Blessed by the Potato

Sandi Martin of Spring (the blog) has stormed onto the PF blogosphere. I’ve added her to the blogroll on the side there, but wanted to point you to a few posts in particular.

In my book I recommended TD Waterhouse as the go-to place for new index investors, largely because of their low-cost, easy e-series index funds and because then you’d have a decent brokerage account you were comfortable with when it came time to “graduate” to ETFs. Not long after the book was e-published, a number of other brokerages (e.g., Scotia) came out with free-to-trade ETFs, presenting a competitive alternative to TD Waterhouse. People wrote to me asking if my recommendation had changed, and while I couldn’t be as singular about it, I would still recommend TDW. It was a bit of waffling about simplicity (the list of free-to-trade ETFs is fairly daunting, and misses the usual recommendations), a bit about customer service (which even if you only need it once is still important if you’re a new investor trying to get something going and you don’t even know what it is you’re trying to ask for), and a bit about e-series allowing you to optimize/maximize your investing with monthly savings plans thanks to a low minimum and the ability to invest in arbitrary increments. Sandi managed to articulate this very well in a recent post:

“…you’ll find a lot of reviews that talk about “$9.95 trades” and “great research tools”. Those features just don’t matter […] Your wish list is heavily slanted towards the cost to invest in, hold, and rebalance a portfolio of index funds, and the minimum purchase requirements for regular investment plans. “Ease of use” doesn’t even make the list, and neither does “research and education” or “personal rate of return tracking”…”

Now of course she recommended my book in this post on mutual funds, so that is going to get a link. It’s also a nice, succinct piece on why people should look to boring index investing.

She’s got a series on avoiding “the useless retirement plan” (start here), building off her experiences working at a bank.

And she mentions the deceptive “may” in the HST instructions in this post on the matter. Well we got caught in that same confusing wording, and seeing that others are also having problems with it means its time to write someone to get it fixed. So I wrote an email to my MP and a letter to the CRA (Taxpayer Services Directorate; Canada Revenue Agency; 395 Terminal Avenue; Ottawa, ON K1A 0L5), copied below:

Dear [My MP];

I’m writing you today in regards to some confusing instructions at the Canada Revenue Agency. For small businesses that collect HST, after reaching $3,000 in tax for a fiscal year the Canada Revenue Agency requires quarterly tax installments, rather than annual payments. However, the instructions say:

“If you are an annual filer and your net tax for a fiscal year is $3,000 or more, you may have to make quarterly installment payments throughout the following fiscal year” [emphasis mine] http://www.cra-arc.gc.ca/E/pub/gp/rc4022/rc4022-e.html

That “may” has caused some confusion for business owners and freelancers within my own family, as well as other cases I have recently heard of in the community. The CRA requires quarterly payments once the $3,000 threshold is reached, and does not send notice, instructions, reminders, or a payment schedule. If quarterly installments are not made, they levy interest. Yet the instructions do not make it clear that it is up to the small business to remit quarterly without further instructions — indeed, the “may” suggests that they would not have to remit quarterly unless directed otherwise.

This confusion is exacerbated by the contrast with income taxes, where the CRA does explicitly direct the taxpayer when and how to remit quarterly when they are so required.

I am not asking for the tax law to be changed, but rather for the procedures and instructions to be clarified to prevent this common error from occurring. Two potential solutions that come to mind are:

1. Change the procedure to include a notice period, and have the CRA lay out a schedule for quarterly HST installment payments (as with the income tax).
2. Change the instructions to make it clear that small businesses must remit quarterly, and should not expect advanced direction from the CRA.

Thank you for any help you can offer in fixing this for other small business owners. I want to mention that my own situation has long since been cleared up, so I do not need any personal help with HST. I have sent a similar letter to the Taxpayer Services Directorate of the Canada Revenue Agency.

Sincerely;
[Me]

Please feel free to take from this, put it into your own words, and help make a small change that can save administration work at the CRA and penalty interest and headaches at numerous small businesses.

As an aside, it makes me wonder how apropos it is that the address for suggestions is on terminal avenue…

Jenn recently linked to an interesting article about post-doc pay, and how the low pay (and other issues, like the constant moving and uncertainty and short-term contracts and lack of benefits) right at the point where women’s fertility starts to drop is one factor keeping them out of science. Go and read that article, but I think this goes well beyond just women in science, post-docs and starting families.

I keep thinking of ways to dramatically reshape the way we do science. They may not be practical, but I like thinking outside the box from time to time.

One set of related ideas I keep coming back to are the issues of compensation and focus. Grad students and post-docs are paid terribly. How terrible? Well, in my department grad students made about $14k-16k as a base stipend (and that level has not changed in almost two decades, inflation be damned), top students with national scholarships could take home about $33k. Yes, per year, with restrictions on seeking outside work. This is in part because they are said to be trainees who are learning how to be proper scientists. Except if they make it through the funnel and up the pyramid, or whatever visual metaphor you may choose, they teach and write grants and supervise — skills they are largely not being taught.

So the idea I toss around is that of a permanent post-doc, or professional bench scientist: a position for someone who will spend their life doing hands-on research, and who gets paid a professional salary for it.

Along with that would be wage/stipend increases for grad students: there is a lot of catching up to do just to get back to the inflation-adjusted level of poverty they were at a decade ago, let alone getting to the point where it is recognized that they are the driving force behind science, and that a senior PhD student is a professional with years of training and specialized expertise making less than minimum wage. One related option might be to shorten PhD programs — it runs the risk of devaluing the degree, but did the 4th and 5th years of my own slog through grad school add much to my development as a scientist that the 2nd and 3rd years did not already? How has the average time to graduation changed over the past couple of decades?

It’s a tough issue, and would represent massive disruptive changes, with no real advocate to push for it. I’m really not even sure myself if these wild speculations I sometimes have are worth any further consideration at all. I mean, even if that is a place we wanted to move to, how would we possibly get there?

In a sense, science is powered by slave labour. If we restricted entry into grad school so that a higher percentage of PhDs could stay in academia (and let the industries that end up hiring PhDs instead hire MSc grads or some newly-created in-between research-intensive 3-4 year expert degree); or reduced the graduation hurdle so that they only did 2 experiments instead of 3, and graduated before 31 years of age — or really any change along those lines — we would limit the amount of science that could get done on current budgets. Unless we truly were able to hire more efficient and productive talent (or focus and dedicate the talent we have) with the increased compensation, the fact is that less research would get done for today’s research budget. This seems an insurmountable problem.

Then I thought, what if instead of thinking of slavery as a harsh verbal rhetoric, I looked at it as an actual model? After all, that problem has been solved. Slavery doesn’t exist in the modern civilized world, but did at some point in our past. Many countries weaned themselves off, with the US having a particularly dramatic and definite end to the practice after the Civil War. How did the transition work out then? What lessons can we learn for transitioning the economic model of science? Unfortunately I’m not enough of a historian to say, so I will have to end here as some food for thought.

Cyprus has been in the news a lot lately for the seizing (“taxing”) of some assets. Some have questioned whether the same could happen here. The sad truth is that there is always the possibility of the government deciding to seize your assets; whether they’re insured or not, in a bank account, mutual fund, or real; through legislation, crooked courts, or by military force.

But it is not an event that happens often or lightly. In general, governments do not suddenly seize assets — that’s not what good governance is about. Of course, if the hole is big enough and the options limited (as in Cyprus) they may not have a choice, which gets into a moral lesson about not choosing “bread and circus” leaders.

There’s a slightly higher chance of loss with more “virtual” assets and those that can be divided for tax (e.g., the income trust Halloween massacre). But the government could decide to appropriate your house, eliminate your principal residence capital gains exemption, or tax your assets instead of just your income.

This knowledge may not help you sleep well tonight. Do remember that it is quite unlikely. Ideally, your government would be open and logical, so you could anticipate such moves (or rather, sleep soundly anticipating the lack of such moves). Of course, for the Harper government that was my big beef with the income trust fiasco — not that they decided to tax them, but that they broke an explicit promise not to do so, with no justification given. How were we to know what the next materially important decision would be? Ditto with strategically important takeovers — there was next to no way to anticipate what might or might not be allowed. In the depth of the US financial meltdown some (e.g. John Hempton) complained that the FDIC just stepped in and closed certain banks over the weekend, arbitrarily deciding to make bondholders whole while wiping out equity and preferred holders — though in a more controlled liquidation and wind-up, it’s likely that either the bondholders would take a haircut, or the preferred shareholders would be left with some value. The process is often just as important as the outcomes…

When I first talked about Freddie Mac, political risk was one of the things I highlighted that might undermine what otherwise looked like an attractive long-shot bet. The US government has been requiring that Freddie Mac (and its sibling GSE, Fannie Mae) borrow more money than they need, and pay a punitive 10% interest rate on that — a worse deal than the TBTF banks who arguably had more to do with the cause of the global financial crisis. Part of what lead to the excess borrowing was the fact that Freddie’s been over-reserving for years now. It looks as though they’re getting to the point where even the most conservative accountants realize that those excess reserves will start unwinding, which will enable Freddie to start paying back the government — and after that, the preferred shareholders.

So it looks like the main investing thesis was playing out.

Unfortunately that political risk reared it’s head this week as the government announced it would change the deal to instead confiscate all future profits. I have no idea why the government decided to nationalize the GSEs but not AIG or the TBTF banks, or why they decided to change the deal at this late stage, just as the profitability was re-emerging. I suppose I’ll just have to pray they don’t decide to alter the deal any further.

I’m not quite sure what that means in terms of the preferreds being paid back, but my first take on it is that they’ll be worthless. The market seems to be equally panicked, as most issues were down about 60% on Friday.

The Ottawa Citizen had a great couple of articles on a joint NASA/NRC/CSA project to study snow storms and weather radar. While the first article about the project is not bad, what made it notable was the follow-up freedom of information release showing the ridiculous layers of bureaucracy and message massaging that had to happen before a non-answer was released. An op-ed the next day lamented the extreme information secrecy of the government.

I think scientific communication is important — indeed, it’s something I’m hoping to make a career out of here. So it’s kind of sad to see such an epic failure of communication in this case. What makes it especially sad is the number of people involved: I counted at least 4 different people in the FoI series of emails who were dedicating time and effort to not communicate, and there were more who appeared in just one or two short snippets. I bet you could not communicate with just one person in the department, or even an unhelpful sign on the door and a voicemail message. These guys, in theory, are supposed to help translate the science for the lay people and do the communications so the scientists can do science, though with the present government the entire goal may simply to act as a firewall between the scientists and everyone else. But wouldn’t everyone have been better off if one of the scientists just did the talking for himself?

So I see this kind of thing and can’t help but think “what are they getting paid for?” Couldn’t that money be better used for the main mission: science?