Sunday, May 02, 2010

I'm going to show you the giant: The Complication Tax Affects More Than Just Your Wallet (But It Affects Your Wallet, Too.) (Publicus Proventus)

The Complication Tax is responsible for everything bad in the world -- including Goldman Sachs and the Arizona immigration law.

I've decided to talk about the Complication Tax today because of the understanding I came to this afternoon.

As I sat down a little while ago to write this, looking back on the things that stuck out in my mind this week, three things happened.

First, Mr F and Mr Bunches got into a fight upstairs in their room when they're supposed to be napping, and I had to go upstairs and break it up, and make Mr Bunches put his pants back on, and give them both a couple of cookies, and put their mattresses back in order since they'd turned them over and stacked them to make for better jumping-on-the-bed, and

... and second, I thought back to yesterday, when I'd taken Middle to look at used furniture for her upcoming move to a new place to live, and while at the St. Vincent's I'd let Mr F and Mr Bunches each get a couple of old toys there. The woman had rung us up by putting the toys on a scale, and then announced that we owed her $3.62. I had no idea how she came to that total, but I didn't care: $3.62 isn't an amount to quibble over when Mr Bunches and Mr F were happy with their new toys (a metal top, and a Fisher-Price castle, if you must know.)

With those two thoughts in my head, and my sock a little damp from where Mr F spilled my soda on it, I walked back down here and ran through, in my head, all the topics that I could discuss today: Goldman Sachs. Immigration. Oil policy. Taxes. Abortion rights.

And a thought sprung into my head: The Complication Tax.

We all pay the Complication Tax -- both directly and indirectly. We pay through the nose to the Complication Tax.

But we never gripe about it. (And, as usual, by we I mean you.)

My Twitter feed is full of griping about other stuff, ranging from deranged ramblings about President Obama to... something about time-traveling, I don't know. On the air, callers to radio shows (I listen to both conservative and liberal talk radio shows, and then mix in some sports talk, too) gripe about everything under the sun... except the Complication Tax.

It's only natural that they don't gripe about the Complication Tax, because they don't know about the Complication Tax. Which is strange, because the Complication Tax is all around us and overbearingly large and affects pretty much every single thing that we do, from the moment we get up until we go to bed at night. It probably affects us in our sleep, too, but it's hard for me to tell because I'm asleep.

I only realized the Complication Tax existed recently, but once I did, it was impossible to miss. Imagine it this way: Suppose you were born into a world where there is a giant standing next to you, constantly. This giant is hundreds of miles tall and wide and in fact blots out a good portion of what you see and do and is always looming over you... but he's always been there, so you don't even notice him.

Then one day, someone says "Hey, who's that giant there?" and you look closely at the giant for the first time, and then you can't stop noticing the giant, and you start to wonder if maybe life wouldn't be better without the giant there.

I'm going to show you the giant.

The Complication Tax is the increase in costs and time and expense and hidden fees and charges and problems that we all live with because it's too complicated not to.

It's that simple.

And that enormous.

The Complication Tax is all the time and trouble and money that we wouldn't spend if we had the time and energy to go to the trouble of not spending it.

The $3.62 I paid-- rightly or wrongly -- for the toys yesterday was a Complication Tax. My cell phone bill every month is a Complication Tax. The cost of the pants I buy at Wal-Mart, the price I pay for DirecTV, interest rates on my CD and my mortgage... all Complication Tax.

The simple fact of the matter is that we no longer understand our economy, and we no longer understand even our own personal economies, and instead of trying to understand them, we simply shrug and say Close enough and pay the Complication Tax, one way or another, and get on with our lives, passing dumb laws like Arizona did, or paying more for something than we should, or otherwise ignoring the reality of how complicated and busy and thus more expensive and frustrating our lives are.

Life has gotten too complicated, and that's costing us money, directly and indirectly, money we're willing to pay because we look at this complicated life and cannot possibly uncomplicate it, and so we just pay it.

I will give you examples, from my own life again. Consider my cell phone bill. I pay $162 per month to my cell phone provider. That includes two cell phones and my Internet access at home. I strongly suspect that I'm overpaying, mostly because I keep seeing ads on TV for cell phone plans that are less expensive than mine. I have a note, in fact, next to my computer, that says Cricket $40. That's a reference to an ad I saw that promises wireless internet, unlimited access, for $40 per month. The cost of my internet right now is $60 -- only it's actually more because I pay service charges and taxes on that amount.

So why don't I change cell phone providers? Because of the Complication Tax. First, I've had troubles with Internet access in the past, some of it not so good. My internet now is reliable; it's not the fastest, but it doesn't go out. I'm reluctant to switch to another Internet provider only to find out it's not as good as the one I have.

That's a real concern in our complicated lives: With all these options, how can I tell which one is really best? When I switched from cable TV to satellite TV, I did so because my cable company -- Charter -- was so bad I couldn't imagine anything would be worse. But even then, I overlapped: I had DirecTV installed but didn't disconnect the cable, not for about a week, so I could try out DirecTV.

I don't want to have two internet providers -- so I stick with the one I have even though all around me are lower-priced offers. I'm paying the Complication Tax, and in more ways than one, because not only do I not know whether another provider will be better, I don't know when I can get out of my current contract without paying a fee; I have three phone lines billed to my cell plan, and I recently had to upgrade the Internet access, which I'm pretty sure committed me for another two years. There's a disconnect fee of $170, I think, so I could cancel my cell phone plan, but I'd have to factor in the $170, and then figure out how long it would be before I'd be breaking even to decide whether it's worth it to switch...

... and that's complicated. So I don't do it, and I overpay for my Internet.

I also apply the Complication Tax in other ways. I'll stick with cell phones. My cell phone bill is hard to decipher. It's about 5 pages long and it's got three different sections but the sections overlap a bit, too, so I don't like to read it. I know, though, about how much it's supposed to be, and so I told Sweetie "If it's more than $165, let me see it. Otherwise, just pay it." That means that -- don't read this next part, Verizon-- Verizon could overcharge me a buck or two each month and I would not notice it; as long as they don't go over $165, I won't even know it. So Verizon could make about $36 extra from me each year simply by knowing that about me.

Think that can't happen? In Wisconsin, the barely-alive Department of Consumer Protection found 3,600 consumers overcharged by a company which initially said it wouldn't refund the money unless the consumers complained.

Moving away from cell phones, here's another trap I fell into -- for a while. I have, at last count, a zillion kids, it seems. So I tend to buy the big packages. When I'm at the grocery store, I look at the bottom shelf and find the multipacks of paper towels, cookies, eggs, etc. And when I see pizzas 3 for $10, I tend to buy 3 -- not knowing whether I can get one for $3.33 or whether I must buy 3 to get the deal.

Even sneakier, not long back, some sellers realized that people like me exist, people who will buy the biggest box of graham crackers because we assumed it was cheaper per cracker to buy them that way -- so they raised the per unit price on the big packages, making it more expensive to routinely grab for the bottom-shelf big items.

That, in turn, forced me to think more at the grocery store... when I can. I found myself stopping to look at these pizzas, and those pizzas, trying to work out in my head whether 3-for-$10 was better than $2-for-$7, which seems easy until you realize the pizzas are different sizes. And it's never easy to do that math when Mr Bunches is trying to climb into the freezer and Mr F is heading off to the cookie aisle. So sometimes I just pay the Complication Tax and move on.

The Complication Tax comes up in other places, too: One movie theater Sweetie and I like to go to has ticket prices that require an advanced degree to work out. They begin with two "base" prices, but then add an amenity fee which ranges from nothing to $3.00 depending on the day and time of show. The 'base' ticket price is for matinee, or evening -- and the amenity fee changes based on time of day, too. So is it cheaper to go see this movie at this time or that time? Who knows?

These are all microeconomic examples; these are ways that I pay the Complication Tax on an individual level, every day -- and there are more examples, ranging from magazine subscriptions to the decision whether to eat in or dine out. (You may think that's an easy choice if made based on money alone, but if so, then you didn't see that KFC $10 Challenge Commercial:

Once I saw that, I stopped to think about whether it really makes sense to home-make every meal. On a dollars-and-cents scale, maybe it doesn't. But it seems like I should be, and Sweetie should be, cooking... until you stop to think about it and wonder whether you're not paying more and spending more time and generally increasing the frustration level of those around you because you're trying to cook a meal while Mr Bunches is running through the kitchen almost getting burnt, and The Boy doesn't have time to eat before rugby practice...

... and you shrug and pay the complication tax, one way or another.

Those are, as I said, microeconomic examples of the Complication Tax. But it affects us in major ways, too, in ways that we can't hardly comprehend (and by we, I mean you. I've noticed the giant, and I'm edging around him now.)

As a result of the Complication Tax, you have less information than ever, about the cars you buy, about the credit you use, about who is lending you money, about... everything.

Including immigration
, which I'll get to.

One of the things I spend my days doing is poring over mortgage papers, the thick stack of documents that accompanies a real-estate closing these days. A colleague of mine said that when he started in the business, decades ago, we didn't have all this paperwork. Back then, he likes to recall, there was a note, and a mortgage, and a payment schedule.

That's all changed, now. Now, when you go to a real estate closing, you get an inch-thick stack of papers that spells out everything from your (not as great as it sounds) right to rescind that transaction to the odds that your lender will transfer the loan to an affidavit swearing that if you're not who you swear you are, you'll do something to fix the lender's problems.

All of those were added, along the way, as various government officials tried to help first the borrower, then the lender -- regulating and then de-regulating and then re-regulating mortgage lending, and allowing complexity after complexity to creep in and make things harder and harder for anyone to understand, and as they got harder to understand, more laws were passed that required more information to be given to make sure that everyone understood what was going on... even though it was clear that everyone didn't understand what was going on, and I see the results of that every day, in a parade of people through my office who have a mortgage loan they never read the paperwork for, who signed everything that was put in front of them without being told, really, what any of it was and without understanding most of it.

That is the Complication Tax at work on a large scale. The government deregulated the lenders, and the lenders multiplied and split up their investments, and they formed holding companies, and we allowed different kinds of lenders to spring up -- do you understand the difference between a national bank, a state bank, a credit union, and a mortgage bank and an investment bank? -- and all those banks began competing against each other and trying to make money in a sometimes-regulated, sometimes-not landscape, large banks shouldering aside smaller banks and all of them making more and more complicated types of investments, investments and loans that ultimately were nobody's responsibility, because nobody understood them...

... even though we have a wealth of regulations and required disclosures and information provided to the borrowers, who are, after all, the people expected to understand what they're doing with their money. If you've attended a real estate closing, you know how well that works: A title company employee who has never read the paperwork and is not your lender or even anyone involved with setting up the loan goes through and makes sure you sign each page, offering cursory explanation (if any, at all) and then sends the papers off to the lender, sending you on your way with a set of unsigned copies, and it all takes 20-30 minutes, for a loan of several hundred thousand dollars spread out over 30 or 40 years.

Tucked into those papers are fees and interest rates and escrow disclosures, and the borrowers may or may not understand those -- with the likelier bet being may not, because most people are not very economically sophisticated and these are sophisticated tools, these financial instruments. And tucked into other papers are loan applications and credit scores and underwriting, reviewed (maybe) by lenders who make the decision to lend the money -- but without any intention of holding the loan, so that it's sold in a package with other loans to a lender who doesn't know the borrower or the area and hasn't seen those disclosures, and that buyer packages the purchase with another loan and sells portions of them off, and now you've got a lender who doesn't know the borrower and a borrower who doesn't know the lender, and the lender has 30 million loans and can't pay attention to them all, plus, they're not really in the mortgage business, there in investing, so a servicer has to step in to handle all the details of the transaction, and that servicer doesn't have a stake in either end of the deal; they get paid no matter what and they don't lose money if a house is sold at a sheriff's sale, and they don't sleep in their car in that event, either...

... and the Complication Tax, that imperturbable giant, swallows up those fees on the HUD-1 closing statement (and do you even know what that is? Some judges don't) and swallows up those late fees and swallows up the lawyers' fees and adds it into the prime rate and the government writes a $356 billion check -- that's $356,000,000,000 -- and then says oh, it only cost $89 billion -- that's $89,000,000,000 -- and that's complicated, too, so we shrug and put the closing papers into the closet and pay what the servicer tells us to pay, and go on Twitter to complain about income taxes that may go up... without knowing whether the yield spread premium that wasn't explained to us by the title company is going to cost us more than all the income taxes we'll pay in our 40s, combined.

Do you know what a yield spread premium is? Probably not. I didn't until recently.

A yield spread premium is, as simply as I can put it, money a mortgage broker gets for getting a higher interest rate on a loan. It's money the lender pays a mortgage broker for getting a borrower into a specific --usually higher-interest rate -- loan.

That makes my first point: A yield spread premium would not exist if mortgage brokers did not exist, and mortgage brokers exist in part because the mortgage market is too complicated; almost nobody just calls a lender and borrows money any more. Instead, mortgage brokers shop people around and find a lender willing to give them a deal, maybe finding lenders who the borrower wouldn't have known about -- but what does that matter, when those smaller lenders all sell the loan to Chase or Wells Fargo anyway?

The yield spread premium is disclosed to borrowers, who pay it no attention because they're told it's not something they are paying. They're told the bank pays this, and so they pay it no attention -- the money paid to their loan originator -- and they don't know the real price, which is that the yield spread premium costs them more money in interest; the broker is being paid for getting them into a higher-interest loan than they'd have gotten if they simply called that lender themselves.

So the borrower - who thinks they're paying nothing -- is actually paying a higher interest rate. How much higher? It varies. Take a hypothetical, though: Consider someone who borrows $200,000 to buy a house. If that person pays over 30 years at a 5.5% interest rate, they'll pay $511,010 over the life of the loan.

If that person pays 6.0% on the loan, just a miniscule half-percent higher, the total paid off is $539,595.47 -- or $28,000+ more over the life of the loan. That's an extra $1,000 per year, more or less, that you're paying because you let someone else do the work for you, and because complicated banking led to yield spread premiums and mortgage brokers and disclosures that nobody understands.

If President Obama suggested we all pay an extra $1000 per year in taxes, there would be a revolution. When your mortgage broker slips one past the goalie, you thank him and keep your complimentary pen.

The Complication Tax allows us to get ripped off in phenomenal ways. Bernie Madoff's victims were victims, in part, of the Complication Tax. They didn't understand that 10% returns, on average, for investments, aren't common. They didn't understand the complexities of the market and the way investments can or should be handled. Instead, they had a simple investment and a simple return: Give Bernie Madoff your money and you'll get 10% back. So they taxed themselves right out of retirements and taxed him right into prison.

Remember Enron? Remember the employees who lost everything because they had all their 401(k) plans or whatever retirement plans were (hypothetically) offered by Enron invested in Enron stocks? Why'd they do that? Because they believed in their company? Or because it was simpler? What's in your 401(k) plan? When was the last time you even checked anything out about it other than the bottom line. When was the last time you bothered to read the business page and then went to check the allocation of stocks and bonds in your retirement plan?

How long until there's another Enron -- only this time, among all the people who haven't looked at their 401(k) plans, ever? The Complication Tax may just tax away your retirement, too. And you'll let it, because you trust the regulators to keep track of the investment banks -- investment banks run by people who were just regulators or who will be the next regulators, regulators who themselves don't understand the complexity of the deals they're regulating, any more than the people investing in those deals understand them. Ask yourself how could Goldman Sachs cheat all those investors? Weren't some of them at least more sophisticated than me? But they didn't understand, either -- did they? (If they did, why'd they invest in the products? Are they ignorant, or merely stupid?)

The Complication Tax is going to take a chunk of government money and time trying to unravel what Goldman Sachs, and maybe some others, did, but we'll lose interest and get confused by it before they're done, and we'll be on to other things, like misunderstanding health insurance and immigration-lawing ourselves into higher costs of living and greater expense.

One reason, I think, why the modest health care reform bill passed was that Obama -- the most serendipitous of presidents since FDR lucked into World War II to help fight our way out of the Depression -- benefitted from health insurers opting to raise their rates by incredible amounts, causing many people to look themselves in the mirror and wonder whether they wouldn't someday want the government to help them pay for their insurance, too, and support the bill. But the debate over the cost of the health care reform bill and over health insurance itself missed the boat-- diverted by the Complication Tax, that mild-mannered but indomitable giant.

Health insurance is a complicated thing best examined by looking at my experience with dental insurance not long ago. Sweetie and I got dental insurance for the kids because we had to have it, we thought -- to help pay for dental care, and because, more importantly, dentists who hear you have insurance will bill you for the work. If you don't have insurance, you pay up front. So we got dental insurance, paying about $80 per month for it, mostly for the privilege of saying to dentists "We have insurance," so they'd bill us and we could decide when to pay, rather than having our toothaches decide.

After a year or so, though, I looked at the bills and how much we were paying and what was covered and came to a realization: I was paying $1000 per year on dental insurance, and I was paying all the not-covered amounts, plus copays, and that was pretty expensive, too, and I did some math, and realized that the amount of covered work in the prior year was actually less than $1,000, so that if I just took the $80 per month and put it in the bank, then when the time came for the trip to the dentist, I'd have the savings ready to pay up front, and wouldn't be double-paying. I wouldn't be paying my insurer and then not getting the coverage, anyway.

Why don't we do that with health insurance? When I recently had to arrange for some care for Mr F and Mr Bunches, I asked a few times how much we were covered for under our plan. The insurance company gave me some upper limits, but wasn't able to say what the deductibles were. Then, when I asked at the provider's how much it all cost, they said "It'll be covered by your insurance; it's set up that way" and it was explained to me that the providers talk to the insurance company about how much they'll need, and the limits are set up that way, and they're all fine with that... but I don't know how much it's costing, period, and I don't know if I'd be better off not having my boss pay my insurance premiums, but giving me the money instead, so that I could invest it and have it ready to just pay up front, instead of paying the insurer.

(Don't let that discussion distract you from the fact that ultimately health care is a right and should be free or at the worst based on ability to pay.)

I don't know how much my boss pays for my insurance. I don't know how much my provider charges my insurance company. I don't know how much of a profit my insurer makes off of me, or my provider. And, really, I don't want to. I don't want to do that math all the time and figure out which insurance company offers the best benefits at the best price. So I just pay the Complication Tax and move on.

And that brings me to immigration, which is itself a Complication Tax issue. I told you, the Tax is a giant and it affects everything, and Arizona passed its unconstitutional law because of the Complication Tax -- because we don't know how much stuff costs to make, and we don't know whether we're better off with immigrants coming here, or better off shipping stuff to China to be made, and we fear that people are taking our jobs even though it's completely ridiculous to argue that someone who doesn't speak the language and only just arrived here in this country is really competing with us for jobs -- that person isn't posing any risk to my job as a lawyer -- but all of those issues are complicated, and we don't want to really deal with them. We just want to gloss over them, ignore the giant that's standing next to us, and move on.

Consider: We don't really know how many illegal immigrants there are in the country. We don't know, either, whether that many people would really flock here if we just opened up our borders, do we? Do we suppose that everyone in every country would just come here? They'd all pack up and leave their Mexicos and Phillipines and Taiwans and Kenyas and move to America if we just said "Okay, come on in."

But without knowing, really, how many people are here illegally, and how many people would really come here if we just opened the borders, we decided it's too many, and so we spend a lot of money policing the borders and a lot of money debating just how dumb and racist Arizonans are (pretty dumb and pretty racist, it seems), opting to do that instead of getting basic information that might help us decide how to allocate those resources...

... and whether to allocate those resources. What would be the cost of not policing illegal immigration? What would open borders do to wages and jobs? It's taken as a given that opening the borders would reduce wages and be economic disaster, but nobody ever stops to look at the other factors in that equation.

Like this: Immigrants typically are not skilled workers. So we would be getting a lot of unskilled workers, and Americans are not generally competing hard for unskilled labor positions. How many unskilled positions are available in the country right now? You don't know, and I don't know -- but there are unskilled jobs open, jobs that employers need filled and which are not being filled by the current pool of workers.

Or like this: Isn't it possible that a flood of workers will increase our growth? By adding more workers to the labor pool, and paying them, you are creating more customers for services and goods we produce. Even if the money is "sent home," isn't that going to help create demand for our exports?
I don't know for sure -- and neither do you, and neither does anyone. We just close up the borders and spend money because that question is a complicated one, and it's easier to say Border patrol.

But we know that when there is competition for jobs, even among unskilled workers, that wages rise. That's proven by Wham-O, which recently moved back here from China, citing the fact that it was cheaper to produce their products (plastic toys) here than in China -- even with our higher wages. China, in fact, is becoming too expensive for some manufacturers. They're running out of workers -- and who's to say that China won't be the next destination for immigrants, as workers from Vietnam, or India, or Africa, try to relocate there to take advantage of what are relatively higher wages?

Will China be more immigrant-friendly than the US, in order to keep a manufacturing base there?

We don't know the answer to that. But we do know that Arizona really got tough on illegal immigrants. We don't want to ask the complicated questions, because life is complicated enough as it is, and we've made it more and more complicated every day: complicating it by deregulating and by regulating and by not discussing how we should set up our health care system and by not analyzing whether we're overpaying for our cell phones. Our society has grown from a local-agrarian-based country to a high-tech organism that is so interrelated with other countries that a volcano explosion halfway around the world can kill off businesses on our west coast, and in the process, we've added layers upon layers to the information that a person would need to know to really understand the world around us -- from knowing what taxes are levied on our cell phones to knowing how our mortgages work to understanding whether or not Goldman Sachs really did rip us off to figuring out whether there are even enough illegal immigrants in the country to worry about...

...and we don't know any of that. Because it's complicated and the giant has always been there, so we don't even notice it anymore, if we ever noticed it. We gripe, instead, in our myopic way, about things that don't matter or things that barely touch on the real issues.

We complain about Obama raising our taxes -- but don't call our banks and demand a refund of that yield spread premium, and don't even bother looking at the taxes on our cell phone bills or airline tickets or gas pumps.

We fret about how much health insurance policies will cost our hypothetical future selves -- while being unsure what our premiums are now and what they even cover.

We complain that illegal immigrants are taking away jobs and drugging our kids, but we don't know how many there actually are, how many there would be if we didn't bother policing them at all, or whether there might not be an economic benefit to an influx of cheap labor that would draw manufacturing back here and improve our standard of living.

We don't even know, in the end, how much a movie ticket will cost at a given time. That's the society we live in -- a society where we have access to virtually any information we want right at our fingertips, a society where our cell phones will answer questions for us, a society where we quite literally know almost everything there is to know...

...just not the important things.

And that's costing you money, that ignorance. It's costing you, and me, and all of us, money, every day.

No comments: