Simplifying the Tax Code

With the recent debt crisis in the USA there have been renewed calls for “Simplifying the tax code,” and, “Cutting out private jet clauses.”  I think a very similar case could be made for Canada.  Has anyone looked at their respective tax codes lately?  Those of you that have, will see a myriad of givebacks, handouts, and breaks.  This is not good in the long-run.  Sure, those of us that have kids in sports, or wanted to renovate our house, are happy with the little extra on the refund cheque in April, but the reality is that these “boutique tax-breaks” combined with the large-scale corporate loopholes, have combined to cost a lot more than they give in the long-run.

Tax Code – How We Got Here

Tax Code

How do we start with a progressive tax system where the basic concept is so easy to understand, and end up with these tax codes that require three degrees to figure out?  Well, the reasons are simple and complex at the same time.  The tax code is based around the idea that the more money you earn, the more you can afford to pay in taxes.  If you only earn a small wage, you only pay a small percentage of your income, whereas if you’re in the top 5%, you pay a larger percentage of your income after a certain base level.  Now people may argue back and forth about what levels should be taxed at what rates, but overall it’s a pretty simple concept.  The other taxes to take into consideration when looking at the overall picture (on provincial/state and federal levels) are consumption taxes (such as the GST and/or PST) which people pay whenever they buy or consume a good/service, and corporate taxes that are charged on the profits of corporations within a country.  With a couple hours of basic instruction I truly believe the vast majority of people could understand this tax system fairly easily.

So why mess with this beautifully simple structure?  Sure, debate back and forth on the rates of tax, and what levels of income deserve to be taxed at higher rates, but overall, the basic idea seems fairly straight forward.  That is until you introduce the complexity of bureaucracy and politics.  You see, introducing tax breaks and tax credits is a political advantage on so many levels.  First and foremost, it always more popular and less controversial to announce a tax cut, as opposed to new spending that will be paid for with a rise in taxes, or a cut to existing services.  The fact that they have the same net effect on the public coffers (less money coming in, is the same net effect as more money going out) is often lost in the equation.  In today’s Tea Party-dominated world, this basic reality has never been easier to discern.

It is also an easy way to target specific demographic groups in an age where winning over certain groups of people has become the preferred strategy for winning elections.  With such precise records and polls now available, announcing a tax cut or tax credit benefitting a select niche of swing voters is often a brilliant political manoeuvre that all parties are guilty of capitalizing on.  You want to get middle-class parents on board?  Great, announce a fitness credit where they get money back for their kid playing hockey.  Want to paint your party as the eco-friendly tree huggers?  Rather than look for truly innovative, and sustainable solutions, just announce a large tax refund for people who put in solar panels or drive a Prius.  The possibilities are endless.  Not many people stop to think that those tax refunds and tax cuts have to come from somewhere, and there are really only three options.  To fund these niche vote-buying ventures you either have to up taxes, take out debt (the worst long-term option, although strangely the most preferred), or cut other existing services.  Once these little tax-goodies are in place, they are nearly impossible to remove without headlines screaming that, “ ________ is putting the screws to Canadian parents by taking away the fitness credit.”  Any politicians want to take that one on?

Daddy, When I Grow Up I Want To Exploit Tax Inefficiencies…

All this, and we haven’t even got to the largest inefficiency in the tax system – lobbyists and corporate back-scratching.  By subtly (and sometimes not-so-subtly) paying for politicians’ campaigns, and badgering them non-stop with paid professionals, big business are able to get thousands of little tax loopholes built into the system.  Again, once they’re in, they are extremely difficult to remove.  There is just not a lot of political capital (until maybe recently) to be gained by axing an old tax-break.  These businesses can also afford teams of well-trained and better-paid lawyers/accountants to shave millions off of taxes that ought to be paid (or ought not to be, but let’s at least have an open debate about it!).  Why don’t we simply decide on a fair rate and then actually enforce taxation policy!  This isn’t news to most people, but it still bears mentioning.

Simple Tax Code System Advantages

Imagine a country where residents could actually understand the vast majority of their tax system?  Where there wasn’t 1001 tax breaks you were supposed to try and find out about in order to take maximum advantage of.  In this place people could learn the tax system, making their economic choices with a full knowledge of the consequences due to a transparent structure, and file their own taxes.  This is a true economists dream.  Basic free-market principles at work, not this clumsy, government incentive-laden, 2 billion page mess that we are currently stuck with.  The government could save money by employing less bureaucracy to deal with such a complicated system, and there would be much fewer loopholes for lawyers to take advantage of.

Instead of waiting for our piece of the tax incentive pie, we should take a look at the big picture.  A simpler tax system that is easily enforceable would make sense on so many levels.  There is no way around the fact that we need government programming, and we need to pay for those services.  Instead of rewarding the people who can bend tax code the best, lets simply lower tax rates to where they should be, and actually make people pay them!  I know it’s a novel idea, but it just might work.

E-Book Review – “The Rat Race”

The Rat RaceMy good friend Mike over at The Financial Blogger (TFB) has recently released his second e-book, and both of them are definitely worth the price of admission.  I’m sure you have seen lots of blogs and sites that tout a new promotion as “the next big thing” because they get a slice of whoever buys whatever they’re selling.  Full disclosure, we do get paid if you buy “The Rat Race” from our site.  This is the first time we have ever done an affiliate sale review here on My University Money, and I think that proves more than anything we could say that we honestly stand behind this product and its creator.  My guess is that if you have not yet had the pleasure of seeing Mike’s blog, once you read his books, you will be a regular.  Mike has a MBA and is a very successful financial professional (so he knows what he’s talking about here!).  His first e-book was a comprehensive review about dividend investing.  If you have all the basic knowledge of investing down, this is an outstanding book that should answer almost anything you need to know about choosing your own dividend-focused investments.  The best part about this book is that it is absolutely FREE!  After Mike’s successful first efforts, he decided to tackle the bigger financial picture in his newest creation.  It is called “The Rat Race and it is basically a guide on how to gain financial freedom and live the exact life you want to live on your own terms.

Not Just Money Advice

In the first chapters, TFB shows that there is much more to his strategy for early freedom than merely being good with money.  He talks about how important it is to surround yourself with the right people, and why some people are generally less successful than others.  The key idea here is to not make excuses about why you don’t work harder or “hustle” as Mike puts it, but instead learn that the benefits of working harder and more efficiently are worth the extra effort.  To keep up his ambitious schedule, Mike explains how important little things like waking up early and exercising regularly are.  I generally agree with this sound, basic advice, but for me the real value of the book lies in the more financial-based chapters.  TFB goes on to wrap up the first section by comparing the rat race we run everyday to the Matrix, all I could think about the whole time is if Mike was supposed to be Neo or Morpheus in the metaphor, and if this e-book was the “blue pill” – yes I am that much of a nerd – moving on…

Personal Finance PLUS

The Rat Race then goes on to explain elements of personal finance that combine the concepts found in my two favourite personal finance books: The Wealthy Barber and Rich Dad Poor Dad.  There is the standard advice on wills, insurance, basic investing (save 10-15%), and budgeting, that is very useful to someone who doesn’t have an addiction to reading personal finance blogs.  Perhaps the more unique part of this section came when Mike gave his thoughts on leveraging.  For those of you that aren’t familiar with the term, leveraging is basically borrowing money to make more of it, either through investing in a business or an investment vehicle of some other kind.  Mike shows how leveraging to gain income-producing assets is not a negative thing, and that not all debt is created equal.  He even goes into some depth on the Smith Manoeuvre, which is a leveraging strategy that builds on your house’s equity.  I definitely read the fine print here, because I am soon looking to put this strategy into action.

Real Life Proof That This Stuff Works!

By far the highlight of the e-book for me was the section where Mike shows examples from his personal life.  The real value of the book lies right there in my opinion.  Mike’s theories are great and definitely worth reading, but I have read many of them in other places; however, when he clearly shows how he executed these strategies he is advocating for it really brings them to life and pounds his point home – that you actually can get out of the Rat Race using these plans because he is actually doing it himself!  Mike goes into detail on many of his financial transactions, including how to learn from his errors.  It is not written from the standpoint of, “Look what I did,” but rather, “This is what I tried, here are the results, this is how I know what works.”  The Rat Race wraps up with some cool tips on how Mike has ran his blog, some of his investment decisions, and how to maximize productivity.  One useful idea involved taking a typing course (Mike said he typed 75-80 words a minute according to a specific test, I averaged 60-65 on the same test).  I never thought about how typing speed could have a huge impact on someone’s efficiency, but when you consider how much time many people (especially those who “hustle”) spend at a keyboard, it is a very valuable insight.  These little advantages are something you won’t see in many other places, and Mike’s success is proof enough of their value to me.

The fact that Mike has an enviable financial statement, an extremely successful stable of personal finance blogs, and a quickly escalating career in the financial field, all give The Rat Race a huge degree of credibility with me.  I am a huge fan of TFB and some of Mike’s other blogs and I can’t wait to read his next e-books in this series.  After reading The Rat Race I now hope to be a “Rat King” just like Mike!

To purchase a copy of The Rat Race for the limited time offer of $27.00 click here.  If you want to get out of the daily grind and truly build an attractive future out of the Rat Race lifestyle, then it is definitely worth the $27.00 to see what Mike has to say.  Don’t take my word on it, check out Mike’s free dividend investment guide and judge his merits as an author and financial authority for yourself!

Tips For Note Taking

If you go to class you’ll notice that there are many types of students, but around 80% of them will be taking notes.  Not everyone takes good notes and some people don’t even know how to take notes at all.  Everyone remembers things differently, but by taking notes you can ensure you’ll do better.  Some students will bring their laptops to every class and take notes that way, but there are a few pros and cons with this.

Pros

  • Efficient
  • You can organize your notes easily
  • Don’t have to read messy handwriting
  • You can sell your notes easily

Cons

  • Difficult to draw pictures
  • If your battery dies you’re in trouble
  • You could potentially get your notes stolen (if your laptop gets stolen) or lost
  • Terribly distracting thanks to facebook and email
  • If you drop it, leave it in your car during winter, spill on it etc, you can lose everything
All in all, it’s hard to beat the old fashioned paper and pen.  Here’s how it stacks up.

Pros

  • A notebook won’t get wrecked when it freezes or if you drop it
  • If you run out of paper there’s always someone in class that will be able to lend you a sheet
  • Some people find it easier to remember material if they write it down a few times

Cons

  • It sometimes can be disorganized
  • It can be hard to read your own writing
I tried using a laptop at first, thinking I was technologically savvy, but I ended up switching back to paper and pen because it was 100% more customizable.  I didn’t really have the best notes, but I was able to learn more from writing everything down.  During some of my electives I was in some 1st year classes where I witnessed all kinds of note taking styles.  Some students frantically wrote down everything the professor said, some followed the prof’s presentation on their computer.  I even seen one student record the class with a tape recorder.

Don’t Waste Your Time and Be Efficient

Note Taking

Some profs use power-point presentations, some use the chalkboard/whiteboard, some even use an overhead projector.  They all have different teaching methods and your note taking will have to adapt to whatever they do.  My preference is when professors post their notes online so you’re able to download them.  It probably hurts the attendance, but students that show up to class tend to be more engaged in the material and they can add their own notes to supplement the ones printed off.

Stay Organized When Taking Notes

Coming from me this is a bit ironic, but by staying organized you can save yourself big headaches when you need your course material quickly.  An easy way to keep things organized is to keep your subjects separate.  This seems obvious, but I ran into people who had trouble with this simple task, so I thought I would mention it.  I take nothing but a clipboard to class and some paper, so I’ll have 3 or 4 different subjects in there at once, at the end of the week I usually throw everything in their correct binders.  The most important thing to do is to put the date on every page of notes (both sides if necessary) in the top corner.  If you are a disorganized individual like myself, then this alone will make things easier on you.

Note Taking – The Refresher

My brother never studied much for exams and did very well.  I on the other hand took half decent notes and studied my ass off, although admittedly it was usually much too late, and got mediocre grades.  His secret was reviewing his notes at the end of the day for 15-20 minutes.  He remembered the material better and by the time the exam came around he remembered at least 75% of the material right off the beat!  I ended up trying this technique in my last year and my grades improved quite a bit! Take a look at my brothers follow up to this article, tips for taking notes

Everyone has their own unique note taking style.  What little quirks and tricks did you pick up?

What Other Bloggers Are Saying #18

We are proud to announce that we will be hosting our very own carnival here at My University Money.  We’ve been talking about doing it for quite some time now, and we hope to have a good response.  We are lucky to have a great community of financial bloggers to get ideas from, and this was one that surfaced to the top.  The carnival is called the Carnival of Financial Camaraderie.  We’re going to try and publish this carnival weekly and we’re going to aim to post it every Saturday.  So when submitting, just have it in by Friday evening, if you’re late we’ll just include you in the next go around.

This will probably be the last issue of “What Other Bloggers Are Saying” so I hoped everyone enjoyed it.  Here are this weeks links:

  1.  The Simple Dollar presents the Financial Balance and the 80/20 Rule
  2. Broke Proffesionals present Moving Up the Career Ladder
  3. Money Crashers presents the 5 Best Productivity Apps For The Iphone
  4. Free From Broke presents Budgeting For Christmas Shopping Before Its Too Late
  5. Retire By 40 presents Interview With A Stay-At-Home Dad/Blogger
  6. One Money Design presents Make Money Recycling
  7. Squirrelers presents Save Time And Money By Hiring The Right Home Improvement Contractor
  8. Mint presents The Gift That Keeps on Giving: Graduating Debt-Free
  9. Man V.S. Debt presents You Vs Debt: A 6-Week Plan To Take Back Control of Your Finances
  10. Boomer and Echo presents 11 Steps To Financial Freedom – Step 1: Prioritize Your Goals

Yakezie

  1. Budgeting In The Fun Stuff presents Eating Healthy on a Budget
  2. My Personal Finance Journey presents Why Now is the Time to Save and Not Spend
  3. Buy Like Buffet presents Saving Your Money Vs Investing It
  4. Bucksome Boomer presents Frugal Eats: Dining Out On The Cheap
  5. A big congrats to the College Investor who reached their 2 Year Anniversary!
  6. Money Beagle presents How Blogging Has Changed My Life on Yakezie
  7. Consumerism Commentary presents Google Wallet Not Ready For Prime Time
  8. So Over Debt presents Why PF Bloggers Should Never Date Each Other
  9. Free Money Wisdom presents Tips For Borrowing From A Family Member
  10. Little House In The Valley presents Do Your Homework Before Moving To A New City

We’re proud to be included in the Canadian Finance Carnival, the Carnival of Wealth, The Yakezie Carnival, and the Carnival of Personal Finance.

Rising Tuition Fees – The Next Bubble?

A report last week from statistics Canada showed that the average university tuition rate rose by an average of 4.3% last year, and that this figure outpaced inflation by a considerable margin as the latter came in at 2.7%.  This is not a new trend, and unfortunately has led to a well-documented increase in the cost of post-secondary education.  In raw numbers, Canadian undergraduate students are now paying an average of $5,366 in tuition fees, up from $5,146 a year ago.  Tuition rose in every province except Newfoundland and Labrador, where there hasn’t been an increase since 2003-2004.  While undergraduates took the majority of the financial sting, graduate students seen their fees increase 3.7% as well, and are now paying an average of $5,600 in tuition expenses.

The Trend Of Rising Tuition Fees Is Not Unique To Canada

Before I tried to analyze the broader effects of this tuition-outpacing-inflation trend, I thought I would take a look at the correlation to USA post-secondary costs.  The most recent study I found appeared on the Bloomberg website, and was conducted by the National Association of Independent Colleges and Universities.  The study showed a comparable 4.6% rise in the cost of post-secondary education, and while this was relative to a higher core inflation rate of 3.6%, it still represents a significant gap in the cost of a good education compared to everything else in society.

There Has To Be A Better Way…

What Does Tuition Include

I am definitely not in the camp of “post-secondary education should be free for all, and we should keep tuition costs down at all costs,” but the fact is that this increase in tuition fees is not sustainable.  I wrote a post a couple weeks ago about market bubbles, and I am growing more and more convinced that post-secondary education is one of the next bubbles that will greatly effect society at large (full disclosure, this is not my original idea, I have seen it mentioned in a variety of places).  This is making more and more sense.  The whole structure of publically-funded post-secondary education in Canada essentially makes being in university administration the best guarantee of printing money this side of owning a casino.  The university big shots pay themselves more, hold a gun to the head of the electorate (students and students’ parents) in saying they can’t function without more money, and so the government capitulates and give more money to avoid the dreaded rise in tuition that is a political no-no.  Then, we as society help everyone out by giving students this idea that they need a university degree and that it is worth the cost (no matter what that cost is) even if it is in underwater basket-weaving.  Eventually something has to give here.  My guess is that pretty soon people are going to start following the money, and that sure won’t lead them to an 80K philosophy degree.

The My University Money “Put This Together In An Hour” Plan

I truly don’t understand why government has to make things so complicated.  Here is a simple multi-step proposal that would allow both government and universities (which is by extension paid for by the government as well) to eliminate a massive layer of lobbyists and bureaucracy:

1) First we need to determine how much university administration should cost per student.  If university administration is going to be paid with mostly tax dollars, there should be some kind of publically-mandated regulation of costs in place.  Placing a cap on position salary isn’t enough, there are WAY too many positions that are completely made up and have no true job description.  These positions are pure bureaucratic fat and should be trimmed immediately.  Consequently, lets put a committee together to look at the top 40 universities across Canada (obviously in the USA this would be more difficult considering the much higher quantity of schools) and look at exactly what is needed to run a university.  Should a university president get paid more than the Prime Minister?!  I’m going to go out on a limb here and say that is ridiculous.  Remember, their salaries have not been determined by true free market principles because the entire market has been inflated due to the subsidization process.  So let’s figure out a true administration cost per student.  This figure will be the core of my proposal, so we should get some smart people from outside academia, preferably with private-sector management knowledge, that will have experienced life inside the ivory white tower of post-secondary education, and outside of it.

2) We also need to determine what the average infrastructure, utility cost, and a few other core expenses of universities should be.  The goal here is to determine what a well managed facility should cost to maintain.  Again, private sector thoughts would be a boon at this stage.

3)  Lets determine exactly what the fair ratio is of government subsidization is for post-secondary study.  If we decided that certain industries such as engineering, or a certain trade are in much higher demand and much more useful to society, let’s decide to subsidize them a little more.  We can review the trends every 3 years.  It should be fairly straight forward.  What percentage of your education should the government pay for?  No doubt this will be subject to a great amount of debate and will likely become a platform of government parties.  This is a positive thing.  We would actually be making the funding of post-secondary education transparent to people instead of the ridiculous promises we now see thrown back-and-forth without anything truly being done.

4) After we determine the administration costs per-student, and the infrastructure costs of having a student attend university, we will be operating on the same playing field.  The formula will now become automatic for what amount of government money post-secondary institutions are entitled to.  Once this is figured out, we just simply make the per-student amount tied to inflation, and bingo, bango, bongo, no more lobbying needed, no more mudslinging back and forth between various parties.  The only debate that should take place would be the percentage of funding the government should be responsible for, and possible question of whether a few of the periphery “infrastructure etc” costs should be included in the original calculation.

5) Caps should be put on what specific levels of administration are allowed to make.  Once you lock in the university president position at say 90% of what the Prime Minister makes (I know even that number sounds ridiculous, but it is interesting to note that would be at least a 50% paycut for most university presidents), simply lock in every other position as a percentage of what the President makes.

6) Publically-funded universities should be forced to show their balance sheets in a universal way, especially their compensation packages for respective positions.  They are spending government tax dollars and they should be way more accountable than they are now.

I started to write about an alternative path that would allow for less regulation, but I believe that will have to be an entirely new post.  The bottom line for the time-being at a personal finance level, is to plan for post-secondary costs.  This means taking advantage of RESPs, and being aware of the scholarships, grants, bursaries and other “free money” options that are available to students.  Post-secondary education has to be looked at as a family investment at this point for most people.  If costs are going to continue to trend upward (and it looks like we lack the political will to do much about it), individuals need to invest money ear marked for education in order keep place with this rate of inflation.  Until the government wakes up, it is important to take personal responsibility for future tuition fees.

I would love to hear some criticisms of my theory, or even better – some constructive additions to it.  There has to be a more efficient way of providing education in the areas we need in Canada.  Anyone know what a university president really does except pose for pictures and ask alumni for money anyway?