Who Pays the ACA Tax Penalty?
Mostly those who make less than $50,000 per year. State-by-state breakdown below. This is a tax on the poor.
Mostly those who make less than $50,000 per year. State-by-state breakdown below. This is a tax on the poor.
DIJ is the current market leader in drone aircraft. This morning my lovely wife pointed out that they are offering drone insurance. This made me curious, as it may create moral hazard for the insurance carrier.
The reason is simple. If you know your drone can be easily and quickly replaced at minimal cost, you will probably take more chances when flying the thing. Here’s a recent example from a soccer match in Argentina:
Moral hazard can create adverse selection. In this case, the adverse selection might be only high-risk drone owners buying the insurance. That would drive up costs and could create economic losses for DIJ. To make a guess about whether this is the case, we need to look at the details of the actual policy.
For this example, I’ll use the DIJ Mavic Pro. Here’s a pdf of the entire FAQ section. The good stuff is after the photos where the terms of service are defined.
Economists have spent a lot of time over the past few decades trying to invent contracts that at least reduce the expected cost of adverse selection. We have identified two general contract structures that seem to work. (These definitions are from Jeffrey M. Perloff, Microeconomics 8e 2018 pages 661-663).
State-Contingent Contracts: In a state-contingent contract, one party’s payoff is contingent on only the state of nature.
Profit-Sharing Contracts Even if the principal cannot observe the state of nature or the agent’s actions, the principal may be able to design a contingent contract that reduces the moral hazard problem by making payments contingent on an outcome, such as profit or output. One common contingent contract is a profit-sharing contract, in which the payoff to each party is a fraction of the observable total profit.
DIJ uses both methods to mitigate moral hazard. The state-contingent parts limit coverage in the event that any one of several actions are taken. For example, if you modify your drone with parts not approved by DIJ, your warranty is void. Also you are limited to two replacements in a year. And coverage lasts one year, after which it can’t be renewed. Unless, of course, you replace your drone twice. In that case the policy is terminated after the second replacement.
The profit-sharing part (or, more appropriately for this case, cost-sharing) is the fees the owner must pay for various events. For example (still using the Mavic Pro in the U.S.) the up-front price of the policy is $99. The replacement price is $79 for the first and $129 for the second. And, of course, there is no third replacement. Nevertheless, the retail price of this baby is $999. The most you’ll pay out-of-pocket is $307. To figure out whether this warranty creates moral hazard we need to delve into the details of the state-contingencies.
The excerpts below are from the Terms of Service (see the pdf file above for the complete source).
First, limit the parts that are covered:
4、Which parts can be replaced under DJI Care Refresh?
Mavic Pro, Mavic Pro Platinum and Spark: aircraft, gimbal, camera, battery and propellers.
Second, limit the duration of coverage:
6、Can I renew my DJI Care Refresh when it expires? How many times can I purchase DJI Care Refresh for my aircraft?
No, you cannot. Currently, each product is eligible for only one DJI Care Refresh. The service plan cannot be renewed after it expires.
Third, DIJ keeps their options open. They may ship you a refurbished replacement drone (emphasis added).
7、How do I replace my aircraft under DJI Care Refresh?
DJI Care Refresh is bound to the product’s S/N. If you want to replace your product, contact DJI Support via phone, email, or live chat. Then send your product to a designated DJI repair center under the instruction of DJI Support staff. Our repair staff will conduct damage assessment and send you an invoice. After receiving the invoice, you can either choose to repair your product or replace the aircraft under DJI Care Refresh. You will receive a unit that is new or equivalent to new in performance and reliability after paying the service charge specified in your DJI Care Refresh Service Agreement. The replacement’s S/N will be automatically bound to your DJI Care Refresh plan.
Fourth, be sure not to cover intentional abuse or other malfeasance
DJI Care Refresh does not cover the following:
Lost or partially lost aircraft, gimbal or accessories.
Stolen, forgotten, or abandoned product.
Damage caused by flight under unsuitable conditions.
Remote controller, battery of Inspire 2, Phantom 4 Pro and Phantom 4 Advanced, and modification accessories.
Abrasions and shell damage that do not affect the performance of the product.
Direct or indirect losses caused by force majeure.
Replacement requests for damage incurred outside the period of validity.
Extra fees resulting from technical enhancements or performance improvements.
Damage resulting from modifications that are not in accordance with manual recommendations, or the use of incompatible batteries and charger.
Damage resulting from the use of third party accessories, batteries or software.
Fifth, repeat the mantra that there are only two replacements.
DJI Care Refresh includes two replacements. If you claim for replacement of your product twice, DJI shall be considered to have fully executed the DJI Care Refresh service. The DJI Care Refresh service will then be terminated.
After replacement, the original product becomes DJI’s property and the replacement product is your property, with coverage effective for the remaining period of the Plan.
Finally, be specific about pricing. The second replacement costs more than the first. And those prices depend on the exact model as well as where you live. The complete list is near the end of the Terms of Service. I’ll include a few examples here.
There are no hidden charges for the replacement service. After you choose DJI Care Refresh, you will receive prioritized service. The cost of two way postage for customers within DJI Care Refresh service areas will be covered by DJI. In other areas, these costs and any associated customer’s duties are at the customer’s expense. In all areas the custom fees are at the customer’s expense. Each time the replacement service is requested, subject to your purchase region.
In NA region (US & Canada):
For DJI Care Refresh (Spark), the first time replacement fee is $49, the second time replacement fee is $69.
For DJI Care Refresh (Mavic Pro), the first time replacement fee is $79, the second time replacement fee is $129.
In the EU region (27 countries):
For DJI Care Refresh (Spark), the first time replacement fee is €49, the second time replacement fee is €69.
For DJI Care Refresh (Mavic Pro), the first time replacement fee is €99, the second time replacement fee is €139.
You get the idea.
DIJ has done a pretty good job of limiting moral hazard. Read II. Exclusions carefully. There’s quite a bit of wiggle room in there. As is so often the case, you’re depending on the reputation of DIJ.
One last note: DIJ has been in business quite a few years. The market outcome is that they are still offering this insurance. That implies they have mitigated moral hazard.
Both of my regular readers will know that, at heart, I’m an engineer. I spend my afternoons walking to nowhere on a treadmill at the Palo Alto JCC. And the last few months have been highly entertaining. The treadmills have a great view of what was once an outdoor parking lot. They closed off the parking lot a few months ago. This is the saga of construction at the Palo Alto JCC.
The plan is to put a roof over the (soon-to-be-former) outdoor parking lot. The roof will feature a soccer field and numerous other areas for various forms of socializing. The video includes artist’s renderings of the finished project. But (of course) what fascinates me is the actual day-to-day activities that go into this construction. I do not claim this is in any way comprehensive — there was a lot of work that occurred before I started shooting video. But you may get a kick out of it.
Worst appeal to authority in history. Big-time Consumer Reports fail. I’ve highlighted the troublesome text.
Over on the Wall Street Journal website
This is a compedium of what I’ve written about California over the years.
Electricity and Water: The Sorry State of California
Off the Wall Material
Tax Revenue and the Obergefell Decision
California vs Texas:
An Empirical Measurement of Residence Preferences
Gov. Rick Perry Had a Message
Schools Require Parent Participation
Charter School Issues in Los Altos
California Mandates Retirement Accounts – Managed by the State
The California State University System
CSUEB Holds a Coronation for New President
California Environmental Standards
Interesting Judicial Ruling re Commerce Clause and California Gasoline
California Green Energy Scam
Operation Choke Point and Marijuana Legalization
Peter Navarro (UC Irvine alleged economist)
Who Is Peter Navarro?
California Pension Systems
CalPERS Meets Reality
My fraternity brother Al Braden posted a statement by Robert Reich on Facebook. Thanks to Don Clark (another brother) for bringing it to my attention.
Don’t you love how these former supply-side conservative economists are now coming out to say they were dead wrong – that the Reagan and Bush tax cuts on the rich DIDN’T spur growth and DIDN’T pay for themselves? And that the Clinton tax increase actually spurred growth? And that Trump is wrong — that his tax cuts on the rich WON’T spur growth?
The record is now clear: When Ronald Reagan cut taxes on the wealthy i n 1981, the national debt was 25 percent of the Gross Domestic Product. By the time he left office, it was 40 percent.
When Bill Clinton entered office and raised the top personal tax rate in 1993, the national debt was 48 percent of GDP. By the time Clinton left office, it was down to 30 percent of GDP.
When George W. Bush cut taxes on the wealthy in 2001 and then again in 2003, the national debt was 35 percent of GDP. By the time Bush left office, it was 48 percent of GDP. And the economy tanked.
The national debt is now 77 percent of GDP. If nothing at all happens, and the boomers collect their Social Security and Medicare, it will be 9 1 percent of GDP a decade from now.
But if the Trump-Republican tax cuts on the wealthy are enacted, it will balloon to at least 100 percent of GDP.
Supply-side, trickle-down economics is and has always been a cruel hoax.
What do you think?
First, I don’t know anyone who meets the descsription in the first paragraph. Certainly no economist. This claim is purely a product of Prof. Reich’s incipient dementia.
Second, there is a small germ of truth in what he says. Economists have known for 60 years that temporary changes in taxes do not affect behavior. Permanent tax changes that affect permanent income and permanent spending will, by contrast, have significant effects. Sadly, most of the economics profession seems to have forgotten this simple fact. Temporary changes in income will be used to either pay off debt or they will be added to wealth as saving.
Prof. Reich long ago stopped calling himself an economist. The above statement is a nearly perfect illustration of the reason for this decision. His entire focus is on the government debt. All of a sudden he’s worried. WHERE HAS HE BEEN FOR THE LAST EIGHT YEARS?
Before going further if you need to review the relationship between the government budget deficit and the government debt, click here.
Under the Obama administration, the U.S. recorded its first annual government budget deficit over $1 trillion. The debt rose from 55.6% of GDP to 99.8%, This outcome would not have occurred if that administration had not taken so many anti-growth activities. Remember, that percentage has GDP in the denominator. The anemic GDP growth during the Obama years is part of the problem. This was caused by (a) the tremendous growth of government, (b) the tidal wave of new regulations, and (c) outright crony capitalism disguised as the 2007 “stimulus” package.
Reich’s exclusive focus on the debt to GDP ratio is laughable. Where was he when the previous administration recorded the largest government budget deficit in history ($1.4 trillion, 2009)?
In fact, the smallest deficit of the Obama administration was $160.7 billion in his first year in office, 2007.
Practically everything. Actual economists can think about more than one variable at a time.
Practically everything. Actual economists can think about more than one variable at a time. We look at:
Once again, the highest real investment was in 2007. By the end of Mr. Obama’s second term, investment had rebounded to about the same level it was in 1996. This despite real GDP growing from $10.6 trillion to $16.7 trillion over the same interval. https://fred.stlouisfed.org/series/GDPCA
Reich is an idiot. Years ago he became a shill for progressive politics. Whenever you see him commenting about economic issues you should ignore it. If you must read what he says, you should assume the truth is the opposite of what he says.
Hurricane Maria has devastated Puerto Rico. Hopefully this is not news to you. But some of the responses have been way over the top. In this article I’ll review a little history. That will help you understand some of the reasons for the sluggish response to this disaster. Then I’ll look at the last 24 hours of trhe news cycle. This article is about the Puerto Rico disaster.
Puerto Rico is in debt and has defaulted on payments. The reasons for this are bad government management, outrageous pensions and salaries to government employees, and flat-out incompetence. But, despite all this, the island managed to sell $3.5 billion in new 20 year bonds on March 17, 2014. At issue the yield was 8.618%. One month later the yield was 9.335%. Puerto Rico collected $218,750,000 more than they would have if the bonds had been priced correctly. That’s a cool quarter billion dollars. There are links to three other articles at the beginning of the article linked above.
To stay afloat, the island decided to not maintain their electric, water, and highway infrastructure. Which means said infrastructure suffered far more damage than it would have if it had been kept in good shape.
None of this is meant to demean the disaster Puerto Rico experienced. The residents are U.S. citizens. They deserve every bit of support the government and other aid agencies can offer.
Hello? Genocide? Really?
In response, one of Puerto Rico’s leading political analysts, Luis R. Davila-Colon, tweeted (translation via Google translate).
Cada cual parte de su cargo particular y de su estilo. Yulin llora y pelea con Trump para llamar atencion y acumular pietaje pal 2020.
Each one is part of his particular position and his style. Yulin cries and fights with Trump to call attention and accumulate pie 2020 pal.
Journalist Cate Long engaged Mr. Davila-Colon in a conversation:
Ben Domenech, publisher of The Federalist, is from Puerto Rico. He has a few things to say:
Over the years we’ve repeatedly seen municipal bankruptcies, the state of Illinois virtually broke, and Puerto Rico’s finances under control of an outside board. All these events have one common factor: cities, states, and now one territory that have been run by the Democratic party. Truly the party of financial irresponsibility.
[Update September 20]
Equifax experienced a breach in March. Apparently they did not inform anyone. From Bloomberg:
Equifax Inc. learned about a major breach of its computer systems in March — almost five months before the date it has publicly disclosed, according to three people familiar with the situation.
In a statement, the company said the March breach was not related to the hack that exposed the personal and financial data on 143 million U.S. consumers, but one of the people said the breaches involve the same intruders. Either way, the revelation that the 118-year-old credit-reporting agency suffered two major incidents in the span of a few months adds to a mounting crisis at the company, which is the subject of multiple investigations and announced the retirement of two of its top security executives on Friday.
Equifax hired the security firm Mandiant on both occasions and may have believed it had the initial breach under control, only to have to bring the investigators back when it detected suspicious activity again on July 29, two of the people said.
Brian Krebs, among others, has noted that the vulnerability was in Apache Struts:
The Apache Struts Project Management Committee issued a lengthy statement which you can read here. But most people just want to know what the heck this application does. Here’s the short description from the project website:
On a lighter note, Twitterer @PlanetKingdom found this in the thicket of the Equifax website:
You read that correctly. Equifax was, at least until recently, recommending Netscape and Internet Explorer. Is it still 1999? Yet another demonstration of utter incompetence.
[Original article begins here]
143 million Americans had their identities compromised in the Equifax data breach. U.S. population 20 years and older in August, 2017, was 353.5 million. Fully 40 percent of the adult U.S. population had virtually 100 percent of their personal data stolen. The purpose of this article is to summarize and pull together advice from my personal experience as well as four good sources:
Krebs on Security “Equifax Breach Response Turns Dumpster Fire”
Krebs on Security, “How I Learned to Stop Worrying and Embrace the Security Freeze”
Krebs on Security, “Breach at Equifax May Impact 143M Americans”
ArsTechnica “So Equifax Says Your Data Was Hacked. Now What?”
Here, I’ll look at three issues. First what should you do? And – importantly – what shouldn’t you do? Second, what the heck happened and how has Equifax responded? And, third, why has Equifax’s response been so utterly incompetent?
Don’t panic. Yet. First find out if you are affected. From Krebs:
Equifax has set up a Web site — https://www.equifaxsecurity2017.com — that anyone concerned can visit to see if they may be impacted by the breach. The site also lets consumers enroll in TrustedID Premier, a 3-bureau credit monitoring service (Equifax, Experian and Trans Union) whichalso is operated by Equifax.
According to Equifax, when you begin, you will be asked to provide your last name and the last six digits of your Social Security number. Based onthat information, you will receive a message indicating whether your personal information may have been impacted by this incident. Regardless of whether your information may have been impacted, the company says it will provide everyone the option to enroll in TrustedID Premier. The offer ends Nov. 21, 2017.
Next, get your credit reports from all three credit reporting agencies (Equifax, Experian, and TransUnion). You can do this fairly efficiently via http://annualcreditreport.com. But beware. Some of the security questions are obscure. For example, “In which of the following years did you take out a mortgage?” Even worse, some of the answers the site thinks are correct are wrong. One question asked while I was trying to get a credit report for my lovely wife: “Have you ever used any of these last names?” One choice was her ex-husband’s last name – which she never used. I checked “None of the above” and was promptly told I had failed the security questions and would have to call the company to get the report. Even worse, after that the Annual Credit Report website crashed so I couldn’t get the report from the third agency.
My advice is to print these reports to pdf files and put them somewhere safe. All three have a section just below your personal information that flags any problems that may exist. If that’s clear, so are you. At least for today. Remember, a credit report is a snapshot at a point in time. The report could change ten minutes after you download it.
Third, take advantage of Equifax’s offer of one year free enrollment in TrustIDPremier credit protection service. You can find out whether your information was stolen here: https://www.equifaxsecurity2017.com/enroll/ — in fact, there are two questions that determine whether you’re a likely victim before you can proceed to the enrollment page:
Once you enroll, you’ll be given a date on which you can actually complete enrollment. As of August 9, the wait was five days. It’s probably longer now. And beware: the free protection only lasts for one year. After that, Equifax will undoubtedly try to sign you up for the paid version of this service. Reasons why anyone would do that escape me.
Fourth, if you don’t have a Discover card, get one. (Disclaimer: my only connection with Discover is as a satisfied customer.) Discover offers a zero-price service that will monitor thousands of risky websites as well as Experian’s credit reporting. They look for your Social Security number on those sites. Experian is used to see if anyone is trying to obtain credit in your name. Search for Social Security Number and New Account Alerts. The link will take you here: https://dashboard.discoveridentityalerts.com/dashboard
Fifth, consider freezing your credit. I won’t go into details on this, but Krebs on Security has a great article about why you shouldn’t be afraid to do this and how to proceed.
Equifax has their own special site for their security freeze. https://help.equifax.com/s/article/ka137000000DSDjAAO/How-do-I-place-a-security-freeze-on-my-Equifax-credit-file
But beware: some users report that entering a random last name and an equally random last six digits of a Social Security number is treated as a regular account with the usual response.
You may be charged a fee for each credit reporting service where you place a freeze. These fees vary by state and, perhaps, age. In California, the fee is $10 each unless you are 65 or older. In that case the fee is $5. Click here to see the complete table (downloadable pdf). State by state fees for security freeze:
Finally, if you are a victim of identity theft, the Federal Trade Commission is the government agency acting as a clearinghouse for these reports. First, file a police report. Then visit the FTC identity theft website.
Equifax screwed up bigtime. The problem began when they failed to install a security patch. Oops.
Equifax said the attackers were able to break into the company’s systems by exploiting an application vulnerability to gain access to certain files. It did not say which application or which vulnerability was the source of the breach.
Here’s what Krebs has to say:
That the intruders were able to access such a large amount of sensitive consumer data via a vulnerability in the company’s Web site suggests Equifax may have fallen behind in applying security updates to its Internet-facing Web applications. Although the attackers could have exploited an unknown flaw in those applications, I would fully expect Equifax to highlight this fact if it were true — if for no other reason than doing so might make them less culpable and appear as though this was a crime which could have been perpetrated against any company running said Web applications.
The problem has now been compounded by total incompetence by Equifax management and IT people. For example, just after http://www.equifaxsecurity2017.com was opened, some browsers were giving invalid certificate errors. Users of OpenDNS were affected. It’s unnerving to get this error message at that site:
Management beara a big chunk of the blame. Their former head of IT security, Susan Mauldin, has two degrees in music composition – and zero in any computer-related field.. Accompanying her out the door is former CIO David Webb. Ms. Mauldin is being scrubbed from the internet as fast as Equifax can manage it. Too bad they didn’t devote the same effort to handling this data breach. Luckily the folks at Reddit did a screen grab of her Linkedin profile:
Equifax deserves to be sued out of existence. Frankly, I hope a few executives go to jail. As Krebs puts it,
My take on this: The credit bureaus — which make piles of money by compiling incredibly detailed dossiers on consumers and selling that information to marketers — have for the most part shown themselves to be terrible stewards of very sensitive data, and are long overdue for more oversight from regulators and lawmakers.
And the markets are already punishing them. The stock price has fallen by 1/3 since the incident:
I’ve already explained part of the problem: giving someone with zero qualifications a sensitive job in IT. This is similar to what happened at the Office of Personnel Management.
Incompetence starts at the top. CEO Richard F. Smith was previously an executive at General Electric. His responsibilities there had little to do with data security:
Prior to joining Equifax, Smith spent 22 years with GE holding several president and chief executive officer roles across numerous businesses including Engineering Thermoplastics, Asset Management, Leasing, and Insurance Solutions. GE appointed Smith an officer of the company in 1999.
But there is a connection with Ms. Mauldin via the great state of Georgia. Recall that her degrees are from the University of Georgia. Mr. Smith:
In May 2010, Smith was inducted into Georgia State University’s J. Mack Robinson College ‘Business Hall of Fame.’ He was the 2013 chairman of the Atlanta Committee for Progress where he is a current board member, and also serves on the board of directors for the Commerce Club. Smith was the 2009 chairman of the Metro Atlanta Chamber of Commerce and now serves on its board of directors and executive committee. As co-chairman of the Atlanta Super Bowl Bid Committee, Smith was part of the team instrumental in Atlanta’s winning bid for Super Bowl LIII in 2019.
Sounds like a bit of quasi-nepotism. But also consider former CIO David Webb (emphasis added):
Dave Webb is chief information officer for Equifax, where he is responsible for leading a global team of IT professionals in delivering the technology strategy as well as support for the company’s innovative consumer and business solutions. He joined the company in 2010.
A 30-year veteran of the IT and financial services industries, Webb joined Equifax from Silicon Valley Bank, where as chief operations officer he led the company’s IT strategy. He also served as a vice president at Goldman Sachs, supporting the investment and merchant banking divisions, and held technology leadership positions at Bank One and GE Capital’s auto finance business.
Additionally, Webb has served as a technology consultant to several large corporations in the U.S. While living in Europe, he held positions at companies servicing the oil industry, including Kestrel Data Limited, Marathon Oil UK Ltd., and Brown and Root Ltd.
Webb earned a bachelor’s degree in Russian from the University of London and a master’s degree in business administration from the J.L. Kellogg Graduate School of Management at Northwestern University.
Russian and an MBA. Sounds ideal for a CIO. Experience is no substitute for education when hiring people in IT. Ah, but note that last phrase in the third paragraph: “and held technology leadership positions at Bank One and GE Capital’s auto finance business.” Another guy from GE, Mr. Smith’s former employer. More quasi-nepotism.
Incompetence plus hiring for sensitive positions based on who you know. If there’s a better formula for disaster, I haven’t heard about it yet.