying to gain five dollars. So the guy who is freeloading on your wifi is more emotionally salient than all of the people who come for the wifi, spend money, and then leave again before you get mad.

This is a place where the cold, calculating nature of the disembodied corporation has an advantage. It can actually crunch those numbers and discover that this is one of those circumstances where you can cast your wifi upon the waters, for you will find customers after many days.

This may be the difference between the owner and the employee as well. If we use the bathroom, maybe the owner perceives that cost in a direct, emotional way that the employee does not, despite the fact that the employee is more likely to be the one who has to clean the bathroom.

The second problem, I think, is the moral language that we often use when discussing shopping locally, where it is presented as a moral duty to support local businesses. I think that there might be some good, rational reasons to shop locally when possible, but I think that the moral framing causes more harm than good. Small-business owners will often use this as a sort of crutch: “If you’re not shopping local, it’s because you’re a bad person, not because I provide an inferior product at a higher price.” It seems to me that if you’re going to start an independent coffee shop, you need to ask yourself, “What can I do to provide the most satisfying experience for my customers? How can I use my local knowledge and connections to create something wonderful that Starbucks could never pull off?” Every now and then you find something like that. When I lived in Santa Fe, there were a few different places that successfully did this, and I would rotate around, working in various locations, and spending way too much money on coffee.

Of course, the moral argument — this vague sense that small businesses are somehow better than big ones — is one that I buy to an extent. It is one of the reason why I’m willing to pay a little bit more to re-nut my sack. But when the moral argument takes center stage, it eliminates the incentive on small businesses to think creatively about what they’re doing — or at least to copy uncreatively the best practices of their most successful competitors.

How much growth does Romney need?

So, among the things that Mitt Romney said last night were these:

1) His policies will create 12 million new jobs

2) He will not support any tax cut that increases the deficit

3) He will, in fact, eliminate the deficit, which he claims is a moral issue

He pointed out (correctly) that there are basically three approaches that you can take to balance the budget. You can increase taxes, you can cut spending, or you can grow the economy.

And when I say “grow the economy,” I mean, put in place policies that increase the number of jobs.

Also, when I say “grow the economy,” I throw up in my mouth a little bit, because, ugh, seriously, “grow the economy?”

Whereas Obama argued for a balanced approach, involving a combination of spending cuts, tax increases, and growth, Romney seemed to be arguing for a growth-focused approach.

Well, Howard Hill, a retired investment banker, did a little back-of-the-envelope calculation to ask how much growth would be needed to eliminate the 1.3 trillion dollar deficit.

He finds, assuming that Romney cuts the top tax rate to 28 percent (which he has argued you need to do, you know, so that the job creators can create jobs), and assuming that this leads to the creation of 12 million new jobs, those jobs would have to pay an average of $433,333 per year.

Alternatively, if we assume that the new jobs will pay an average of $40,000 per year, then to cover the deficit, you would need to create 162.5 million new jobs, which is about 12 million more jobs than the current total civilian workforce.

The point is, even if you give Romney the maximum benefit of the doubt, and buy into the tax-cuts-equals-job-creation argument, there is just no realistic way to tackle a significant portion of the deficit with job growth alone.

Of course, the thing that Hill does not explicitly consider is increased tax revenue from increased salaries from existing jobs. For example, if Romney’s plan were to create 12 million new jobs, each of which paid $40,000 per year, and the salaries for the existing 154.6 million jobs were to increase by $40,000 per year, that would do it.

And, everyone could buy a pony.

So, maybe Romney wants to increase the minimum wage to $27 an hour?

Which brings us back to our original point. There is no realistic way to tackle a significant portion of the budget deficit through growing the economy. *hurk*

Awesome DIY advice from Star Tips and Chizzy

So, what are you doing to save money during the recession? I certainly hope you haven’t been cutting back on being fabulous! But, just in case, “Star Tips” proves you don’t have to.

I haven’t been able to sort out what magazine these images are from, despite a full forty-five seconds on the Google. (Maybe Chat, but maybe not. If you know, please leave it in the comments.) The premise seems to be that readers send in their own money-saving tips. And, if your tip is awesome enough, Charlie and Lizzy (plural: “Chizzy”) will take a photo of themselves trying it out.

You should view the whole gallery, but here are a few of the choicer tips.

Plus, when you duck out of the “posh do” to freshen up in the ladies room, you can exfoliate!

Would make nice earrings, too!
In mine, every third post-it would say “Recalculating . . .” and would take five minutes to pull off the steering wheel.

Or, encourage your guests to eat lots and lots of mints, and enjoy the ensuing unicorn vomit.
Plus, is toothpaste really cheaper than mints? Really?

This is just one of many alternative uses for sanitary towels featured by Chizzy.  Others include shoe inserts, fake neck braces for frivolous lawsuits, and dressing like a terrorist to get cheap action from TSA. I assume.

This is my personal favorite. Sally Thomas of Stoke-on-Trent, we are all thrilled with your 3D hat picture!