Thursday, May 10, 2012
Stealth (personal) Austerity...
OK, in the previous post I covered how my employer is trying keep us under budget by ending international trips and limiting my office's overtime. I'm assuming that the end of international trips is directly budget related, and I can't think of any other reason. Overtime will be available come August, though I will probably nursing my newly repaired shoulder by then. This was framed by my continuing efforts to lower my debt, and how these changes would affect that goal.
As mentioned, these changes affect me a little, but not so severely that I can't pay off the final retirement loan by the end of the summer. Valid as that is, the more I though about the subject, the more I realized I was missing the forest for the trees. Although it isn't discussed much in the press or popular culture, there is a mile marker to EVERY ONE'S financial goals: Dec. 31st, 2012.
James Howard Kunstler refers to this date as taxegeddon, and while the changes to the tax codes are always myriad, the two most germane to the average American are the following: 1) The tax holiday for social security tax will end. This will mean all paychecks across the board will lose 2%. 2) The Bush tax cuts will also disappear. I can only speak for my situation, and through the magic of the Internet, I can estimate I'll have an increase of 4%, but the IRS will deduct an additional 7% As such, I'll lose 9% of my take-home pay just by the turning of the calendar page. The tax rates are progressive, so the increase is disproportional, but after some quick number crunching, 4 and 7% are about correct.
Assuming I do pay off my debts as planned, the smaller paycheck will sting, but it won't break me. It will cripple many others, however. If you have kids, and a mortgage, and your wife or husband is out of work, while gas is $4 a gallon, and food prices go through the roof, etc. can you really afford to lose 6, 7, 8, etc. % of your take home pay? I doubt it.
Now some will say that the Bust tax cuts could be extended, and I don't deny the possibility. I was sure they'd be extended in 2010, just as I was similarly convinced the Social Security tax holiday (note to self: stop gagging when you type that) would continue. I'm sure the desire is there to maintain the status quo, but I'm no longer sure the ability to compromise is. The GOP in the House has promised to vote on the tax cuts prior to the election, and the tax cuts will be extended to all, which means it is dead on arrival in the Senate, which will pass its own version only to die in the House. As for the Social Security tax hike, I believe there's no way to avoid it. It was always a bad policy anyway.
If you buy into the notion that tax increases are always deflationary (as is the common wisdom), then I did the best possible thing by using the extra income to attack the mountain of debt and make it a slightly smaller mountain of debt. At least the remaining payments are affordable, even if my income took a staggering turn for the worse.
As mentioned, these changes affect me a little, but not so severely that I can't pay off the final retirement loan by the end of the summer. Valid as that is, the more I though about the subject, the more I realized I was missing the forest for the trees. Although it isn't discussed much in the press or popular culture, there is a mile marker to EVERY ONE'S financial goals: Dec. 31st, 2012.
James Howard Kunstler refers to this date as taxegeddon, and while the changes to the tax codes are always myriad, the two most germane to the average American are the following: 1) The tax holiday for social security tax will end. This will mean all paychecks across the board will lose 2%. 2) The Bush tax cuts will also disappear. I can only speak for my situation, and through the magic of the Internet, I can estimate I'll have an increase of 4%, but the IRS will deduct an additional 7% As such, I'll lose 9% of my take-home pay just by the turning of the calendar page. The tax rates are progressive, so the increase is disproportional, but after some quick number crunching, 4 and 7% are about correct.
Assuming I do pay off my debts as planned, the smaller paycheck will sting, but it won't break me. It will cripple many others, however. If you have kids, and a mortgage, and your wife or husband is out of work, while gas is $4 a gallon, and food prices go through the roof, etc. can you really afford to lose 6, 7, 8, etc. % of your take home pay? I doubt it.
Now some will say that the Bust tax cuts could be extended, and I don't deny the possibility. I was sure they'd be extended in 2010, just as I was similarly convinced the Social Security tax holiday (note to self: stop gagging when you type that) would continue. I'm sure the desire is there to maintain the status quo, but I'm no longer sure the ability to compromise is. The GOP in the House has promised to vote on the tax cuts prior to the election, and the tax cuts will be extended to all, which means it is dead on arrival in the Senate, which will pass its own version only to die in the House. As for the Social Security tax hike, I believe there's no way to avoid it. It was always a bad policy anyway.
If you buy into the notion that tax increases are always deflationary (as is the common wisdom), then I did the best possible thing by using the extra income to attack the mountain of debt and make it a slightly smaller mountain of debt. At least the remaining payments are affordable, even if my income took a staggering turn for the worse.
Wednesday, May 09, 2012
Stealth Austerity...
There's a theory in science that states the act of observing something changes the nature of what's being observed, called the observer effect. Most readily noted in social sciences, I was considering this principle when, after finally understanding a major issue and coming to terms with it, had the solution immediately yanked away. Logical readers will understand this situation as simple irony rather than cosmic cause and effect, but that doesn't remove the humor - or the pain.
I've posted about my monetary situation, and how I've endeavored to solve it. Aside from Anya, I've never really covered the obvious solution: leaving beneath (or at least within) my means. That would be too simple, not to mention really hard. I did continuously obsess about staring a side business, getting a second job, or even buying and managing rental properties. None of these are bad choices in and of themselves, but they never really worked out for me. All attempts, however furtive, usually ended in disaster and occasionally with far reaching consequences. Other times I simply wasted money; I seemed to be good at that.
After Anya and I parted ways and I really began to paid down my debts, the notion of starting a business faded. I was always cognizant of potential opportunities and how I wasn't in a position to do anything about them. Still, I was making extra money from working overtime and driving for the college. (Speaking of which, just got 3 checks in the mail! They don't amount to much, but it's always nice to have money appear in your mailbox).While the driving is little more than a subsidized hobby, the overtime was and continues to be a major percentage of my income. There's a prior post detailing the personal cost of the all extra hours for January and February of this year, but to quote my journal (where the really nasty stuff in my life is chronicled), I can't say it was worth it, and I can't say it wasn't. I'm certainly happy to have all that money placed back into my retirement where it belonged.
It was after all the dust settled, and I began to fully recover from the spring registration's festivities, did I come to the conclusion that I would never need to start my own business. The OT and driving would be enough to match my debt repayment goals, and I would be free to invest in other things such as fixing up my place, traveling, smoking Cuban cigars, learning Arabic, etc. I felt something close to real serenity on the subject, and I could quiet the itty bitty shitty committee, at least on this topic. All of this changed in the time required to type a few keystrokes.
The first thing to drop was the driving. One of the clubs for whom I drive was planning a trip to Toronto. As this is quite the hike, we would need 4 days rather than the normal 2 or 3, and that would mean extra driving, and of course, money. The college has decided that international trips are now cancelled, and that actually includes Canada. (Wait, Canada is actually NOT part of America? Wow. Who knew.) Now, we may instead drive down to Charleston SC, which would still require 4 days of driving, but I'm not sure.
What's the reasoning behind this change? There are a number of theories. There's a budgetary consideration for many international trips; airfare is expensive. This wouldn't apply to Toronto. There is the chance the savings is found in the college's insurance. There's also the chance they just didn't want the extra work, or as a worst-case scenario, the college won't have trips at all and this is a transition to see how people will react. Anything is possible.
The loss of driving would be sad, though by no means would it prevent me from getting fiscally sound. Conversely, I could drive every weekend from now until Christmas break, and it wouldn't fix my situation. Overtime, however, is another matter. The savings to the college is real, at least in principle, so I can't argue with the math. I can argue with the policy. It's penny wise and pound foolish, but these decisions are far above my pay grade. Some OT is required by the college during fall registration, but I may be out on medical leave for most of the late summer, so I'm not budgeting for that. All of this means my slouching towards solvency will take a little longer than expected, but I will still be on track to finish paying all short-term debt by the time I go under the knife.
These small changes are the shadow of something much larger looming in the distance. I wrote in a prior post that for austerity to be real and lasting, the government must eliminate programs and departments, not reduce them. So long as a framework remains, it will be re-utilized, and that's more or less the point. These minor changes are similar to giving up something small for Lent; while it's slightly painful for a short time, you'll hope to enjoy your habit come Easter Sunday. There may be some spiritual value to the exercise, depending on your intent. Mostly it just looks like you're reforming your life when you're really trying to avoid the pain of real change. (Readers should note I am Catholic, and give up something for Lent every year. I'm actually really serious about this, and will spend weeks obsessing about what would be the most difficult thing to sacrifice. To date, the hardest things given up still remain video games while playing Final Fantasy 7 and caffeine while working for Starbucks.)
I've posted about my monetary situation, and how I've endeavored to solve it. Aside from Anya, I've never really covered the obvious solution: leaving beneath (or at least within) my means. That would be too simple, not to mention really hard. I did continuously obsess about staring a side business, getting a second job, or even buying and managing rental properties. None of these are bad choices in and of themselves, but they never really worked out for me. All attempts, however furtive, usually ended in disaster and occasionally with far reaching consequences. Other times I simply wasted money; I seemed to be good at that.
After Anya and I parted ways and I really began to paid down my debts, the notion of starting a business faded. I was always cognizant of potential opportunities and how I wasn't in a position to do anything about them. Still, I was making extra money from working overtime and driving for the college. (Speaking of which, just got 3 checks in the mail! They don't amount to much, but it's always nice to have money appear in your mailbox).While the driving is little more than a subsidized hobby, the overtime was and continues to be a major percentage of my income. There's a prior post detailing the personal cost of the all extra hours for January and February of this year, but to quote my journal (where the really nasty stuff in my life is chronicled), I can't say it was worth it, and I can't say it wasn't. I'm certainly happy to have all that money placed back into my retirement where it belonged.
It was after all the dust settled, and I began to fully recover from the spring registration's festivities, did I come to the conclusion that I would never need to start my own business. The OT and driving would be enough to match my debt repayment goals, and I would be free to invest in other things such as fixing up my place, traveling, smoking Cuban cigars, learning Arabic, etc. I felt something close to real serenity on the subject, and I could quiet the itty bitty shitty committee, at least on this topic. All of this changed in the time required to type a few keystrokes.
The first thing to drop was the driving. One of the clubs for whom I drive was planning a trip to Toronto. As this is quite the hike, we would need 4 days rather than the normal 2 or 3, and that would mean extra driving, and of course, money. The college has decided that international trips are now cancelled, and that actually includes Canada. (Wait, Canada is actually NOT part of America? Wow. Who knew.) Now, we may instead drive down to Charleston SC, which would still require 4 days of driving, but I'm not sure.
What's the reasoning behind this change? There are a number of theories. There's a budgetary consideration for many international trips; airfare is expensive. This wouldn't apply to Toronto. There is the chance the savings is found in the college's insurance. There's also the chance they just didn't want the extra work, or as a worst-case scenario, the college won't have trips at all and this is a transition to see how people will react. Anything is possible.
The loss of driving would be sad, though by no means would it prevent me from getting fiscally sound. Conversely, I could drive every weekend from now until Christmas break, and it wouldn't fix my situation. Overtime, however, is another matter. The savings to the college is real, at least in principle, so I can't argue with the math. I can argue with the policy. It's penny wise and pound foolish, but these decisions are far above my pay grade. Some OT is required by the college during fall registration, but I may be out on medical leave for most of the late summer, so I'm not budgeting for that. All of this means my slouching towards solvency will take a little longer than expected, but I will still be on track to finish paying all short-term debt by the time I go under the knife.
These small changes are the shadow of something much larger looming in the distance. I wrote in a prior post that for austerity to be real and lasting, the government must eliminate programs and departments, not reduce them. So long as a framework remains, it will be re-utilized, and that's more or less the point. These minor changes are similar to giving up something small for Lent; while it's slightly painful for a short time, you'll hope to enjoy your habit come Easter Sunday. There may be some spiritual value to the exercise, depending on your intent. Mostly it just looks like you're reforming your life when you're really trying to avoid the pain of real change. (Readers should note I am Catholic, and give up something for Lent every year. I'm actually really serious about this, and will spend weeks obsessing about what would be the most difficult thing to sacrifice. To date, the hardest things given up still remain video games while playing Final Fantasy 7 and caffeine while working for Starbucks.)
True change comes when something is abandoned entirely. A good example of this in financial aid is the Academic Competitiveness Grant (ACG). As is usually the case, this program began with the best of intentions. To encourage high school students to take harder classes in high school, they would be given more money if they could get the Pell Grant - i.e. "financial aid," during the first two years of college. The program, along with its mirror program, the SMART Grant, was unceremoniously left to die 5 years later.
So what went wrong? Ignorance of simple psychology for one. Behaviorists state that a reward must have a certain temporal proximity to the behavior one wishes to encourage. Promising someone money for college will not make a high school freshman take advanced biology. Even if the reward is close enough to affect behavior, it must be big enough as well. The ACG was only $650 for the first year, and $1300 for the second. While any money is better than none, it wasn't enough to push students to the course schedule need to qualify.
So the set-up was deeply flawed; what about the execution? Ugh, where do I begin? It was a disaster, and to fully explain it would require a level understanding of higher education administration that even I don't have. I've done this job for 13 years and I still can't wrap my head around what these fools were thinking. The reporting requirements were unmeetable, and this was acknowledged when the program was introduced. I can only guess the bureaucrats in charge hoped the rules would eventually change, or that we would become infinitely smarter than we were in 2005. Actually, if we were that smart, we would have flushed this boondoggle form the beginning.
While killing these efforts was never about saving money, it does show how bad a government program has to be before the state is willing to end it. As such, true savings and shrinking of the bureaucracy will be very hard to find until there is no other choice. That unwillingness benefits me for now. The stealth austerity referenced in the title of this post doesn't just refer to back-handed attempts to preserve the system while balancing the books. This isn't possible, but we try nonetheless. That's enough for now, with another post forthcoming.
