Taxes as Incentives

Okay, it's still tax season. And the tax code is still just as long as it was last time I wrote on this. Here are some more thoughts I've had. (Lots of tax paperwork this year.)

I think one of the reasons we have such a large number of "loopholes" in the tax code is because the government uses taxation as an incentive. After all, you can make a convincing argument that an eight thousand-dollar rebate on taxes is useful for propping up the falling house market. And offering a tax break to anyone living in the wake of hurricane Katrina, while providing a measure of "relief" to those that survived it, might even push people to more seriously consider moving back there, repopulating the area.

Taxes are also used as an incentive in the "sin taxes" on alcohol and tobacco—tacking on taxes raises their prices and makes these substances consumed less, at least in theory. Some view gasoline taxes the same way.

Basically, if you have a large number of people that something is wrong, you can tax it without complaint—after all, people who pay extra for alcohol shouldn't be buying it anyway, so if they complain about the taxes, they don't have a leg to stand on, right?

What about the income tax? Are we trying to curb people from working? And capital gains tax—it seems that we're trying to make investing less palatable by taxing it. But don't we want people to be more productive? Don't we want money to be invested for further economic growth?

What's going on here is that a large number of people are convinced that being wealthy is not a virtue. (At least, being more wealthy than they themselves are.) Since all those wealthy (wealthier) people have too much money anyway, who's going to complain if they have a little less due to taxation?

The problem with this kind of thinking is that, in some measure, it prevents the resources of the rich (which are a lot of resources) from being used for productive (but taxable) purposes. As tax brackets get higher, people are less inclined to invest a million dollars, only to see the return eaten away by taxes—buying a new yacht starts to look pretty good.

Anyway, I'm all in favor of using taxation as an incentive, but why not put it on the other end? Taxing based on how much we spend seems a great way to bring our consumer spending under control. It makes saving and investing much more attractive options than consuming. Taxing spending and not earning might make the whole country more wealthy (at an individual level), instead of penalizing those in the top brackets.

Then again, maybe I just think consuming needs a "sin tax" of its own.

Priorities First, Then Goals

To get anywhere, we need motivation. Being motivated requires goals—purposes towards which we can work. But how do we know that we have the right goals?

To help us in setting goals, it is useful to first find your priorities. Then you can evaluate your goals to make sure that (a) each of your priorities is adequately represented by one or more goals (you're not forgetting anything), and (b) each of your goals is in line with one or more priorities (you're not adding extra fluff). Here's a brief exercise in this:

* Make a list of things that are important to you. These could be simple words ("family", "travel") or more complex ideas ("providing an inheritance for my children", "making my marriage great"). Don't worry that you might forget something—this isn't cast in stone, and we'll even come back to it later.

* Make a list of goals. Go through each priority on your list and make one or more goals that will lead you to your desired outcome in that area. For example: for a "travel" priority, a possible goal might be "save three thousand dollars for a vacation to Europe."

* Write down any additional goals you have. Writing down goals for your priorities may raise additional goals you'd like to accomplish, and this is the time to add them.

* Check against your priorities list. Run through your goals list and verify that each goal is attached to a priority. If you find any goals that don't match up with at least one priority, evaluate whether it's a worthwhile goal. You might wind up adding something to your priority list, or you might strike this goal.

How Are You Selling?

Related to an earlier discussion of knife salesmen (or other door-to-door sellers of wares), what type of approach do you take? Do you look for people's needs and try to fill them? Or do you create a service and find people who can be convinced that they need it?

You might not sell knives door-to-door, but if you have a desire to sell anything, you might want to ascertain what products would sell briskly in your local market, then tailor your production to that. (I think this is what is meant by "market research", but I'm not sure about that.)

Even if you're just hunting for a job, you can view this as selling your time and talents to a company in exchange for money. In fact, you might find this a useful tactic: instead of finding companies and pitching your talents to them, try finding a company you'd like to work for, then finding out what they need. If you can fill that need, even if it's not your primary skill, that might be a better tack to take to get your foot in the door. If you can't meet that need, do you have the means of making yourself better able to meet it?

Thoughts on Taxes

Well, it's that time of year again—we're filling out our tax forms and getting things ready for the big send-off to the IRS.

Tax season is an interesting time of year, for many reasons. One of the things that I find most interesting about it is the chance to reflect on the tax code. We do our taxes by ourselves (mostly because I am a nerd and get some pleasure out of it), and running through all the documentation, one can't help but learn more about our nation's tax laws. If you've done your own taxes this year, too, you might have some observations. Here are some of the things I've noticed this year:

The tax code has an incredible number of loopholes. All the one-off rules (get more money back if you live in X location, deduct if you invest in Y but not if you invest in Z) mask the real issue (it's an income tax).

The tax code's complexity takes its toll on our citizenry. Filling out your own taxes is a good way to measure the tax-effectiveness of your habits, but the will to do this wanes in proportion to the difficulty of tax preparation. Reading through a bazillion rules (over fifty pages of instruction for the 1040, for example) can be difficult for some, and just about everyone finds it tedious. This results in a lower understanding of the tax system, which is a detriment for the following reason:

The one-off rules allow a degree of tax evasion. It's a legal amount, but deciding to buy into an investment because its returns are tax-free is making a decision to pay less taxes. Should we have that option? Some would say it's part of the game—a sort of price discrimination, if you will. After all, supermarkets give discounts to people willing to clip coupons. (That is, they charge more for the same product if you're not willing to clip coupons, so they don't have to give the low price to everyone.) Is this a larger-scale equivalent?

This "game" distracts from more productive things. If you're willing to do the legwork and figure out what is tax-advantaged, then you dodge the tax (or at least some part of it). It provides a reward for delving into the tax code for obscure exceptions. If we had a simple, easy, and universal tax, all this energy might go toward a better use.

For my part, I would rather do just about anything than muck about in the world of taxes.

Something Fresh, Something New

Ever get the feeling that everything in your life is just old hat? That you're just going through the same motions each day, and not getting anywhere? I know I've felt that before, and it's certainly not pleasant.

Why do I sometimes feel that way? I believe the brain craves variety. I know that my brain certainly demands lots of novelty—I'm always looking for some new thing to interest me.

What can I do about it? I guess that I could certainly go out and buy something I haven't owned before. This seems to be the tack that most advertisers would like me to take, with their messages of "product X will make your life more exciting!" But this costs lots of money, money that I need for other things (like retiring someday). It is also a quick fix. There are steps I can take that are much cheaper and more effective.

I find a little variety very helpful. Even something simple can provide a shade of novelty, such as reading a book I wouldn't ordinarily pick up. I might even go to the library and check out a CD that is a little off my beaten path.

But you don't even have to do something different to feel fresh about your life. I've managed to rejuvenate my interest in my life by just being conscious of my life as it passes by. For me, going outside and taking a walk in the cool air (especially if it's sunny) gives my mind a lot to take in. Appreciating the moment makes me somehow more aware that my moments are limited, and this helps me get a little more interested in repurposing my time.

Starter Motor

When I woke up this morning, my eyes seemed glued shut. The thing I wanted least in the world was to hop out of bed and get going. But it happened anyway.

In a way, starting off a new day is like starting a car. There's work to be done, and you start with very little power. (Note: I'm not terribly familiar with these systems, but I do have a passing acquaintance with them.) As I understand it, in a car, there is a battery that powers the starter motor, which cranks the engine manually until it starts firing.

When I am starting up my day, I use my habits as the battery.

My daily routine is the starter motor. Really, this is because my early-morning willpower isn't yet strong enough to always wake me up with energy and pizazz. It is, however, sufficient to get me outside my bedroom and doing some early-morning exercises.

My morning routine serves as a lifeline, getting me out of bed promptly each morning. Without it, I would be... asleep still, probably.

As soon as you wake up and turn off your alarm clock, where does your mind go? If it goes towards the routine you do every morning, congratulations—you are harnessing the power of habit for your own ends. If your morning includes a daily discussion of whether getting up is worth it today, try setting a routine.

My personal secret weapon is exercise. Even if I feel sluggish and sleepy when I rise, if I can start my exercise routine, I am up for good—once my body starts pumping blood to my working muscles, my body really wakes up, including my eyes (always the stickiest part of me).

Long ago, I read one particularly provocative idea related to setting morning habits—rehearsals. First, set the stage—turn off all the lights, close the curtains, and hop into bed. (In your pajamas, preferably.) Then, set your alarm to go off in a minute or two. Lie awake, and as soon as the alarm sounds, hop right out of bed and turn it off. (Presumably, one can append any additional morning routine here.) Go through a few "rehearsals" during the day to get the idea ingrained.

I haven't tried this, and I admit I would feel a bit silly practicing getting up, but it might be a useful tool if you're looking for a way to get things started.

Maybe you can find a different source of power to start the day right. You might try self-advertising, or telling your spouse about your plan, or just plain willpower. After a few weeks of a supporting method, you should be able to use habit as the sole source of kick to get your day started.

And that makes mornings a lot more fun.

Making Time for Reading

I recently read a statistic that over forty percent of college graduates never read another book after commencement. Whether or not this is true, I know from personal experience that it can be difficult to find time to read in a busy life.

Some people don't want to read more, but everyone has some activity he would like to do more of, from playing with the kids to writing a novel, or just feeling in control of life.

There are two ways to proceed here: finding time and taking time.

Finders Keepers

Try reclaiming some of the time in your life that is already free. You might recognize a moment that is already free by the frustration you feel at wasting time. For me, this kind of time includes:

* Bus riding

* Waiting for a meeting to start

* Standing in line at the store

These moments can be prime times to work on whatever you want to do. The drawback is, you often must be in a certain place or have access to only certain resources during such a time. Driving to work is not typically a time for playing with the kids, and waiting in a doctor's office might not be the most opportune moment to exercise more. What you want to do might not fit into any of these times, and that's okay, but be flexible in thinking about it—I can't encourage reading while driving, but I have friends who have managed to learn an awful lot by listening to audiobooks on their daily commute.

Taking It Back

Your other option is to take time from some other activity. This can be painful, as the activities your already doing are habit, if nothing else. But it can give you a lot more time for reading (or anything else you want to do). I haven't figured out the nuances of how to do this yet, but this is definitely a path to take if you don't have any "down time" during your day. (I seem to have plenty of wasted time lying around as it is.)