Sunday, May 27, 2007

UI Held Hostage Day 491 - Poll: It's Taxes; Nickled & Dimed

May 27, 2007, 8:15 a.m.

Poll: Tax Policy Number One With Voters

Yesterday I took a first stab at trying to get my mind around the range of categories of issues it seems to me one needs to identify before talking about "taxes." Nicholas Johnson, "Taxes: Categories of Inquiry" in "UI Held Hostage Day 490 - Search & Taxes," May 26, 2007. I didn't necessarily think it would be a blog entry of much interest to great numbers of readers; it was just something I'd been thinking about recently, and I find it helps me to think through issues if I try to write about them.

But this morning's Des Moines Register reports,

Caucus-bound Iowans have a message for the presidential candidates and the news media: Tell us more about tax policy, . . ..

The Des Moines Register's latest Iowa Poll shows many Republican and Democratic caucusgoers want more information about those issues, which are more complicated than some campaign topics and may seem less clear-cut than, say, the war in Iraq and abortion.

Although tax policy is not quite a top-tier issue in choosing a candidate, it is the leading campaign topic about which more information is sought, according to the poll of likely caucus participants that was taken May 12 to 16.
"Iowa Poll: On some topics, race is too quiet, voters say; Tax policy and health care are two top issues that Iowans feel are being neglected, a poll suggests," Des Moines Register, May 27, 2007, p. 1A.

So maybe my instinct was more on the mark than I gave myself credit for yesterday. Moreover, there's another story in this morning's Register that illustrates some of the points I was making. Jeff Eckhoff, "Resources few for 'unfair' tax's foes; Battling well-funded advocates of 'Destiny,' they urge 'no' votes," Des Moines Register, May 27, 2007, p. 1B. It involves a sales tax proposal that is (a) an unabashed effort to shift a major portion of the total tax bill (property taxes) from those who own homes to those who don't (two-thirds of the sales tax revenues will be used to reduce property taxes), (b) the tax increase is preceding any effort to think through and prioritize public funded programs (there are suggestions for how a portion of the sales tax might be spent, but little evidence that those "needs" were the driving force behind the tax increase), and (c) the very same folks who fight "tax increases" (in income, or property taxes) are the ones who are funding the campaign to increase sales taxes in three counties (I am assuming -- from 5% to 6% ) by 20% -- all points I was making yesterday.

Meanwhile, on a much less significant topic:

Nickled and Dimed

It started when I was just a kid. My attitude about corporations, I mean. Initially I was somewhere between enthusiastic and unconcerned about them. They came in threes: Chrysler, Ford and General Motors; ABC, CBS and NBC (originally with the Red and Blue networks, before the latter became ABC) -- except for the phone company, AT&T (there was only one of them). And there was only one President, Franklin D. Roosevelt, "FDR."

The FBI chased criminals, the bad guys. But corporations were at worst benign. They made stuff for us, even if we couldn't afford all of it we'd like. It seemed to last forever -- which was fortunate in an age when our parents passed along the advice they had received when our age: "Use it up, wear it out, make it do, or do without." We didn't suspect we were being gauged by the prices, and all transactions were for cash or check. AT&T management took seriously its responsibility to those dependent on its stock dividends -- "widows and orphans" as they were thought to be -- and its employees and retirees. So did the "Big Three" auto manufacturers.

Taking candy from babies. Like most kids, I liked candy. A pretty hefty candy bar could be purchased for a nickle; my preference was called Butterfinger. Nickles were hard to come by, but the big candy bars seemed a fair exchange for a nickle.

And then it happened. Candy bars went from a nickle to a dime. As if that was not bad enough, at the same time the price doubled the candy bar was reduced in size. It was a dramatic moment in my life, one that shaped my future view of corporations.

The revelation made me feel like the Mavin Johnson character played by Steve Martin in the movie "The Jerk," when the owner of the weight guessing stand where Mavin worked explained to him that his failure to guess weight accurately was causing the owner an excessive loss of prizes. The Steve Martin character finally grasps the point and exclaims, "Oh, I get it. This is a profit deal."

Corporations were not my friend, I suddenly realized; they are not benign; they are operating "a profit deal;" and if they can increase profits by simultaneously giving you less while charging you more, well they'll just do it.

I was reminded of that boyhood insight tonight at the movie theater. I guess it's changed ownership. Anyhow, our standard medium soft drink and popcorn has gone up in price -- while declining in volume. (The movie incidentally, "Waitress," is well worth seeing -- even if the profit on that one goes to Rupert Murdoch.) Bear in mind, they buy this popcorn in 50-pound bags for about $20 a bag or less. They sell it at about 1/3 of a cup a time for over $4.00. I figure that's about $1200 at retail for $20 worth of popcorn. And with those profit margins they have to reduce the amount of popcorn you get?

It's not the only example.

MidAmerican Energy's membership scam. I've complained about MidAmerican's scam to the Iowa Utilities Board, but to no avail. In an age of concern about global warming, and need for energy conservation, the more you use the less you pay (per kilowatt hour, or per "therm"). Obviously, that's bad enough and as a matter of public policy really needs to be changed, regardless of how much the company's lobbyists give Iowa legislators..

But what I'm complaining about now is the charge the company imposes on you just for being a customer. That's right. Regardless of how much electricity or gas you use -- even if you use none -- you will still be charged $6.00 a month for being an electricity customer and $10.00 a month for being a gas customer. It's kind of a membership fee, or something.

Sixteen dollars doesn't sound like all that much, but over 10 years we're talking nearly $2000. For what? Just being a customer?

Obviously, those whose utility bills run into the hundreds of dollars from heating swimming pools and hot tubs, and leaving lights and appliances on in a 6000 square foot house, probably don't even know they're paying this additional $16 a month, and wouldn't miss the money if they did. But for the poor, those who are trying to cut their living expenses, turning down the thermostat and turning off the lights, it is a significant percentage of their bill.

A regulated utility needs whatever the Iowa Utility Board decides it needs. If it truly needs the revenue this $16 creates, OK, let it charge us. But why not embed that $16 in their total costs, and price the electricity and natural gas accordingly? Not incidentally, that would remove what is now a disproportionate burden on the poor.

From rags to riches. Another nickle and dime charge that's always irritated me is when an auto repair operation makes a standard separate charge for "rags" and other "shop supplies." As with the utility bill, I'm not talking about the total charge. Rags cost money. Repair bills have to cover that cost along with others. But aren't these costs just a normal part of doing business? Can't they be embedded in the hourly charge for labor?

Imagine what our grocery bills would look like if they followed the MidAmerican and auto mechanic model. Instead of paying $1.00 for a can of tuna, there would be a 35 cent charge for the tuna, a 30 cent charge for the canning, 15 cents for transportation (I'm charged an extra 20-cent transportation charge for each therm of gas), 10 cents for stocking, and 5 cents for checkout (leaving 5 cents for profit).

Hold the phone -- charges. I've never understood why there seems to be an inverse relationship between the price of the hotel room and the charge for local calls. At Motel 6 all local calls are free. When someone I'm lecturing for puts me up in a $200 or $300 a night hotel room the hotel wants to charge an additional $1.00 for every local call. What's that about? Wouldn't it be worth it to them to embed those phone bills in the nightly rate -- even raising it to $225 or $325 if necessary to cover the expense -- rather than look so grasping?

My "interest" in late fees. Fortunately, I have a sufficient bank balance to pay my bills. But I don't pay them the day they arrive, and am sometimes out of town.

Now I want to make very clear that I think companies are entitled to charge interest when bills aren't timely paid. Money has value only in relation to time. If I pay you the $100 I owe you today, a year from now (if you invest it at 10%) you will have $110. If I pay you the $100 a year from now, you will only have $100. Who should bear the loss of that $10? I should; I owed you the $100 today.

But that's not the way late fees work.

Take the City of Iowa City's water bills as one of the worst examples. Here's an actual bill for 495 cubic feet of water, due January 4, 2007, for $45.47 (incidentally, roughly twice what that much water used to cost). If, however, it is paid one week or more later the bill will be $47.70 -- $2.23 more. The City was due the money on January 4; if I don't get it to them on time they are due some interest. But $2.23 for one week!

Since there are 52 weeks in a year, that would be $115.96 in annual "interest" on a $45.47 bill -- or 255% interest! That sounds more like a usurious payday loan operation than what one would expect from a municipal government governed by a democratically elected City Council. (And, of course, if you let it go for more than a week or two the threats start sounding more like a true Mafia operation: "You think you have knee problems now; you fail to pay us and we'll show you some real knee problems.")

My solution to that one finally became my practice of simply keeping a balance on account with the City, in order not to have to pay these usurious interest rates when I'm a week or two beyond their drop dead date. I figure, so I lose some interest I would have otherwise earned on my $60 balance over the course of a year if I'd invested it. It's far less than what the City would be charging me in late fees over the course of the average year. But I shouldn't have to use this option to avoid being ripped off by my own City government.

Note to American business: You can gouge us, flim-flam us, nickle and dime us, and try to manipulate us with your high-priced advertising, but don't think we don't know it. We're paying attention. We don't like what you're doing, and we vote.


UICCU and "Optiva"

The UICCU-Optiva story is essentially behind us. There may be occasional additions "for the record," but for the most part the last major entry, with links to the prior material from October 2006 through March 2007, is
"UICCU and 'Optiva'" in Nicholas Johnson, "UI Held Hostage Day 406 - March 3 - Optiva," March 3, 2007. Since then there have been two major additions: Nicholas Johnson, "Open Letter to UICCU Board" in "UI Held Hostage Day 423 - March 20 - UICCU," March 20, 2007, and "'Open Letter': Confirmation from World Council of Credit Unions" in "UI Held Hostage Day 424 - March 21 UICCU," March 21, 2007.

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[Note: If you're new to this blog, and interested in the whole UI President Search story . . .

These blog entries begin with Nicholas Johnson, "UI President Search I," November 18, 2006.

Wondering where the "UI Held Hostage" came from? Click here. (As of January 25 the count has run from January 21, 2006, rather than last November.)

For any given entry, links to the prior 10 will be found in the left-most column. Going directly to will take you to the latest. Each contains links to the full text of virtually all known media stories and commentary, including mine, since the last blog entry. Together they represent what The Chronicle of Higher Education has called "one of the most comprehensive analyses of the controversy." The last time there was an entry containing the summary of prior entries' commentary (with the heading "This Blog's Focus on Regents' Presidential Search") is Nicholas Johnson, "UI President Search XIII -- Last Week," December 11, 2006.

My early proposed solution to the conflict is provided in Nicholas Johnson, "UI President Search VII: The Answer," November 26, 2006.

Searching: the fullest collection of basic documents related to the search is contained in Nicholas Johnson, "UI President Search - Dec. 21-25," December 21, 2006 (and updated thereafter), at the bottom of that blog entry under "References." A Blog Index of entries on all subjects since June 2006 is also available. And note that if you know (or can guess at) a word to search on, the "Blogger" bar near the top of your browser has a blank, followed by "SEARCH THIS BLOG," that enables you to search all entries in this Blog since June 2006.]

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John Neff said...

Getting a big utility like MidAmerican Energy to rationalize their rates is much harder than getting a teenager to clean their room.

Their costs fall roughly into the following categories;
1) costs of fuel used to produce electricity
2) costs of wholesale gas and electricity for resale (the rate structure allows them to pass any cost increases for fuel and wholesale products on to the customer)
3) cost of electrical energy production (includes costs of environmental protection)
4) cost of transmission
5) distribution costs
6) construction and maintenance costs
7) management and billing costs
8) debt service (a very large cost)

An oversimplified statement is the rate per KWH includes 1 to 4 and the fixed monthly fee includes and the electrical portions of 5 to 8. The gas rate per ccf would include 2 + 4 and the fixed monthly fee would include the gas portions of 5 to 8. But if you look into the details (which are public because they are regulated) it is more complex than that. Part of the problem is the IUB agreed to splitting the charges so long ago that none of the active personnel today were involved and they don't know the details that went into that decision.

What they were trying to do was have a fixed infrastructure fee plus a fee that was proportional to usage. What you are calling a membership fee is the outcome of an attempt to have an infrastructure fee. They don't call it that and I doubt it would help them with their PR problem if they did.

Their worst PR problem is that they charge different customers different rates for the same service. How can they be so dumb? I also think they are borrowing money like a drunk at a casino.

Anonymous said...

Not that I'm in the business of defending "the man," but your comments on the City of Iowa City's water bills seem unfair and misleading. A "late fee" is not necessarily "interest," and you are not charged the same amount every week you are late (at least I don't think so--I have to admit I've never been late). But all residents also have the option of an automatic payment to the city (which gives you a $1.00 discount) through your checking account.

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