Blessed by the Potato

Wow, what a terrible, terrible week for exercise and diet. Started off with a StarCraft 2 “LAN” party, which involved 2 days of nothing but junk food. Then I was busy with work and it was hot and humid out, and I got my sleep schedule all screwed up, so I did basically no exercise. Weight’s up 2 pounds (and the scale’s calibrated right this time), so I’m going to have to be extra good this coming week. Meal plan: egg whites, oatmeal, fruit, repeat.

Of course, this was also the week that I started putting together “Little Known Facts About Calories” — a semi-secret project which I am teasing you about now, and hope to unveil soon… but not today!

Links:

Gamers can beat algorithms for finding optimum protein structures in a game simulating how protein chains would contort themselves to find their minimum energy configuration in the cell (with the water-like cytoplasm, and the fatty membrane layers). Turns out the algorithms are good at getting fairly close, but can be trapped in local energy minimums, which the gamers see past. A neat read.

OK Cupid has an article up investigating what can help make your profile picture look more appealing. Also, a neat graph showing that sluts are more likely choose iPhones as their smartphone of choice.

Yet more nonsense on the census. I don’t see the problem: StatsCan is a government agency with an excellent record of protecting privacy. The long-form census is incredibly useful and should continue to remain mandatory… I can’t believe the Cons are still trying to make an issue of this.

An illustrated guide to a Ph.D.. And, from the same author, 3 qualities of successful PhD students. To quote liberally from the second article:

“Smart” qualities like brilliance and quick-thinking are irrelevant in Ph.D. school. Students that have made it through so far on brilliance and quick-thinking alone wash out of Ph.D. programs with nagging predictability. Let there be no doubt: brilliance and quick-thinking are valuable in other pursuits. […] Certainly, being smart helps. But, it won’t get the job done.
[…]
To survive this period, you have to be willing to fail from the moment you wake to the moment your head hits the pillow. You must be willing to fail for days on end, for months on end and maybe even for years on end.
[…]
For students that excelled as undergraduates, the sudden and constant barrage of rejection and failure is jarring. If you have an ego problem, Ph.D. school will fix it. With a vengeance. (Some egos seem to recover afterward.)
[…]
Science is as much an act of persuasion as it is an act of discovery. […] You will have to write compelling abstracts and introductions that hook the reader and make her feel like investing time in your work. […] You will have to learn how to balance clarity and precision, so that your ideas come across without either ambiguity or stifling formality.
[…]
That’s why I recommend that new students start a blog. Even if no one else reads it, start one. You don’t even have to write about your research. Practicing the act of writing is all that matters.

I started my site in undergrad/high school, but the blogging platform didn’t arrive until grad school, so I suppose I can use this as a backwards rationalization as to why I did it :)

I’ve had about 5 hours of sleep in the last 48 hours as I try to cram out (at the last minute, of course) some papers for an upcoming conference. It’s been a nightmare because, amongst other reasons, the ridiculous copyright policy of the conference means that we have to submit papers that are different enough from what we usually write that we can still have freedom to use our own work elsewhere. It’s hard enough to hammer out a paper in the first place, then to have to try to do it in the literary equivalent of a funny accent…

Anyhow, I’ve been battling with yet another nasty case of writer’s block — something that seems to hit me far too severely when it comes to my professional writing. I think Wayfare hit the issue on the head: I worry too much about how the work will be received for professional stuff and just lock up, whereas on my pseudo-anonymous blog I can just hammer away at the keyboard and not even worry about proof reading since I don’t have that much invested in it. Nothing to do but just try to get over it. In the meantime, Netbug suggested I take a quick break and put up at least a Tater’s Takes post, so here you go.

On the health/diet front, I found out that my scale got miscalibrated somewhere along the way. I’m not sure when it happened, but it was reading high by 3-4 pounds, which means I’ve really only gained about a pound from when I started. Still, wrong direction, but not quite as bad as I had thought. The last week was decent but not great: I’ve been watching what I eat more, but still had a few doughnuts at work through the week. I’ve started writing down my meal plan for a ~3 day period, and have been sticking to it reasonably well, and including lots of healthy stuff like vegetables and oatmeal, so that’s been good. I only had two good long bikerides in the week, but considering the week I’ve had, that’s pretty good (I plan on retrying the 36 km trip around Fanshawe Lake once these stupid stupid stupid papers are in).

“Today” though has been hell on the diet: I’ve resorted to undergrad cram tactics, pounding down full-sugar Coke & Red Bull and eating nothing but junk food to burn through the night. 3940 calories in the last 24 hour period (I don’t know what I consider a “day” anymore — best to try to stick to the subjective view of time the rest of you hold), which is simply not an efficient way to produce written words. As soon as the caffeine starts to wear off, I’m right into the head-bobbing vertigo stage of sleep deprivation, so I’m really hoping these stupid papers get finished soon.

In the news, BP’s latest cap attempt actually appears to be working. The stock shot up, then slid back down on perhaps fears that the shutting-in of the oil may have put too much pressure on the parts of the well below the ocean floor, causing oil to seep out (in a way that could be very difficult to control).

Also finance-related, a quick note that I sold my H&R REIT yesterday. Thanks to falling behind on my thesis and staying a grad student longer than my scholarship said I should I know that I’ll need to be raising cash, and also H&R is starting to look fully valued to me, so out it goes. Again, this isn’t a case of not liking the company, just thinking that the price was getting high enough…

I was going to look into the new Ontario “eco fee” tax this weekend and blog about it, but it looks like the negative publicity and poor roll-out has lead to it being canned… for now.

After running headlong into Bell’s very restrictive 25 GB data cap in May, I had to complain to any that would hear me that the $2/GB charge was very obviously excessive, and in no way actually reflected the incremental cost of that data usage. Plus, of course, the comparison to Rogers’ slightly more generous 60 GB cap (and 5 years ago the cap was also 60 GB, long before most users started watching videos on the internet, or Bell/Rogers themselves started rolling out video-on-demand portals). Netbug sent along an article that looks at this issue for US ISPs and concludes that indeed, most of the cost structure is composed of fixed-cost infrastructure type spending, and there’s no support in the ISPs’ business model for the caps and data charges that have been rolled out. Congestion issues are also unlikely to be the reason for the fees, since if congestion at peak times was the issue, the ISPs should instead implement time-of-use charges.

There’s some interesting discussion taking place over at Larry McDonald’s blog on the flat-tax issue.

Larry asked:

“But does a flat tax necessarily entail a higher tax burden for lower income persons and/or less public service?”

I don’t have a source for you, but the math is fairly simple. If we’re to avoid less public service, then the total tax revenue has to be the same as it is right now, however that gets distributed.

Then you have three basic options for how to set a flat tax:

First, a true flat tax of X% (say, ~20%) from your very first dollar of income. Obviously, there are people right now who are very low income and pay no tax, and under this new system they would be paying tax, and the people at the top would pay less tax (so the total revenue is the same).

That goes against the progressive sensibilities of many people, so the next suggestion is to add a floor. Then you have two variables to play with: how high to set the floor, and what tax rate to set.

Now, assume that for the very, very wealthy, their total tax rate approaches the top tax bracket (if you’re making $20 million, the first $127k at a lower tax bracket is virtually meaningless).

So, if you set the tax rate to be less than the current highest marginal rate (29% federal), and set some middling tax floor ($20k, whatever), then the very wealthy will still pay less tax, so again if the total tax grab is constant, that must mean that someone lower down is paying more, but this time that’s likely to be the upper-middle class rather than the very bottom of the income distribution.

Then the only way to make sure that you’re not moving the tax burden down the income strata with a flat tax is to set the flat tax rate higher than the current highest marginal tax rate, and then have a fairly high tax floor — but I don’t think I’ve ever heard a flat-tax proponent suggest that version.

I’m in this deep, so what the hell, let’s put some actual numbers to this. I quickly looked up what the distribution of incomes is, and plugged that into excel. I know I probably shouldn’t worry about the 0.01% of Canadians who make more than $3 million when trying to figure out a tax system for most of us, but I decided to try to come close for the sake of argument. Now, this is not quite exact because it doesn’t take into account the various deductions available which will definitely skew the results — this is just taking the incomes listed from Stats Can (which are in ranges — I took the middle of the range and called it close enough), and applying the progressive tax brackets to them to find a current tax burden, and then examining different flat tax schemes to see how they fare.

So, using this model, we find that:

To get the same total revenue with one flat tax (from the first dollar on), the average rate would have to be about 14.5% (a bit higher in real life since I don’t quite add up to the same actual total tax revenue as the government pulls in with this model).

If we set a low floor, at $5.3k, a 16% tax rate gets us about the same total revenue. However, the tax burden is shifted quite dramatically towards the lower income bins. This chart should get the point across:

If we want to use a 22% tax rate, currently the second bracket ($41-$82k of income), the floor can be set at $15.8k, and we see that the very poor pay no tax (no change from current), those close to the floor pay a little less (those with incomes up to $27.5k), the middle class people ($30-$85k) pay more, while the very rich (over $85k) pay less.

The current top tax bracket of 29% lets us set a floor of about $24.5k, and even all the super-rich bastards pay at least the same (though those at $42.5k would start paying more, with $47.5k being enough to make the difference more than 1%, while those millionaires have a fractional percent difference because as I hinted earlier, their tax rate approaches 29%; deductions, off-shore tax fraud/evasion, and sheltering aside).

If we want to move the floor up to say $35k (the current average income) and really flip the flat tax idea around on the rich, then the flat tax has to be about 40.5%, and only those with incomes over $65k would be worse off than they are today (though as you can imagine, the difference would be quite dramatic since there’s a lot of slack to make up in a thin slice of population).

So you can see why I’m against a flat tax: it benefits the well-to-do in almost every incarnation — even when you set the flat tax rate at the current highest marginal rate so that the very rich pay at least the same, you still end up taxing the upper middle class (those below the ultra-rich) even more. And that is not the version championed by the likes of the Fraser Institute — they’d want one with a tax rate closer to 15-20%, which tends to shift the tax burden down to the poor and middle class. I like the progressive tax system, so if I were to make changes, I’d pull out the Ontario Health Premium, and add in another tax bracket on $1 million+. Yes, it only affects a very select few (<1% of the population), but there is definitely a big difference in your ability to pay tax between $200k and $2M.

You can have a look at my work in excel yourself, check me for errors, get more up-to-date or better resolution stats for the model, etc, right here.

Sources:
Federal tax brackets: http://www.cra-arc.gc.ca/tx/ndvdls/fq/txrts-eng.html (plus basic personal exemption of $10k)
Incomes, from Stats Can, and highest few slices from the daily (also, a simpler breakdown from HRSDC).
In my very rough excel spreadsheet, I got about $140 trillion billion for income tax revenue — I figured it would understate things because the stats can data doesn’t even go to the highest tax brackets. I also probably had an overstatement because I was having tax come off even the very low income people at 15%. Then I added in a $1.5k credit to everyone and it looked more realistic, but brought the revenue down to about $100 trillion billion. So, to try to more closely model the actual case, I added a $125k income bracket for which I have no source data — the population at $100k was fudged to get the total tax revenue to come out close! I also assumed that some 10% of those millionaires making over $3M/year would be over $10M, though that didn’t have much of an effect (not enough people). The actual numbers: http://www40.statcan.ca/l01/cst01/govt02a-eng.htm says that there is $133.7 trillion billion of revenue from income taxes (in 2005, which is when the income data is from). One other source of error may be that I looked up the 2009 tax rates, but have 2005 income/tax revenue data.

Edit: I made a billions/trillions error above. The spreadsheet looks like it was ok, it was just my words that failed. Also, another handy link on spending breakdown.

Larry McDonald is back at it with the flat-tax fantasy. Now, in part my hackles get raised whenever anything the Fraser Institute champions comes up, but there are a number of good reasons why a flat tax either will not come to Canada, or if it does, why it won’t be the miracle many hope for.

First off, the government needs a certain amount of revenue for all of its programs. So the total tax grab would have to be the same at the end of the day, no matter which tax system is used, which means that for the majority of middle-class Canadians, their tax bill will not change. Flat taxes are often championed by rich people since whatever the new flat tax is, it will be lower than the highest marginal rate — this naturally means that people in the lower tax brackets will have to pick up the slack. To some, this is fairness. To others (such as myself), it’s not. For a long time we’ve had a progressive tax system, such that there is some point at which you stop paying the government, and the government supports you instead — and that to date has been the Canadian idea of fairness. It’s still possible to achieve that with support systems (direct welfare payments, etc), but then it becomes a little disingenuous to claim to have a simple flat tax system when the reality is that the complexity and progressivity just gets moved somewhere else.

Next, many of those special tax situations and tax breaks are there as incentives to drive behaviour. Just look at the temporary initiatives brought in specifically because of the economic crisis last year: the home renovation tax credit, the 100% write-off of computers, the first-time home buyer’s tax credit, all to get people out spending money. Now, I think that there was far too much focus on the wrong areas of the economy there (real estate, which was the one sector that was already overheated with the emergency interest rates, and computers which are overwhelmingly not made in Canada), but the fact is that they were possible and fairly easy to implement into the existing hodge-podge of tax credits and deductions. And bizarrely enough, people seemed to respond better to saving a little bit of tax on their home reno or bus pass than I suspect they would have if the government had directly subsidized renos or bus passes to the tune of 10-15% — either because the math escapes them (which is a point I need to get to) or because people take more joy from not paying $X in tax than they do in saving $X up front (probably the same reasons why there are huge line-ups whenever the superstore has a tax-free event, when their regular sales often lead to more savings). Again, in a flat tax system these incentives could probably be implemented in a different way, but that’s just moving the complexity elsewhere — a tax-return on a postcard, plus an additional form HRTC-1 to mail in to a different department, and a TCD for your business, and a FTHBTC to fill out in triplicate and send in…

Now, that’s not to say that I think the current system is perfect. I like the basics of the progressive tax system — and indeed, that part is not the complex part of the tax return. You could still have a tax return on a post-card even with a couple of tax brackets. However, the current tax system is very complex. Indeed, Wayfare was lamenting last weekend as we were compiling our taxes and having to stop and look stuff up that “it shouldn’t be this hard for two people with a master’s degree and a PhD to figure out their taxes!!” There is definitely room for improvement. The hard part is figuring out what your net income is after all the deductions and various classes of income (dividend vs scholarship vs T4 vs self-employment vs interest vs capital gains) — the part about then dividing that net income line up and paying tax according to different progressive brackets is trivial. Unfortunately, the most complicated parts for us were in dealing with tracking our adjusted cost base over the years on securities with DRIPs and RoC — which probably isn’t going to go away in a flat tax system unless the government wants to stop considering capital gains as taxable income — and in dealing with what is and is not an expense/deduction for self-employment income. The self-employment issue is going to torpedo this notion that a flat tax would automatically be simpler, because there’s no simple way to implement that unless you start taxing revenue rather than income.

There is a huge amount of room for simplification there too though. For example, Wayfare bought a new business computer in 2009. There were at least four different classes for depreciating a computer (or, “general purpose electronic data processing equipment (commonly called computer hardware)”) which is absurd. I also don’t think that we need to have as many round-about tax breaks for natural resource exploration, such as flow-through shares — drilling for oil and gas is its own reward (and indeed, should be a generator of revenue for the government). On the other hand, the guys at MaRS make a good case for bringing that kind of incentive to medical and technology start-ups.

As we move into the digital age, it may be possible to have the CRA create its own tax software with an interview method like QuickTax, and hide the complexity that doesn’t apply to most Canadians (it would, naturally, have to be open-source so if you wanted you could see where your tax liabilities came from and to optimize your tax situation). Because while I can see a number of ways to simplify the tax code, not all of the web of deductions will go away.

Though there are interesting consequences if they do. Consider one deduction that many average tax-payers take: charitable donations. Much overhead is wasted in charities proving that they’re charities, soliciting donations, in tax-payers tracking their donations, and audits, etc. What if there were no registered charities? Right now, even some of the best charities can only promise that about 80% of your donation will actually go to, for example, medical research. But, I’m a medical researcher. You could give me some money directly and I can guarantee you that 100% of what you give me will go to medical research (I currently study pain and brain imaging applications, but hey, if cancer’s your bag I’m all over it). No more wasting weeks and months writing grants for peer-review funding committees, no more wasting time sitting on said committees (for older scientists, not me yet) — I just need to come up with a pitch geared to the average donating Canadian!

The Globe and Mail has an article today on Ontario’s Bitter Pill to Swallow, the recent changes to generic drug pricing that has pharmacies up in arms.

Once again, I think I’ve got to side with the public good on this: it’s a kick in the nards for pharmacies, but the government isn’t exactly bankrupting or socializing them. From the article:

At Lovell, Ms. Winn estimates each of her stores gets about $300-million [sic] annually from generic drug makers, in exchange for exclusively stocking their products. Like it or not, she says, without that money there are no funds to keep operating, since the margin on the drugs is minuscule; dispensing fees – the $10 to $12 that she collects on each prescription of which $7 is covered by Ontario for its public plan – have not been increased in years.

[…]

Before the day is done, they will fill 300 prescriptions, about one every two and a half minutes. There are three pharmacists on duty, along with three pharmacy technicians to help fill bottles and blister packs with drugs, and a cashier to ring through the purchases.

[…]

The province requires that the allowances are used for activities that directly benefit patients, and pharmacies must submit their spending to be audited each year. But the Ontario government figures that almost 70 per cent gets used for salaries, bonuses and fringe benefits.

Yes, the new rules are definitely going to pinch profits — but this article neglected to point out the offsets that the government is bringing in. Those kick-backs were supposed to be used to improve patient care, but many were simply used for salaries/profits. So now there is a direct payment for counselling and some other new services (flu shots). Those pharmacies that fully serve their patients should come out pretty close to how they did before according to the government*; those that are just bottle-filling robots will see a profit cut.

Speaking of bottle-filling robots, look at the numbers given in the article: 300 prescriptions a day, at $11 per just for the filling fee (i.e., on top of the markup on the drugs themselves – and that’s assuming just one fee per script; I know Wayfare generally has four or more dispensing fees every time she hits the pharmacy). $3300 per day, $16500 per (5-day) week, over $800k per year. I don’t know how much overhead the store has, but there is some mark-up on the drugs (even under the new rules), so let’s assume that covers the overhead**. That $800k split between 3 pharmacists and 3 technicians looks pretty healthy to me — and those dispensing fees will be going up a bit under the new rules (~14+%), despite their lament that they haven’t gone up in the past few years.

All this gnashing of teeth and fighting and threats to cut services or go out of business coming from the pharmacies rings false with me. I know it sucks to have this great profit orgy and have the government come in and smash it up, but I don’t think any pharmacists are going to go hungry under the new rules (except perhaps the students Shoppers and Pharma Plus decided not to hire this summer as part of their temper tantrum with the government). If any pharmacies do have to close, it’s probably because there were too many pharmacies to begin with. Near my old house in London there were three pharmacies within 500 m of each other on one street, and it wasn’t even all that densely populated an area (with people or doctors’ offices). Within the ~4 km² area of downtown London, there are nine pharmacies that I know about, and quite possibly more.

* – sorry, lost the source where I read that one. If anyone finds the article where that was mentioned, I’d appreciate being able to reference it!
** – again, using the reported numbers of $0.50 per script for mark-up under the new stricter rules, that’s $3.3k/mo — I don’t know what the lease and other overhead is on a store that “could fit inside the cosmetics department of a Shoppers Drug Mart” but that sounds like it’s in the ballpark to me.

This week, Ms. Winn and her staff began drawing up a list of services they now provide free, which they may need to charge for in the future. Everything from faxing prescriptions to calling doctors offices comes at a cost, and may need to carry a fee at some point in the future.

It’s a model similar to a law office, where every hour of the day is accounted for, with a value attached to it. Ms. Winn says she isn’t sure what services to charge for though, but feels the pressure to cover costs without the allowances.

Last week, a teenager came in to get a prescription filled and, as Ms. Winn puts it, “was overmedicated.”

The 19-year-old was on six other prescriptions.

“When he came to the counter, I could just tell by looking at him, he didn’t understand a word I was saying.”

The pharmacy spent about 20 minutes to a half hour on the phone with the doctor and talking to the man about how to manage his medications properly. Ms. Winn admits she’s not sure what that time is worth.

In that case, I’ll tell you exactly what that time is worth: $50 (damn, another case for capital numbers). Yes, that is pretty much exactly the definition of a 30-minute consult under the MedsCheck program. A pharmacist reviews a patient’s medications, and bills OHIP for providing the service (and of course, they have to actually account and bill for those services, instead of just handwave and rake in the cash like under the old system).

I’m going to conclude by stealing the thunder from another article I’ve been working on: health care costs are going to be perhaps the defining issue of the coming decades, due to population demographics as much as anything else. I completely support the government’s effort to start getting prescription costs under control now, even if it pisses off a few druggists.