Go Time for GoPro

April 28th, 2015 UPDATE:

GoPro Inc. is scheduled to release its quarterly results today after market close. Analyst estimates still don’t make sense to me. If you add up the projected revenue numbers for the first two quarters of this year, which I even think are low, and subtract them from the annual revenue estimate, GoPro would have to fall flat on its face during the Christmas quarter to only deliver $1.73B in earnings for 2015. We will find out after 5PM today how GoPro fared in the first quarter. I’m betting on an upside move. Short seller interest is incredibly high at over 61% of the floated shares. If they are right, the stock will crash tomorrow. If they are wrong, it will soar upward as they all rush to cover their short positions. Go to my previous Beat a Hero post to see the full details.

What About Drones?

GoPro previously stated its intention to produce drones as a way of expanding its product offering. Wall Street pretty much ridiculed that notion, which does sound like a bit of a stretch for an action camera maker. But drones are going to be big business, so it makes sense as a way to expand their market. But if I were CEO Nick Woodman, I would take the easiest and fastest route to market by buying an up and coming drone maker. Like maybe 3D Robotics.

3D Robotics Solo drone with GoPro Camera

3D Robotics Solo drone with GoPro Camera

3D Robotics is a small private start-up company with $99M in venture capital funding. It offers an outstanding open-source autopilot system and control app that anyone can use or customize. It is also about to release the Solo drone, which has a GoPro compatible camera mount that has exclusive direct access to the GoPro camera settings via a connector on the back. Thanks their partnership with GoPro, drone pilots can now remotely control, recharge, and use their GoPros to stream live video up to a half mile via Wifi right to their phones. GoPro is also offering a professional-grade $7,500 HeroCast live video streaming transmitter.

Why, I wonder, would GoPro offer all this exclusive access to a small start-up drone company instead of keeping the technology to itself? For one thing, it makes sense to license their technology to as many drone manufacturers as possible to promote the use of GoPro cameras. It would be even better to make an exclusive deal with a company that can make the drones for you. So, what’s up with 3D Robotics? Is GoPro going to acquire the company using a fraction of its $6B stock valuation? Or did they make a sweet deal to jump-start their drone manufacturing aspirations? I’m betting that Nick Woodman is going to make the smart move and get into the drone business fast. Whatever deal may be in the works with 3D Robotics makes a lot of sense.

April 29th, 2015 UPDATE:

Slam dunk! GoPro results came in as I expected, wildly beating analyst expectations, and the stock soared immediately. Quarterly revenue was $363.1M, up 54% year over year. My estimate was for roughly $364 million, up about 55%. This time, management raised estimates for the next quarter to $380-400M, which is even above my rough projection of $378M and the $334M Wall Street projections. Way to go, pros!

Tax Wars

Cost of Tax Compliance

Cost of Tax Compliance

A 2005 Tax Foundation study on the cost of complying with our incredibly complex tax code estimated that individuals, businesses and nonprofits would spend an estimated 6 billion hours complying with the federal income tax code and an estimated compliance cost of over $265.1 billion. The compliance cost is an estimate based on the time spent on tax preparation valued at the compensation rate of the filer or his tax professional. This represents about 22% of federal income taxes and is equivalent to more than half the revenue of Wal-Mart. The time spent working on taxes is equivalent to a workforce of 2.8 million workers, which is about the same as the number of soldiers, sailors and airmen in the US military on active duty and in the reserves.

Italy Calls in Military to Protect Tax Collectors

Italy Calls in Military to Protect Tax Collectors

Essentially, our tax code has created the equivalent of a large second army that has been fighting a costly war for longer than any other war in American history. And the costs have been increasing. You can think of the IRS and its workforce as the equivalent of the Pentagon, which provides direction and control of the army. The accountants, tax attorneys, and other tax professionals are the junior officers, NCOs and regular soldiers following orders and participating in the tax battles and skirmishes that take place all year long. The rest of us, small business owners and individual taxpayers, are the part-time reserves and militia providing part-time service when the tax army mobilizes for its annual spring offensive every April.

Income Distribution of Tax Compliance Costs

Income Distribution of Tax Compliance Costs

In monetary terms, for every dollar in taxes you pay, the equivalent of 22 cents is wasted. These costs do not even include the additional costs of tax planning, tax audits and litigation. This burden falls more heavily on small businesses and individuals who earn the lowest amount of income when measured as a percentage of their income. This is because they file most of the tax returns. Larger corporations and wealthier individuals may have higher compliance costs, but they also earn more, so it is a lower fraction of what they earn. Therefore, tax simplification would most help those who pay the least in taxes. Nobel Laureate economist Gary Becker provides an excellent overview of the economics of tax complexity.

Tax Compliance Costs per Employee

Tax Compliance Costs per Employee

The Tax Foundation study estimates costs based on the value of your time. Certainly, your time, or the money you spend having someone else prepare your taxes, has value. But how does that compare with more concrete costs? For reference, the 2013 budget request for the IRS is $12.9 billion. Intuit, maker of Turbotax and other accounting software and services, earned $4.15 billion in 2012. H&R Block, a large tax preparation company, earned $3.04 billion in 2012. These are certainly a lot less than the tax compliance cost estimates above, but also do not take into account other costs.

The actual cost of salaries, equipment, or software paid for in-house accountants or attorneys who work on tax-related recordkeeping or preparation is unknown. According to the US Bureau of Labor Statistics, average annual employment in tax preparation services was 113,000 in 2009, but this excludes Certified Public Accountants and companies that provide accounting, bookkeeping, billing, or payroll processing services in addition to tax preparation services.

For reference, here is a sample of relevant 2010 job and income statistics:
Tax examiners, collectors and revenue agents: 74,500 jobs at a median $49,360 per year
Tax preparers: 59,180 jobs at a median $39,410 per year
Personal financial advisors: 206,800 jobs at $64,750 per year
Accountants and auditors: 1.2 million jobs with a median pay of $61,690 per year
Bookkeeping, accounting, and auditing clerks: 1.9 million jobs at $34,030 per year
Financial examiners: 29,300 jobs at a median $74,940 per year
Financial managers: 527,100 jobs at a median $103,910 per year
Financial analysts: 236,000 jobs at a median $74,350 per year

The above occupations account for over 4 million jobs and $233 billion in salaries. While only a fraction of the people in some of these occupations work on tax planning and preparation, the direct economic cost of tax preparation and management, including private and government salaries, equipment, software, and other expenses, but not counting the cost of your time, has got to at least be in the tens of billions, if not much, much more.

Tax Compliance Costs

Tax Compliance Costs

Of the 140 million individuals and families who file tax returns each year in America, 60% pay someone else to fill out forms for them, while 29% buy tax-preparation software or online services. It is possible that automated electronic tax preparation and filing software has and will continue to reduce tax preparation costs for small businesses and individuals. However, tax complexity still requires more time spent on tax preparation and planning that would otherwise be necessary.

How many of you dread the process of filing a tax return and worry about paying too much because you didn’t know about some special deductions you might have been able to take advantage of? It is extremely likely that many people do not take advantage of legal deductions. Research by the Government Accountability Office and Internal Revenue Service indicates that between 15% and 25% of households who are entitled to the Earned Income Tax Credit do not even claim their credit, or between 3.5 million and 7 million households. Simultaneously, others are able to fraudulently claim a credit.

Another side effect of tax system complexity is an increased ability to evade taxes through use of loopholes. The more complex the system, the harder it becomes to detect fraud or the more it costs to monitor tax returns and other tax-reporting data.

Is there a way to reduce these tax compliance costs and put the money back to productive use? Of course, but special interests will fight it every step of the way because everyone is looking out for their own self interest. Most of the lobbying comes from large businesses and tax-exempt charities. So, it makes sense to take them completely out of the equation by eliminating all income taxes on organizations and passing through all taxes to the individuals who earn the profits. If large organizations have no interest in the tax code, they will not try and influence legislators to give them special exemptions. This will help stop the practice of using the tax code as a system for rewarding those who are able to convince legislators to give them special benefits. After all, large organizations are just collections of individuals who are the ultimate beneficiaries of any profits they earn. Corporate taxes are just taxes that could be passed through to individual investors, where they can be taxed at their appropriate rate, without all the corporate tax manipulation.

IRS Revenue Sources

IRS Revenue Sources

Automation will also help to reduce compliance costs as well as tax evasion. Sales taxes are fairly well automated, although elimination of all sales tax exemptions would make it even more so. Tax-exempt charities will have to pay sales taxes. An agreement between states to resolve the issue of inter-state sales taxes would eliminate the complexity of sales versus use taxes and provide businesses with a simpler way of collecting and reporting sales taxes. For instance, everyone should pay either an in-state sales tax or a flat inter-state sales tax.

I know this sounds like just another tax, but the objective is to reduce overall rates, not to generate more revenue. The inter-state tax could be distributed to the states according to where the purchasers reside, thus effectively enforcing the “use taxes” that most states have on the books but cannot currently enforce. Overall, the result will not be an increase or decrease in tax rates, but a more efficient system that will reduce the burden on businesses and end the inter-state fights over sales and use taxes.

The payroll tax is already a highly automated method for collecting income taxes. However, better automation of all forms of income, including automatic withholding of investment income, would help to make automatic year-end calculation of income taxes possible. If income tax calculation were simple enough to be automatic at the end of the year, the cost of tax compliance would plummet.

What about income from cash transactions? We know that cash-based businesses are notorious for under-reporting income. We can’t just eliminate cash, even though there are other fringe benefits. Studies show that paper money is costly to produce and also tends to carry bacteria that can make you sick. The growing use of electronic payments is already quickly reducing the number of cash transactions. We could further encourage this trend by providing tax benefits to anyone who uses such forms of payment.

For instance, electronic transaction networks could be required to collect, report, and deposit all sales and use taxes. This would help businesses by automating and eliminating their sales tax-collection burden. At the end of each month, the amount of sales tax paid could be automatically applied to each individual’s income tax withholding as a deduction. If they are in a low-income bracket, they will finally gain a benefit that high-income earners normally get when they itemize deductions. Those who end up with a credit could opt to have it deposited into an investment account or receive an automatic electronic refund.

Any other remaining expenses that are tax deductible, such as home mortgage interest and refinancing costs, or state and local taxes, should be automatically credited to an individual or joint tax account, with excess payments invested or refunded monthly. Any other forms of investment income should, similarly, be collected automatically and invested or refunded monthly. At the end of the year, a simple income tax calculation will be automatic.

This kind of automation and simplification is desperately needed. Special interests will fight it because they only care about themselves, but the overall effect will be to lower average rates by eliminating loopholes, tax evasion and tax compliance costs. Will it be fair? There is no such thing, so let’s stop talking about fair and start talking about what is efficient, reasonable, and transparent enough that people finally know what they are paying in comparison to everyone else.

Putting wasted assets to more productive use will make America stronger and more competitive with the rest of the world. Higher standards of living come from increases in productivity and are dragged down by waste and inefficiency. We are capable of amazing technical feats, so I’m confident we can design a simple, efficient, progressive tax system that will take more from the wealthy, but not enough to reduce the incentive to produce or to take extraordinary measures to avoid or evade taxes. Imagine if we could redirect some of the billions of dollars in annual compliance costs to pay down the national debt? Is that worth your vote? Does anyone in government have the guts to push for a revolutionary simplified tax system that can achieve this goal?

I don’t want to end this with nothing to show for it but a bunch of useless complaining. What is the point of complaining about something if you don’t have something better in mind? So, here are a few simple, yet revolutionary, recommendations on how to rebalance the tax system and thereby our economic and political system. Politics is all about money and power, so let’s start by talking about where our tax money comes from. It might not be what everyone agrees is fair, but at least it will be simple, transparent, and efficient, without a lot of waste or hidden loopholes. I don’t really believe there will ever be such a thing as a “fair” tax code, but if there were, this would be a big leap in that direction.

It’s time to stop fighting a tax war and demobilize the tax army. Support our tax troops by bringing them home! What will all those IRS workers, tax accountants, tax attorneys and other full-time tax professionals do when they lose their jobs in the tax army? How about a new GI Bill to get them into new and productive jobs that will make our country even stronger!

Bring the Tax Army Home!

Bring the Tax Army Home!

Space-Time Travel

Time Travel

Time Travel

Is time travel possible? Technically no, since time is inseparable from space. The question should really be whether or not one can travel forwards or backwards through a particular path in space-time and return via that same path. As I’m not a physicist, take everything I say with a grain of salt. Still, I can’t help myself from speculating on how time travel might work.

Let us conduct a thought experiment where a time traveler builds a stationary time capsule capable of voyaging backwards and forward in time. As he began to move backwards in time, he would discover that the capsule also simultaneously travels through space because its really going through space-time. Even though we appear to be stationary on the Earth, the universe is constantly in motion. The Earth rotates as it revolves around the sun, as the sun revolves around the galaxy core, as the galaxy moves through an expanding universe. If a time traveler attempts to move through time, he might see his time capsule appear to move as all other celestial objects retrace their paths through space-time. The question is whether the capsule will move through space in the same way that it moves when time is moving forward at its “normal” rate.

Portal Through Time

Portal Through Time

In the first case, we consider motion backwards in time at the same rate that one normally moves forward. This requires some kind of relativistic measure of speed. For instance, going backwards at a “normal” rate would equal minus one second per second (-1/1). Going backwards at ten times normal rate would be minus 10 seconds per second (-10/1). If the capsule traveled at a normal rate of -1 sec/sec, then we can presume that all other forces will be the same but opposite. Any movement would have the same acceleration in the opposite direction.

If the traveler starts to move at an accelerated rate through space-time, would he experience changes in the forces of gravitational acceleration (or effects of the shape of space-time) to account for the compressed nature of time? I don’t believe so, because time would move ten times as fast, but the gravitational force (acceleration) should also be ten times as strong due to the compression of time. If the capsule was located on the surface of the Earth, the increase in gravitational acceleration should enable it to stay in the same position. The normal force of acceleration is 9.8 meters per second. At -1 sec/sec, it should be -9.8 m/s and at -10 sec/sec, it should be -9.8*10 m/sec. So, acceleration through space should take place at the same rate as acceleration through time. Any relative motion taking place when the time travel starts should continue at an accelerated rate.

But what would the time traveler perceive? According to the theory of relativity, as one approaches the speed of light, time slows down for the traveler, but his perception of time does not change. Time also slows down in the presence of large gravitational forces (masses), as described in the movie Interstellar when the astronauts landed on a planet located near a black hole. But how would the traveler perceive movement backwards in space-time? Would it like be rewinding a video feed? I doubt that reverse acceleration could be infinitely fast, so time would first have to decelerate to zero before starting to go backwards. If the traveler’s time appears to stay the same while the outside world starts to slow down, that is the relativistic equivalent of having the Earth accelerate away from him at the speed of light until time appears to stop for them.

But that is not an option. We just want to move through time but stay in the same spacial position. Making time go slower on Earth would also be the equivalent of increasing the mass of the Earth or reducing the mass of the traveler such that time moves more quickly in the capsule relative to the Earth. Increasing the mass of the Earth and everything on it does not sound like a viable option. Not only would people feel heavier and be unable to move, they would also see celestial objects speed up because time would be moving slower on Earth. Somehow, the traveler would need to shield himself from the relativistic time-slowing effects of mass in order to speed up the time in his capsule until time on Earth appears to stop. In effect, the ship would have to neutralize gravity, which is associated with mass. Maybe antimatter can neutralize matter and gravity by creating anti-gravity and speeding up the passage of time. In this case, the traveler needs to be able to generate enough antimatter within the ship to counteract gravity. Scientists suspect that antimatter will attract both matter and antimatter, but this has not been experimentally confirmed.

NOTE: Neutralizing gravity seems to be what UFOs are able to do. Not only have they been sighted hovering with no known form of propulsion, they have also been seen accelerating at an extremely high rate. The only way to physically survive such high rates of acceleration is to change the passage of time on the ship so that it doesn’t feel like the acceleration is really that fast. It sounds to me like UFOs must be speeding up the passage of time within their ship.

But, back to time travel. Even if one could speed up time within the ship until time appears to stop outside, how would one break through the barrier and actually start to move backwards in time? Hmmmm. Maybe if the presence of mass (matter) slows time, the presence of antimatter does something even weirder rather than just neutralizing matter and speeding up time. I can’t quite figure out how that would work other than to speculate that the traveler would have to pass the point of zero gravity/mass until it experiences negative gravity due to the presence of an excess of antimatter. Maybe negative gravity results in a relatively infinitely fast passage of time such that where the outside world actually moves backwards.

If the traveler starts to move backwards at ten times normal speed, would he also feel the increased force of gravitational acceleration (a -10G force)? If so, this would probably cause him to pass out or rip him or his capsule apart. Or would the passage of time and the forces of acceleration seem to stay the same for his own frame of reference? What does negative gravity due to antimatter feel like? Instead of attracting objects together, does it force them apart, much like the universe seems to be expanding at an ever accelerating rate?

It might be too dangerous to travel through time while stationary on the surface, since other objects might move through the same space and destroy the capsule or be destroyed by the required increase in the mass of the capsule. Storms, fires, moving objects or people, or other threats to the capsule might emerge, making it too risky. For this reason, it might be safer to travel backwards in time from a position in space or at least above atmospheric disturbances.

However, if the capsule were located in space and was in motion, it might not stay in the same position. If the capsule was in space on the leading edge of the Earth (i.e. in front of its absolute direction of motion through the universe) and moving slightly away, his capsule might increase its acceleration away into space as the Earth retraces its path backwards through the universe and the capsule lacks an equal force to accelerate it backwards with the planet. The speed of this relative motion would correspond to the speed of the change in time. If the capsule were moving slightly towards the Earth when reversing time, the capsule might increase its acceleration towards the surface and crash.

If the traveler moved relatively quickly through time, the Earth would change its relative location even faster and its speed of motion would differ from the speed of the time traveler after being accelerated by gravity. The traveler would move relative to the planet unless he was in perfect geosynchronous orbit. If he reversed the direction of time back to the forward direction, he would find himself accelerating back in the opposite direction.

Back to the Future

Back to the Future

If the time traveler was located on the trailing edge of the Earth (i.e. in back of its absolute direction of motion through the universe) and moving slightly towards the Earth, his capsule would accelerate down as the planet retraces its path backwards through the universe. If the traveler attempts to move too quickly through time, the capsule may crash into the Earth at a high velocity, resulting in its destruction.

Let’s assume that the traveler has a stationary capsule, but no spaceship. In this case, he would have to anchor the capsule to the ground and limit the speed of his motion backwards in time in order to attempt to avoid interacting with objects that might damage or destroy the capsule. As he travels back through time, he will eventually encounter other objects or sentient beings as they attempt to move through the same physical space. This will, of necessity, change the course of time as these objects or individuals are forced to alter their course as they hit or go around the object. For instance, when the capsule moves to a point in space-time where it becomes visible to another human, the course of that human’s future will change or diverge into a new path through space-time. As the capsule continues to move backwards in space-time, the time at which the other human first sees it will also change, so he will not be able to react to its appearance. Only by moving forwards again in space-time will the traveler see the effects of his travel on the future course of time. If he tries to move forward again in time, the human observer may attempt to interact with the object, including the possibility he may attack and destroy it.

The next question to ask is whether there would now be two possible paths forward through time. Could one find the path originally followed backwards or only the new, still unknown, path created by the effects of the backwards motion?

Star Trek

Star Trek

It should now be obvious that cosmic geometry would be an important factor in travel through space-time. It would also therefore be necessary to be able to perform calculations to project the path of motion through space-time before attempting such travel. In doing so, a spaceship would be advantageous as it would enable a traveler to remove himself from the proximity of large gravitational bodies and to avoid crashing into such objects during the trip.

Assuming the time traveler obtains a spaceship, he will most likely want to move into the open space in front of the planet as it moves through the expanding universe. Then, as he begins the process of reversing space-time, he will be able to start navigating his ship without immediate fear of collision. The better his ability to navigate a course and make real-time corrections, the faster he will be able to travel backwards through time. Navigation at high rates of time change would require high speed processing, so such a spaceship would probably require an automated navigation system programmed to avoid obstacles and follow objects of interest as they move relative to the ship.

Sounds pretty complicated to me, but then why wouldn’t it be? The very act of changing the direction and speed of time would have to require some powerful kind of device anyway, so it seems obvious that this would require a large space ship capable of manipulating matter, antimatter, and their resultant gravitational or anti-gravitational forces (or warping of space-time). Einstein says it isn’t possible to exceed the speed of light and that you can’t go back in time. He is probably right, but I’m not sure he had sufficient knowledge of antimatter or the possibility of anti-gravity. If it is possible to travel backwards in time, it still would probably require some mind-bending technology and a pretty advanced space ship. Is it worth the effort? Probably not.

Recycle Bots

Wall-E Robot

Wall-E Robot

If you had a choice between a quality product and a cheap one for the same price, wouldn’t you always choose the higher quality item? Isn’t the sale of high-priced, high-quality smart phones what has made Apple the most valuable company in the world? We could all just settle for cheap, disposable prepaid phones, but most people don’t. I would assume that a better product would always be preferable, barring some unusual circumstances. But throw in one more factor, extreme convenience, and that answer seems to go out the window.

My company offers free coffee and tea to all employees along with a kitchen area that has microwaves, a sink for cleaning, and tables for eating. They also provide paper or Styrofoam cups and plastic utensils for anyone who needs them for their lunch. I prefer to use my own coffee mug and real silverware, which I keep at my desk.

Paper Coffee Cups

Paper Coffee Cups

Yet, I’ve noticed that most people prefer to use the disposable cups and utensils even though I know most of them have perfectly good mugs at their desks and utensils at home. Nearly everyone has a mug because they are easy gifts and companies tend to give them out with their company or product name on them. Other people buy mugs with the logo of their favorite sports teams, funny quotes, or other personalized features. So, not using a mug isn’t a matter of cost.

So why would someone forego a perfectly good mug, which is certainly much more comfortable to drink out of and better insulated, for paper or Styrofoam? The only answer I can come up with is the convenience of not having to carry the mug to the coffee pot or to clean it. However, some people who do use mugs don’t even bother to clean theirs, so that excuse doesn’t even work. They often point to their coffee-stained insides with pride when they tell me how many years of coffee buildup they have achieved without a single cleaning. So, it is hard to believe that it is a matter of cleanliness. It’s all about laziness.

Are people really so lazy that they would rather use a small disposable cup than have to carry around a mug? It appears that this is the case. If so, what are the global implications for consumption as a whole? Would people rather throw away than reuse something better? It seems so, but this explosion of waste is driving environmentalists crazy.

I happen to be one of the few people who buys some of our milk in a reusable half gallon glass container. When the container is returned to the store, I receive a refund and the local company that bottles it reuses the container. Why bother? Because their chocolate milk happens to be much better than anyone else’s, but also because the container is thick and feels good to hold, plus I like the idea of non-destructive recycling. But it is no longer the norm. In fact, I’m surprised that anyone still recycles containers.

At what point will it become more cost effective to recycle containers and, even if this happens, will people bother? I suspect that they will not. It has taken years to finally get a great destructive recycling program going, where people can throw all kinds of recyclable material into a single mixed bin. But I can’t conceive of a time when people will, in large numbers, choose to reuse materials rather than to throw them in a bin for collection.

Italian Trash Robot

Italian Trash Robot

The only technological development I can foresee that will save us from our destructive, wasteful tendencies is that of the robot. When they become cheap enough, they can be set upon our waste landfills like ants on a pile of crumbs. They can sort out all the most valuable recyclable products, separate them, reprocess them, and make them available as resources for re manufacturing. By fitting them with material sensors and connected to information about the market price for commodities, these recycle bots will be able to prioritize, in real time, the selection of items for recycling. Guess what? We already have trash robots.

Dog Trash Robot

Dog Trash Robot

When robots come into wide scale use for the processing of trash, the cost of commodity materials will go down and will make it even more cost effective to produce disposable products. The world may have many other uses for robots, but I suspect we will have armies of them devoted to nothing more than searching for waste that can be recycled. If they are owned by private parties, rather than provided as a government service, they might even compete for your waste. When this happens, there will no longer be a need for trash bins. People routinely throw their trash on the ground anyway because they are too lazy to look for a container, but when the day comes that there are bots to retrieve it for you, how many people are even going to bother to look around for a waste container?

Trash Can Bots

Trash Can Bots

Imagine you are walking down the road eating a snack. Instead of looking for a waste container, you might be able to simply throw it on the ground knowing that a bot will come by shortly to retrieve it. Bots might even see you walking with the snack and follow you knowing that you will eventually throw it away. Or maybe they will dash out of tiny garages to grab it before another bot can get to it. I know–it sounds creepy…. Or maybe you can just call for a trash bot and it will come. If the cost of bots is far lower than the value of the resources they can recycle, we may end up with fast bots that compete with each other for the trash, especially in dense urban environments.

I’m not sure I like the idea of little robots running around us picking up trash, but it seems like a plausible solution to our even-increasing habit of using disposable products. But what happens when a trash bot starts to malfunction? Will another trash bot kill it for its parts? I guess we’ll just have to make our bots cannibals. Just beware of the human organ recycling bots!

Robot Battle

Robot Battle

Let Them Eat Cake

Let Them Eat Cake

Let Them Eat Cake

How many times have you heard that sugar makes kids hyperactive, or that caffeine will keep you up all night, or that cigarettes make you jittery? Well, research now shows that this is not true for everyone. In fact, it can have the opposite effect on some people and in moderate amounts. No, you’re not necessarily crazy, you’re just different.

There have been at least twelve trials of various diets investigating different levels of sugar in children’s diets. That’s more studies than are often done on new drugs coming to market. None of these studies detected any differences in behavior between children who had eaten sugar and those who had not. These studies included sugar from candy, chocolate, and natural sources. Some of them focused on children with attention deficit hyperactivity disorder (ADHD) and some only included children who were considered “sensitive” to sugar. In all of them, the children behaved the same after eating something full of sugar or something sugar-free. Yet, the myth that sugar makes people hyperactive defies scientific evidence.

Sugar can actually calm kids down. When sugar enters the bloodstream and reaches the brain, it temporarily increases calming neuro chemicals like Serotonin. But sugar isn’t good for you, and corn syrup is even worse, so you have to choose your poison carefully. Dark chocolate is a lot healthier than milk chocolate and can help reduce cortisol levels as well as lower the levels of epinephrine and norepinephrine, which make kids (and adults) anxious and nervous. Chocolate is also rich in Tryptophan, which is a biochemical precursor that helps with the production of Serotonin. So, the next time your kid is bouncing off the walls, why not try giving him a little chocolate to calm him down?

Chocolate Cake

Chocolate Cake

Other good sources of Tryptophan include milk, eggs, Cod and spirulina, but unless your kids are a bit odd, I suggest you just stick with the milk and eggs. So, to get even more bang for the buck, get your kid to eat a real egg before he gets the chocolate egg. Wait, can’t you get milk, eggs and chocolate all together in a piece of dark chocolate cake? I think I’ve found the perfect food!

Like sugar, caffeine and nicotine can also relax some people. Central nervous system stimulant drugs like methylphenidate are used to treat children who suffer from ADHD. Caffeine is also a central nervous system stimulant and thus is being studied as a potential aid for this condition. Some folk medicine treatments for ADHD even recommend combining caffeine and sugar.

Cup of Caffeine

Cup of Caffeine

According to an article in the June 2001 issue of “Monitor on Psychology,” caffeine seems to calm hyperactivity and reduce aggressiveness in kids with ADHD. In one analysis of studies reported in the article, caffeine didn’t work as well as traditional ADHD stimulant drugs, but it helped calm hyperactivity better than no treatment at all. Additionally, a 2003 Canadian review of studies published in the journal “Food Additives and Contaminants” noted that caffeine has been used successfully to treat ADHD and has been shown to increase performance by ADHD children in attention tests.

So, to summarize, for those with a fabulous genetic predisposition, the perfect relaxing meal could be either of the following:

  1. a couple of eggs, a cup of coffee with milk, and a bit of chocolate or
  2. a piece of dark chocolate cake with a cappuccino

This might even work well for some people at night. Caffeine works by blocking the receptors in the brain that make you feel sleepy, but some people are resistant to that effect. I happen to be one of them. If your brain is resistant to caffeine, then a warm drink of any kind, including coffee, will help relax you and ease you into sleep.

Nicotine is not just a stimulant. It is also a known relaxant, primarily because it increases levels of Dopamine in the brain, a hormone / neurotransmitter that causes sensations of pleasure. Nicotine produces pleasure by attaching to the nicotinic acetylcholine receptor found on certain nerve cells. In response to nicotine, these nerve cells release a chemical signal called glutamate, which tells connected neurons to release dopamine. The more these nerve cells are excited, the more Dopamine is released and the more pleasant the feeling.  Unfortunately, Nicotine doesn’t come by itself–and you really don’t want the side effects that come with smoking. Too bad we can’t brew a relaxing cup of nicotine-laced coffee before bedtime.

Evidence like this makes me skeptical of any medical advice the “experts” give that is supposed to apply to everyone. Much of what we are led to believe, even if it is scientific, only applies in some cases or sometimes doesn’t even apply at all to some individuals. Not everyone responds the same way to the same chemicals, hormones, foods, or other environmental factors. So, if something doesn’t feel or seem right, it just might not be right for you. Maybe we should all just listen to Professor Lupin. Eat some chocolate. It’s good for you.

“The mood-enhancing properties of chocolate are well known in both the Muggle and wizard worlds. Chocolate is the perfect antidote for anyone who has been overcome in the presence of Dementors, which suck hope and happiness out of their surroundings. Chocolate can only be a short-term remedy, however. Finding ways to fight off Dementors – or depression – are essential if one is to become permanently happier. Excessive chocolate consumption cannot benefit either Muggle or wizard.”

Professor Lupin - Eat Chocolate

Professor Lupin – Eat Chocolate

Beat a Hero

Hero Hater Jonah Jameson in Spiderman

Hero Hater Jonah Jameson in Spiderman

Just as Jonah Jameson, publisher of the Daily Bugle, just can’t credit Spiderman for his heroic acts, Wall Street has again dissed its latest hero, GoPro, maker of the Hero series action camera, which just demolished expectations for the fourth quarter of 2014 with a year to year increase of over 75% in revenue for the holiday quarter. GoPro (ticker GPRO) is crushing the competition and had the hottest selling video camera of the holiday season.

GoPro Be a Hero

GoPro Be a Hero

So, why did the stock initially jump up during the earnings announcement only to reverse course during the company conference call and crash and burn for the past few days? Is Wall Street populated by manic depressives, schizophrenics, idiots or just paranoid jackasses? The apparent cause of the stock price crash was a discrepancy between the tremendous holiday quarter and the merely-average projections for a 42% year over year performance for the next quarter, which still exceeds revenue expectations and are in the expected range of earnings estimates ($.15-.17 per share compared with average expectations of $.17 per share). It also didn’t help to find out about the resignation of the COO, Nina Richardson, which immediately sent Wall Street’s analysts in a panic, taking the momentum out of the stock.

Robert Duvall as Max Mercy in The Natural

Robert Duvall as Max Mercy in The Natural

Is GoPro a hero or a goat? In the movie The Natural, Max Mercy, the shady newspaper reporter played by Robert Duvall, had the following to say about whether or not Roy Hobbs, the hero of the story, would help the Knights win the playoffs. I think this quote is completely applicable to Wall Street stock analysts today:

“They come and they go…. I’ll be around here longer than you or anybody else here. I’m here to protect this game. I do it by making or breaking the likes of you. And after today whether you’re a goat or a hero, you’re gonna make me a great story.”

I don’t normally dig into the details of company financials, but something just didn’t smell right and my Spidy senses were tingling, so I did a bit of checking. What I discovered is that Wall Street, for all its high-powered talent and number-crunching ability, didn’t do jack to figure out what actually happened here. The issue seems to center around the difference between the revenue projections for the first quarter of the year. During the conference call, Citibank analyst Jeremy David asked why revenue was expected to go down by 47% from Q4 2014 to Q1 2015, compared to a decrease of only 35% between Q4 2013 and Q1 2014. GoPro responded that they were projecting average 41% growth last year, so that is what they used. This projected slowdown in growth must have sent his mis-guided Spidy senses tingling. Citibank is among the most negative of all GoPro analysts.

After only a couple hours of digging around, the cause of this entire first quarter estimate problem became clear to me. It all seems to revolve around a delay in shipment of the Hero3 cameras that were supposed to be available for the holiday quarter of 2012. The Hero3 was a dramatically improved camera that could take 4K video and was announced in October of 2012. However, GoPro had trouble getting orders out the door, so most of their sales were pushed to January 2013. I found customer comments on various web sites (including Slickdeals.net and Facebook), discussing shipping delays. Reviews of the Hero3 on Amazon.com started with only four reviews in October and November, with a relatively small number in December, further indicating that most customers were not able to get their cameras for Christmas that year. And the smoking gun … the SEC S-1 Registration Statement dated May 19, 2014 from GoPro, which said:

“Revenue and units shipped for the three months ended March 31, 2013 were impacted by production delays of our HERO3 Black edition capture device in the fourth quarter of 2012. These production delays correspondingly delayed shipments until the first quarter of 2013, which resulted in revenues in the first quarter of 2013 that did not reflect the traditional seasonality in our business. The three months ended March 31, 2014 were not similarly affected.”

So, what does this mean? Simply that the first quarter of 2013 had an inflated number of sales due to GoPro not being able to get them shipped out for Christmas. This is clear in the revenue numbers, since there is an 8% decline in sales from Q1 2013 to Q1 2014 and an even larger and unusual decline from Q1 to Q2 of 2013 compared to Q1 and Q2 of 2014. The result is a bunch of stock analysts who can’t figure out why first quarter sales are projected to be 47% down this year compared to only 35% down last year (Q1 2014) and only down 31% the year before (Q1 2013). Sometimes you have to do more than crunch numbers. You also have to read and investigate. Isn’t that what stock analysts are paid to do?

So, I went back and adjusted the revenue for Q1 of 2013 to account for the delayed 2012 holiday season sales and placed the revenue in line with how GoPro has been growing for several years. I decreased revenue for Q1 2013 by 33%, which places it just under the revenue for the second quarter and shows about the same growth quarter to quarter as in 2014. This small adjustment changes the outlook going forward. GoPro has consistently issued conservative (low) guidance, and based on my revised numbers, I believe that this is what happened last week. By my estimates, the first quarter of 2015 is probably going to be another large earnings beat. Here are the charts to back it up.

The following chart shows GoPro revenue by quarter using actual numbers and the one below shows revenue with the adjustment to the Q1 2013 revenue (revised down by 33%). The second chart shows more even continued upward growth.

GoPro Revenue by Quarter

GoPro Revenue by Quarter

GoPro Revenue by Quarter with Adjustments

GoPro Revenue by Quarter with Adjustments

The following chart shows GoPro revenue by year using actual numbers and the one below shows revenue with the adjustment to the Q1 2013 revenue (revised down by 33%). They both show a decline in the previous unsustainable growth rate of 266% in 2011 to a more sustainable rate. However, the second chart shows a bigger growth rate for 2012, when the Hero3 was supposed to have been sold, but was delayed. This shift in revenue leads to lower, but still great growth in 2013, which is when the Hero3+ was released (Oct 2013), followed by another surge in growth after the Hero4 was released (Oct 2014). If correct, 2014 would have seen revenue growth of 55%, not 41%. Although the change does not affect what happened in 2014, it changes the trend. Increasing the 2014 revenue growth would also increase the earnings per share growth upwards as well.

GoPro Revenue by Year

GoPro Revenue by Year

GoPro Revenue by Year with Adjustment

GoPro Revenue by Year with Adjustment

This leads to the final charts, which show revenue projections adding in GoPro’s estimate of 42% revenue growth for 2015. At this rate, current earnings estimates should fall in line with their projected range of $330-340M for the first quarter of 2015. However, the upward trend looks even stronger to me. If the trend really is in line with my revisions to Q1 2013 revenue, then GoPro might be looking at smashing estimates for Q1 2015 with 55% growth (about $364M) assuming all things stay relatively stable.

Of course, this is all guesswork. No matter how many charts and numbers we can put together, nobody can predict the future. But if I were a Wall Street analyst, I’d spend a little more time looking at the numbers we already have. Come on Citibank, get your act together! What do you say about them apples???

GoPro 2015 Revenue Projections

GoPro 2015 Revenue Projections

GoPro 2015 Revenue Projections with Adjustment

GoPro 2015 Revenue Projections with Adjustment

GoPro Revenue Projection Increase

GoPro Revenue Projection Increase

April 28th, 2015 UPDATE:

GoPro Inc. is scheduled to release its quarterly results today after market close. Analyst estimates still don’t make sense to me. If you add up the projected revenue numbers for the first two quarters of this year, which I even think are low, and subtract them from the annual revenue estimate, GoPro would have to fall flat on its face during the Christmas quarter to only deliver $1.73B in earnings for 2015. We will find out after 5PM today how GoPro fared in the first quarter. I’m betting on an upside move. Short seller interest is incredibly high at over 61% of the floated shares. If they are right, the stock will crash tomorrow. If they are wrong, it will soar upward as they all rush to cover their short positions.

Here are the current analyst estimates the day GoPro is scheduled to release its quarterly results:

Earnings Est Current Qtr.
Mar 15
Next Qtr.
Jun 15
Current Year
Dec 15
Next Year
Dec 16
Avg. Estimate 0.18 0.16 1.39 1.69
No. of Analysts 15.00 15.00 16.00 15.00
Low Estimate 0.16 0.08 1.07 1.18
High Estimate 0.25 0.22 1.55 1.87
Year Ago EPS N/A 0.08 1.32 1.39
Revenue Est Current Qtr.
Mar 15
Next Qtr.
Jun 15
Current Year
Dec 15
Next Year
Dec 16
Avg. Estimate 340.99M 333.72M 1.73B 2.06B
No. of Analysts 12 12 15 14
Low Estimate 334.72M 300.90M 1.58B 1.77B
High Estimate 355.90M 362.70M 1.81B 2.20B
Year Ago Sales NaN 244.60M 1.39B 1.73B
Sales Growth (year/est) N/A 36.40% 24.20% 18.70%
Earnings History Jun 14 Sep 14 Dec 14
EPS Est N/A 0.06 0.08 0.70
EPS Actual N/A 0.08 0.12 0.99
Difference N/A 0.02 0.04 0.29
Surprise % N/A 33.30% 50.00% 41.40%
EPS Trends Current Qtr.
Mar 15
Next Qtr.
Jun 15
Current Year
Dec 15
Next Year
Dec 16
Current Estimate 0.18 0.16 1.39 1.69
7 Days Ago 0.18 0.15 1.38 1.68
30 Days Ago 0.17 0.15 1.38 1.67
60 Days Ago 0.17 0.15 1.38 1.68
90 Days Ago 0.17 0.15 1.26 1.57

Invest in Me

Tuition Costs

Tuition Costs

In 2012, a Florida state task force on education recommended adjusting tuition by major. Science, technology, engineering and math (STEM) majors would cost less, while some majors, such as psychology and the performing arts, would cost more. This recommendation has not been implemented, but here is the basic idea.

“Tuition would be lower for students pursuing degrees most needed for Florida’s job market, including ones in science, technology, engineering and math, collectively known as the STEM fields…. The purpose would not be to exterminate programs or keep students from pursuing them. There will always be a need for them … but you better really want to do it, because you may have to pay more.”

Kevin Stange, a professor of public policy at the University of Michigan, studies the outcomes of differential tuition and has found that higher prices tend to dissuade students from pursuing a particular major. The generally accepted consensus is that a $1,000 change in costs is associated with a 5 percentage point difference in enrollment rates. A study from Hanover Research found that for every $100 increase in tuition, enrollment decreased by 0.5% to 1%.

Sounds reasonable, no? It is good to consider the value of an education and treat it like an investment, because that is partly what it is–an investment in one’s future earnings potential. But people also have to live with their choice of employment and can’t just choose a path for its simple economic return. Unfortunately, pricing tuition by major is a centralized government solution that, like most government solutions, probably will not work out as expected. This is because the actual cost of providing educational services may be more or less than the artificially determined price and because any time that bureaucrats are allowed to determine the cost or benefit of a product without any market input, they typically fail miserably.

Instead of increasing tuition across the board, many universities now charge more for majors with courses that are more costly to provide. Degrees in biology and engineering, for example, typically involve smaller class sizes, higher faculty salaries and cutting-edge labs with expensive equipment, so they charge more. Today, 45% of large public research universities differentiate their pricing this way. At the University of Texas at Austin, which started charging different tuition rates in 2004, engineering students pay $5,107 each semester, while liberal-arts majors pay $4,673. This is a market-based solution that makes sense. Sure, a technical education may be worth more in earnings power, but it can also cost more to provide.

Tuition Debt

Tuition Debt

If the cost of a technical education is artificially lowered, while liberal arts majors are artificially raised, people will object to their representatives to stop the policy. But even more importantly, students will vote with their dollars. They will simply attend schools in other states where the tuition is lower. Besides, do we really trust the government to decide what majors are best? When has the government ever made good economic decisions for us? It will be highly subjective to adjust the cost of different majors based on their perceived value to each state government. Determining the market value of a course of study is something best done by the market, not by the government. This means allowing the market to finance an education based on cost, risk, and expected return. Thinking about the value of an education is a concept that is going in the right direction, but I think it would be better to treat educational expenses like the investments they are.

How about financing educational expenses based on the expected return on investment over the first 10 years or so or their working life? For instance, if a degree is projected to net one student an average salary of $70K per year, while another student is projected to net only $35K per year, the first student might be offered up to double the amount of money in tuition loans or scholarships over the same payback period. Furthermore, it is likely that the risk the loan would not be repaid can be correlated with high school grades and college assessment scores (e.g. SAT or ACT scores). If banks were to make investment decisions on a per student basis, this would directly link the value and cost of the education and thereby influence the educational decisions that students make without any need for government interference.

If I have stellar grades and SAT scores and choose to pursue a high-paying major, I would have the opportunity to borrow more and/or to borrow it at a lower rate of interest because my risk and return factors lower the investment risk. Maybe I could then afford a higher-cost technical bachelor’s degree plus a masters degree on top. On the other hand, if I have low grades and SAT scores and choose to pursue a low-paying major, I would have great difficulty borrowing enough to cover my costs for just a bachelor’s degree or would have to pay a higher rate of interest. Like mortgage applicants with low scores, I might have to pay 20-30% of the tuition costs out of pocket first (or use grant or scholarship money) before I receive any financing.  An education that results in lower financial returns might be more expensive, but it might not. If I have great qualifications (e.g. grades and scores), I might be able to finance it over a longer term at an affordable rate.

Lower-paying majors should not necessarily cost more than higher-paying ones. Maybe they actually cost less to provide. But, in the end, somebody has to bear the financing risk. It makes sense that students should bear most, or at least a significant amount, of this risk, but I think we still want to enable people to pursue an education for reasons other than pure financial return. This is America and we want people to have the freedom to pursue happiness, but not at the expense of everyone else. I think we benefit as a society from a broadly educated and diverse population. So, maybe we need a better balance between publicly-funded and privately-funded education costs.

Student Debt

Student Debt

Adding more responsibility to the financing of an education would limit public exposure to bad investments by lowering losses on student loans that don’t pay off for investors. Considering that the government is often the investor, this will result in a better value for the taxpayers and for the nation as a whole. But why do all degrees have to cost so much? Student debt is at all-time highs, even for those who choose majors that will not generate enough income to pay off their huge loans. Maybe some education programs could be structured for completion in less time–say three years instead of four. Some schools seem to be trying to extend degree programs to five years rather than shorten them, which might be the opposite of what we really need. Does an art major need as much time as a physics major to achieve competency?

Why should everyone need the same amount of time to achieve proficiency in completely different courses of study? All doctors need to attend medical school, but does a brain surgeon require the same amount of study and preparation as a gynecologist? I actually don’t know the answer, but I suspect that the amount of preparation time is not equal and we should not expect it to be. I certainly would not want anyone messing with my brain if he didn’t spend a lot of time practicing and preparing, and I don’t mean playing the game Operation.

I have no problem with people who want to pursue lower-paying careers, or even pursuing education for the hell of it. Stay in school forever if you want. Just don’t expect me to pay for it. I just want students to be primarily responsible for evaluating the cost and value of an education and to be able to make an appropriate decision.

Pay to Play

Pay to Play

Pay to Play

What would you call an organization that conspires with member businesses to avoid having to pay a fair market-based wage? That’s easy–an illegal monopoly in violation of the Sherman Anti-Trust Act. What about an organization that completely prohibits the payment of ANY wages? I guess that would be fine for a non-profit, or maybe even for an internship, but not for a business raking in tons of money and abusing those same people. Anyway, no could possibly get away with such a policy, right?

So, how is it that the National Collegiate Athletic Association (NCAA) has managed to ban college athletes from receiving any compensation aside from a tightly controlled amount of scholarship money? How have they managed to do this even while they cheat athletes out of the education they promised by dumbing down their courses or even making up fake courses just to keep them in school? How have they held onto a valuable tax dodge that exempts them from federal taxes on sports-related revenue?

As non-profit organizations, NCAA colleges and universities are mostly tax exempt. That includes the huge profits that are generated by many big football and basketball programs. These profits go to support enormous salaries for coaches, bowl game officials, top NCAA executives, athletic department staff, impressive facilities, and so on. Sure, at some schools, some of it goes to support non-revenue sports, but that can’t excuse the massive corruption that pervades revenue sports.

From 1973 to 2012, the NCAA even banned schools from offering 4-year scholarships. In 2012, they lifted the ban even though a majority of the schools still wanted to keep it. Schools are now allowed to offer 4-year scholarships, but they are still able to withdraw scholarships after the first year. It is a myth that most athletes can even get a full ride scholarship.

College Sports Profits vs. Scholarships

College Sports Profits vs. Scholarships

College Sports Expenses

College Sports Expenses

Something about this smells bad, and it isn’t the athletes after a hard practice. The big NCAA schools just don’t want to share their enormous income on the athletes themselves and justify this by saying it will kill amateur sports, or favor some schools over others. Hmmm, if they are implying that the NCAA somehow ensures that all schools are equal, they are feeding us a load of BS. There will always be inequality in college sports because alumni and other donors can give as much money to their school as they want in order to make their school more attractive to students and athletes. Some schools already have an enormous advantage and sports revenue follows the winning teams.

After pretending for years that the Olympics was limited to amateurs, the rules were finally changed to allow paid professional athletes to participate. We always knew that Russia, China, and plenty of other countries effectively paid their athletes to pursue an “amateur” sport. It just took a while to finally admit it and stop the ban on money for athletes. The Olympics didn’t come crashing down. As for NCAA athletes, the lucky ones effectively get paid too–by those parents who are willing and able to support them all the way to the pros.

College Athletes

College Athletes

Nobody stops individuals or businesses from paying other college students. You can get a scholarship or grant for just about anything today. If you are smart, you can even raise money on your own or sell your virginity for tuition, but not if you are an athlete at an NCAA school. It makes no sense. Actually, it does. The pretense of amateurism allows schools to get out of paying taxes on billions of dollars of income. Some say that athletes will never be paid because, if they were paid by the schools, they would have to be considered employees, which would cause the schools to be subject to all kinds of tax headaches.

Athletic departments would lose its tax exemption under Internal Revenue Code Section 501(c)(3). Currently, athletic departments (which are generally a separate legal entity from the university), athletic foundations/booster clubs, and bowl games all enjoy tax exempt status because they “promote amateur athletics,” which is an exempt purpose under the Code. If college athletes were compensated and found to be employees, this tax exempt status would most likely be revoked. Moreover, they would likely lose 25-50% of donations since donors would no longer being able to make tax-deductible contributions. No only that, but large donors would then have to pay a gift tax on donations over $13,000.

Even if they didn’t lose their tax-exempt status, they might still have to pay tax on income from athletics if they are ruled to be unrelated to the primary activity of the school. Congress created the Unrelated Business Income Tax (UBIT) so that income from regularly carried on business activities that do not further the organization’s exempt purposes would be taxed as though earned by a for profit corporation. Colleges and universities, which were established to provide an education, are getting a free ride on the UBIT right now, but this could change. Maybe this whole issue is nothing more than another unintended byproduct of our broken system of taxation that could be easily fixed by tax reform. Another reason to simplify the tax code.

The Most Expensive Game in Town

The Most Expensive Game in Town

We often think of sports as a way for poor kids to make it. But preventing them from getting paid at all actually undermines this opportunity. The fact is, families who are serious about sports probably end up paying more out of pocket than they could ever hope to get back in a sports scholarship. That’s right. It’s expensive to play amateur sports. Many school districts don’t even have public sports programs at the elementary or middle school level, so kids have to pay to join club sports teams to even have a chance. If they are good, their families have to pay for uniforms, equipment, field time, tournament fees, and all the other stuff that comes along with being on a youth sports team.

A supportive community may help to raise the funds for poor kids, but such opportunities are not guaranteed. It can cost $1,500 to $5,000 dollars per year, depending on the sport, just to get the chance to play at a competitive youth level. Some say it is even higher–like $9,000 to $12,000. The youth sports industry is estimated to be worth $5 billion. These teams are mostly where college athletes are now recruited. The limited availability of scholarships and limits on payments to athletes probably benefits wealthy families who can afford private teams and coaching that can help them get to the 10,000 hours of practice that some say is vital to the development of an elite athlete. But it doesn’t provide a level playing field for everyone. Now, if colleges would help to fund the costs of promising amateur high school athletes, instead of offering empty promises, that would help to level the playing field.

Some lawsuits have challenged NCAA compensation rules. As the result of lawsuits that ruled the NCAA has violated anti-trust law, athletes are now allowed to receive a small share of profits from their school’s use of their likenesses, but it is capped at $2,000 to $5,000, depending on the school. It’s a small step, but still a pittance that does nothing to change the face of college athletics.

I think the time has come to stop the NCAA from banning monetary incentives for athletes (e.g. full scholarships, stipends, bonuses, or whatever). If not, there is certainly justification in the tax code for using the UBIT against them, as noted in a recent study of tax law:

“ there are precedents in tax law for (1) attaching conditions on the use of proceeds from an exempt activity (e.g., a requirement that big-time athletic revenues be used to subsidize other charitable outputs, such as increased athletic opportunities in non-revenue sports or for women); (2) expenditure limits such as caps on coaching salaries, and (3) expanded disclosure via a schedule to Form 990, similar to the new Schedule H for hospitals, that would require both the NCAA and universities with athletic programs to provide more information regarding their programs and the academic progress of student-athletes.”

As parents, we already know we have to pay to have our kids play, but it is a burden we would gladly share with others who are more than willing to help. Our kids are already willing to play their hearts out for nothing but the opportunity to have fun and maybe, if they are the best of the best, to make it to the pros. But doesn’t mean we have to let the big colleges take advantage of them and make their journey even harder. It’s time to get back to this country’s free market roots. Pay to play is the way to go, baby!

Pay for Play

Pay for Play

Pay to Go Away

Renouncing US Citizenship

Renouncing US Citizenship

Americans have always enjoyed the freedom to travel without restrictions within the country and, for the most part, abroad. No, we still can’t travel to Cuba on vacation, only for business. How this makes any sense, I don’t know. The embargo against Cuba, enacted in 1960, was the result of a federal temper tantrum resulting from our humiliating inability to overthrow Fidel Castro’s communist regime sitting just miles from the US coast. I would think we’d be over it by now, considering how Americans can travel to just about any other crappy dictatorship on the planet. But that’s another story. This one is the flip side to my Pay to Stay idea for dealing with illegal immigrants.

Our freedom to life, liberty, and the pursuit of happiness usually comes without a price tag. Well, that is, aside from the cost of national defense and the loss of life required to defend it. We are even free to vote, thanks to the Voting Rights Act, without having to pay any kind of poll tax or anything else that smacks of a tax–even an ID card.

You would think, therefore, that we would also be free to leave the country without having to pay a tax. After all, taxes are financial barriers that can stop people dead in their tracks. If you can’t afford to pay a tax, your rights are effectively limited. This is one reason why it is so important that our founding fathers prohibited taxes on interstate commerce, thus ensuring free trade throughout the country. But are we really free leave the country? As long as you plan to come back, sure, but if you renounce your citizenship and try to leave for good, sorry but no, you can’t.

Americans Renouncing Citizenship

Americans Renouncing Citizenship

American citizens who give up their citizenship may have to pay an exit tax, depending on the amount of their assets. Green card holders (lawful resident non-citizens) also have to pay an expatriation tax. If you are a U.S. citizen or long-term resident who expatriated on or after June 17, 2008, the tax law treats you as having sold all of your worldwide property for its fair market value the day before you leave. Even if you don’t sell your assets, the IRS will tax you on what you would have gotten if you had sold everything. This, of course, is based on a complicated process that requires appraisals and additional out of pocket costs. If the theoretical gains add up to more than $651,000, it is subject to U.S. tax at the capital gains rate.

I guess we could call this the “kick in the pants on your way out” tax. I guess the idea is that we have to allow you to leave, but you can’t take everything with you. That doesn’t sound quite right to me. For wealthy Americans with dual citizenship, however, it is a small price to pay to avoid the estate tax that will drastically impact their heirs.

Obviously these taxes are not very well known since not many Americans give up their citizenship and move out of the country. But the first quarter of 2013 saw 670 Americans to date doing just that. This is the largest number since the IRS began publishing figures in 1998. Isabel Getty, daughter and heir to the Getty oil fortune, and Eduardo Saverin, Facebook co-founder, are some of the latest ex-Americans.

What does the IRS have to do with citizenship? They are the ones to tax you on the way out, of course. It seems that the leading reasons for giving up US citizenship are US tax laws, including the estate tax and the taxation of worldwide income instead of just income that is earned within the US.

The US is the only industrialized country in the world that imposes taxes based on citizenship, meaning worldwide income and assets. Of course, they don’t get double taxed by countries that have a tax treaty with us, so it isn’t as bad as it might seem. The IRS has been on a witch hunt to find Americans who earn money overseas and do not declare it, so some wealthy individuals who have dual citizenship or spend a lot of time overseas are just deciding that it isn’t worth the cost to continue to be an American. I know what you are thinking, good riddance, right? Why shouldn’t they pay their fair share just like the rest of us in order to enjoy the benefits of citizenship?

Taxation of Foreign Income

Taxation of Foreign Income

Good point. But wealthy citizens already pay far more than the average American and, when you already live overseas or are faced with the prospect of paying millions of dollars you otherwise don’t have to, the benefits of citizenship can start to fade. Do we really want to be the country that penalizes its’ most successful and wealthy citizens or do we want them to move to other countries that will not impose onerous taxes? I do believe that the wealthy can afford to pay more and that our country benefits from the use of progressive taxation, but there has got to be a reasonable limit. Some countries, like Canada, will not even let you in unless you have a million dollars in the bank or highly employable skills. The United States will let just about anybody in but will tax the wealthy on the way out.

Atlas Shrugged movie

Atlas Shrugged movie

Obviously, this is of no relevance to 99.9% of the country, because most of us don’t plan to leave and even if we did, there wouldn’t be much to tax. Why Congress has bothered to even impose excessive personal taxes on foreign earned income, but continues to exempt multinational business income that is not brought back into the US, I don’t know. We’d be much better off focusing on the non-paying people right here in the country who are currently getting a free ride. So, let’s propose a new tax plan to Congress called Pay to Stay, Not to Go Away!

In case this doesn’t work, I have a plan to establish a new nation on a rising volcanic island or a sea platform. It keeps looking better all the time. With a few wealthy sponsors, I should easily be able to fund its development and settlement. Anyone who is willing to pay a tax to leave the country probably has enough to invest in a better alternative. I’ll call my new nation Atlas and the national salute will be a shoulder shrug. When Elon Musk gets his rockets working a little more reliably, we’ll move it to a platform in orbit and then to Mars.

Atlas Stage 1: Sea Platform

Seasteading Platform

Seasteading Platform

Atlas Stage 2: Space Platform

Elysium Space Station

Elysium Space Station

Atlas Stage 3: Mars Colony

Mars Colony

Mars Colony

Pay to Stay

Save the Children?

Save the Children?

US Illegal Immigration Countries of Origin

US Illegal Immigration Countries of Origin

Across the nation, the children of undocumented (i.e. illegal) immigrants are reportedly upset that they are being denied benefits that most citizens enjoy, such as student loans and scholarships, clean air and water, relatively good health care (even if it is just the emergency room), just because they can’t get a social security number (or benefits, for that matter). So sad that they have to suffer when it wasn’t even their choice to come here. Boo hoo! Their parents were responsible for ripping them from their homeland only to suffer here as fugitives from the law, unable even to pay taxes to pay for the services they are able to enjoy, like their entire primary and secondary education! They didn’t ask to live here and would have been just fine where they were born, but now that they have grown and made friends here, it wouldn’t be fair to send them home–so sad. OK, I am being sarcastic, but it also really is sad. Poor things.

But what are we to do? Send them all home? Give them all amnesty, thus encouraging millions of other potential immigrants to cross the border illegally? Ignore the problem as long as we can while doing nothing (Congress’ preferred solution)?

Wait, I have an idea! Actually, it was my wife’s idea and I’ve got to give her credit. It isn’t exactly the same as amnesty. Well, OK it sort of is a kind of amnesty, but it’s much better than the regular “bend over and let the taxpayers take it” kind of amnesty we are used to. Also, we could really use the money–especially in California. We can call it the “Pay to Stay” program. The idea is to calculate all the benefits these children and their parents enjoyed for free the entire time they lived here, including all taxes and fees they would have had to pay, compounded interest, and a little “processing” fee (call it a penalty if you want) for not doing things the legal way. That number, whatever it is, will be the price they have to pay to stay in the country. Being the good capitalists we are, we’d have the parents and children all co-sign the note and would be happy to roll it into a 30-year payment plan at a relatively low rate of interest. It might sound like indentured servitude, but it’s really just a payment plan for back taxes. For the rest of us, there is no getting out of taxes, even after bankruptcy. So, why should it be any different for illegals?

Top Counties of Origin for Canadian International Students

Top Counties of Origin for Canadian International Students

Chinese Student Immigration to Canada

Chinese Student Immigration to Canada

Think anyone would pay to stay? Just ask the Canadians how much they charge international students to live temporarily in Canada and study in their schools (secondary schools too, not just colleges). They charge big bucks and the foreigners just keep coming. And, by the way, most foreign students are from China and most of them stay in Canada after graduation. So, Canada’s immigration problem consists mainly of paying, educated foreigners who are legally accepted into the country, not freeloading, unskilled workers illegally crossing the border, as is the case in the USA.

I have nothing against immigration in general or specifically against poor immigrants from Mexico or Central America. This country was built by hard-working immigrants from all over the world and has been sustained by a constant stream of ambitious, innovative, workers coming here to build lives for their families that they are unlikely to be able to achieve in their native lands. However, if our own illegal immigrants don’t want to pay to stay, then we probably don’t want them. I’m sure someone else would be happy to come to the US and pay their way instead of living off of the growing welfare state. Is it really too much to ask that someone pay their fair share of the tax burden? What if they just don’t make or save enough money to pay their taxes? Another reason not to let them stay. We have enough lazy Americans living off welfare and other public services, so we don’t need more non-productive foreigners.

However, I’m optimistic. This country was built by hard-working, innovative immigrants. I’m sure that we will continue to thrive if we just expect the same of future generations of immigrants. Come, work hard, learn the language, contribute to your community, and you may still achieve the American dream, even if many Americans have already given up on it.

The American Dream

The American Dream