The Sharblog

Money and Mouths

There has been a fair amount of public debate about whether rich people in the U.S. should be paying more in taxes and the lack of progressivity in our current tax system. The issue got lots of attention last year after Warren Buffett, of Berkshire Hathaway fame, made a public case for the wealthy to pay more in taxes. He personalized the issue by saying his secretary paid more in federal taxes than he, the multi-billionaire did. 

Now more recently, Stephen King, the infamous horror novelist, entered this fray with an article in The Daily Beast (warning – he uses very flavorful language) in which he takes to task those who oppose increasing taxes on the wealthy and especially to those who tell rich folks (like him) who think they should be paying more to Uncle Sam, to just shut up and pay more. He took a direct hit at New Jersey Governor Chris Christie who has been vocal in saying those wealthy people who want to give the government more money should just go ahead and do it.

While I am in agreement with Christie in part, I disagree about the “shut up” part of his argument. Stephen King, Warren Buffett or anyone else who wants to argue for a different tax system or a higher tax rate for the wealthy has every right to do so. That’s called freedom of speech.

But I think King, Buffett and other wealthy folks who think they are not paying enough in taxes look somewhat hypocritical when they don’t go ahead and do it on their own while they continue to work for the policy change they desire. Their case would be made stronger if they banded together and said, look we don’t think we are paying enough and we are writing checks to the government on our own to demonstrate our commitment to this issue, and we invite other wealthy folks to join us in this effort for the good of our country. Heck, they could even form an association of wealthy people who want to increase taxes on themselves. We have an association for everything in America!

To me, this is somewhat similar to saying you think the government should ban the use of plastic bags, because they are a nuisance and are bad for our environment, but in the meantime until that public policy changes, you continue to use plastic bags rather than find an alternative. You get the point. If you feel strongly about something and want to get the public policy changed, it seems like you should take the personal initiative to make the change yourself if you can.

I have nothing against Buffett or King. They seem like good fellows and I am a fan of King’s writing. But I think in this case, where they do have some personal control over the issue they are passionate about, they need to put their money where their mouths are if they want a greater level of credibility.

Taxing Times

There has been significant debate over the past year or more about the current U.S. tax system. Some claim it is not fair and tilts advantage to the rich. Others say it needs to be simplified; loopholes (aka deductions) should be eliminated and the corporate tax rate especially needs to be lowered to allow U.S. companies to compete more effectively in the global marketplace. The only thing that most everyone does seem to agree on is that there is no chance that any significant tax reform will take place in Congress before the November elections. In fact, it doesn’t appear likely that much of anything of significance will happen in Congress before the election. The “lame duck” session after the election should be a doozy.

In the meantime, there is activity going on in the tax arena, and our TSCPA Federal Tax Policy Committee is focusing on and working hard to provide input on key issues on behalf of our members and taxpayers in general. One example is the committee’s work to encourage Congress to support full funding of the Internal Revenue Service. Hearings have recently been held in both the House and Senate on this issue, and the committee developed arguments on why adequate funding of the IRS is critical to reduce the “tax gap” and to better serve taxpayers in providing guidance to them. If you have not read the TSCPA letter to Congress on this issue, you can find it here: TSCPA Ltr to Appropriations on IRS Budget Concerns 3-19-12

On another front, Texas U.S. Senator John Cornyn has sponsored legislation – S.2291 – the “Small Business Taxpayer Bill of Rights Act of 2012,” and the TSCPA Federal Tax Policy Committee provided input and assistance to the senator’s office as they developed this proposed legislation. Some of the things S. 2291 will accomplish include: reducing compliance and administrative burdens of small business taxpayers; reinforcing the independent nature of the IRS Appeals Office; allowing taxpayers to obtain judicial review from the Tax Court when the IRS fails to act on their claim for interest abatement due to an error or delay by the IRS; and providing an alternative dispute resolution procedure through which a small business may be able to request arbitration with an independent, neutral third party not employed by the IRS. 

These two items demonstrate the good work that our Federal Tax Policy Committee is doing. And they are sort of two sides of the same coin, so to speak. The IRS needs to be funded properly so it can accomplish its role as the nation’s tax collector. And it needs to carry out that role in an effective and efficient manner, giving adequate service to the taxpayers for whom it works. At the same time, taxpayers need to have appropriate protection from an overreaching IRS and be assured that the appeals process is independent in nature. While there are many nuances of the tax system that can be debated, these two items seem to be “no brainers.” Let’s hope Congress can figure that out.

 

Memories

I recently had the opportunity to attend a conference where a memory expert spoke. Ron White (no, not the comedian!) was the USA Memory Champion for several years and was amazing in his ability to recall names and numbers. He memorized and remembered the names of about 50 members of the audience from a brief interaction with them, and he accurately recalled a 50-digit number developed by the audience. His skills seemed superhuman since most people, including me, find it difficult to remember someone’s name shortly after being introduced.

Ron explained the techniques you could use to help you remember names and other things. The simple formula is a five-step process he identified as: focus, file, picture, glue and review. In a nut shell, you have to focus in when you meet someone and really pay attention when they say their name. Then you have to file the name by associating it with a picture of something about them that will help you recall it. You glue the name to this image and then you quickly review it. That way, when you meet them again you call up the image and remember their name.

This all sounded simple while I was at the conference. Implementation is a little more difficult. It’s like going to a time management course or taking a golf lesson. It always sounds easy when you are in the class or on the range. Once you leave the instructor, though, the implementation becomes a lot harder. But it doesn’t mean it is not possible. Like most things, you really have to practice the technique and over time, you can master it and get much better. 

And speaking of memory, I recently finished a good book called Mistakes Were Made (but not by me) – Why We Justify Foolish Beliefs, Bad Decisions, and Hurtful Acts, by Carol Tavris and Elliott Aronson. The primary focus of the book was about cognitive dissonance and how as humans we are all prone to justify ourselves and avoid taking responsibility for our actions.

In the book, the authors talk about memory and how we tend to think that everything that has ever happened to us – our memories – are filed in our brain like a computer and it is just a matter of calling them up. While that may work for something simple like a name or number, in reality memories are not really buried intact in our brain. We do not remember everything that happens to us. Instead, we select only highlights that we construct – like stories.

Our memories create our stories and our stories create our memories. And sometimes the memory is really false, because the story we developed was fiction. I am sure you have had conversations where members of your family or friends have different versions of the same event or something that happened when you were younger – each person has their own interpretation or story. Another example is when eye witnesses to an event are interviewed by authorities and produce vastly different reports. They each remember what happened differently, because the memory was developed and sometimes embellished by them.

In the words of Cicero, “Memory is the treasury and guardian of all things.” Now, what the heck is that guy’s name? I know I have met him before.

Rotation Ruckus

Back in August (see my blog of 8/18/11), I wrote about PCAOB issuing a concept release that proposed requiring public companies to change their auditing firms after a certain number of years. I opined then that there did not appear to be sufficient evidence to support such a requirement, nor enough benefit provided in return for the costs that would be involved.

This week, Congress weighed in on this issue through a House subcommittee hearing at which some subcommittee members grilled the PCAOB chairman on this idea, as well as other issues related to PCAOB. There was one testy exchange where the subcommittee Chair Rep. Scott Garrett (R-NJ) told the PCAOB Chairman James Doty, “I think it is important to remind the PCAOB that it is not a policy-making entity; Congress and this committee are the policy makers. PCAOB’s job is to regulate and oversee the auditing profession. I am very concerned about some of the recent activist proposals put forth by the PCAOB. I agree with the Chamber of Commerce and others that believe the PCAOB is engaged in mission-creep, crossing the threshold of audit regulation in an attempt to regulate corporate governance…”

Bam! That’s the civilized version of the warden/boss man in the movie Cool Hand Luke saying, “what we have here is a failure to communicate” after he gets done beating the “you know what” out of Luke (aka, Paul Newman). If there was any doubt in Chairman Doty’s mind prior to the hearing as to who was in control, that little exchange probably took care of it.

While I have never testified before Congress, I have had the pleasure with a state legislature and the concepts are similar. The elected officials sit in an elevated position at the front of the room so they are looking down on you – the lowly witness. This is a physical reminder of the power structure at play just in case you are too stupid to understand it. And the elected officials can basically rip you in any way they like and there is not much you can do about it. They are running the show. So to some extent, my heart goes out to the PCAOB chairman because testifying at a Congressional or legislative hearing is not a fun place to be. 

Doty went on to explain that PCAOB had not actually proposed a requirement for auditor rotation, but merely issued a concept release to explore the idea. Honest fellas, we’re just talking about it! He also noted that other jurisdictions worldwide, including the European Commission, are proposing auditor rotation requirements.

This reference to the “world community” obviously played on the heart strings of Rep. Michael Fitzpatrick (R-PA), who immediately introduced legislation to amend SOX to prohibit PCAOB from requiring public companies to use specific auditors or requiring the use of different auditors on a rotating basis. Another little reminder to PCAOB – you can write regulations, but we (Congress) can write legislation that will trump your regulations. 

My guess is that we will not be seeing PCAOB implement an auditor rotation requirement anytime soon. Not unless they, like Cool Hand Luke, have an obstinace streak and enjoy getting hammered by the boss man.

Going Up

Earlier this week, the Congressional Budget Office (CBO) issued a new 10-year estimate on the cost of the Patient Protection and Affordable Care Act (ACA). The new estimated gross cost is about twice what was initially predicted a few years ago, rising from $940 billion to $1.76 trillion. This new estimate covers the 10-year period of 2013 through 2022. The original CBO estimate when the law was passed reflected 10 years of payments and only six years of coverage since full implementation of the law does not occur until 2014. So it is really no big surprise the cost is going up as coverage is implemented.

In this same report, the CBO reduced the estimated cost of the program through 2021 by $48 billion. The cost reductions are due to lower estimates for subsidies and tax credits associated with the new law’s planned insurance exchanges for individual coverage. So now Democrats and Republicans have both pounced on this same report to make arguments for and against the health care law. I suppose they are arguing it is raising and lowering costs at the same time. Only in Washington, D.C., can this kind of discussion happen. You can read the entire report and form your own conclusions by going to the CBO website at www.cbo.gov.

In addition to the new cost estimates, the CBO projected that about four million fewer people than originally estimated will obtain insurance through employers or through the insurance exchanges that the new law will establish by 2016. Some of those folks will have to be covered by government programs like Medicaid, thus causing the costs of that program to increase. But that’s on a different score card so it doesn’t count I guess.

My intent is not to argue for or against the ACA. There are plenty of folks doing that on both sides of the political spectrum. My gripe after reading this latest report from the CBO is the dismal track record of our government in estimating what this or any other program is going to end up costing taxpayers. And I have good reason based on our history.

For instance, in 1965 the House Ways & Means Committee estimated that the hospital insurance program of Medicare would cost $9 billion by 1990. The actual cost that year was $67 billion. In 1967, the Ways & Means Committee said the entire Medicare program would cost $12 billion in 1990. Actual cost - $98 billion. In 1987, Congress projected that Medicaid would make special relief payments to hospitals of less than $1 billion in 1992. Actual cost - $17 billion.

And it is not just health-related programs. Look at just about any government project or program and the cost overruns are always there whether it is building a new military aircraft or battleship, or building a road or bridge to somewhere or nowhere. It always ends up costing way more than they said it would. The financial mismanagement is bad enough, but over time this causes a loss of faith in government and that is even costlier – in my opinion.

In its report, the CBO did say that its estimates are “subject to substantial uncertainty.” Thanks for the warning. I never would have guessed.

Moving at Glacier Speed

Several years ago, we were told that in no time at all we would be heading toward the adoption of global accounting standards in the form of IFRS (International Financial Reporting Standards). You remember the theme – we operate in a global economy and having different sets of accounting standards around the world makes it too difficult for users/investors to make comparisons of financial statements. The phrase that was often used back then was, “the train has left the station” with respect to whether we would adopt IFRS. It all seemed to make sense.

Well, apparently it was not a high-speed or bullet train because we are still waiting for the adoption of IFRS in the United States. The whole process slowed down considerably a few years ago when a new administration came to town in Washington, D.C., and then there was also this little thing called the global financial meltdown along the way. So here we are a number of years later since this whole topic first erupted, and we are still waiting on an answer as to whether the U.S. will adopt IFRS. 

The SEC was supposed to report on this by the end of last year, but they are still not there yet. It hasn’t been adequately studied. Sort of like that XL Pipeline thing I guess. Just need a little more time. At least they haven’t said they have to wait until after the November election on this one. The latest out of the chief accountant at the SEC is that the SEC needs “at least a few more months” to produce a final report that would prepare the commission to decide on IFRS.

More recently, Hans Hoogervorst, the chairman of the IASB (the folks who produce IFRS) predicted that the SEC will adopt IFRS for U.S. issuers. “The U.S. ultimately will come on board. Quite simply, they need us and we need them.” This elicited a comment from the chair of the SEC, Mary Schapiro, of “I don’t feel any pressure to go along with anybody.” Hmmm. I guess Hans forgot to talk to Mary. But Hoogervorst did admit that the process could feel like “water torture.”   

So who knows what will eventually happen on IFRS. Will we adopt, converge, endorse, condorse or incorporate IFRS? I think that is the current list of potential ways to do it. Or perhaps we will just say “no.” While Hoogervorst seems to think the whole issue will be driven by logic (so did I at one point), he may need a lesson in the bullheadedness – I mean independence – of Americans. We don’t mind going it alone sometimes. Look up Kyoto Treaty or better yet recall the metric system they told us we were going to adopt when we were kids. I think we are still the only industrialized country using inches, feet and miles per hour. Although it would sound cool to say you saw someone throw a 161 KPH fastball!

"Auss"ome Opportunity

 I am a firm believer that when life presents you with an opportunity, you have to grab it and go for it. As the old saying goes – opportunity doesn’t knock twice. So when I was contacted several months ago about the chance to travel to Australia (Tasmania to be specific) to speak at, and participate in, a CEO Symposium being sponsored by Associations Forum of Australia, I jumped. And boy I’m glad I did.

This was my first trip to Australia, and in spite of the great distance (it’s a very loooong flight) and time to travel there, it was certainly worth the effort. Australia is an incredibly beautiful country and the “Aussies” are a very friendly and happy people. Of course, they do get to live in Australia, so you can understand why. While English is spoken in Australia, it is a different version with its own quirks and unique sayings. They actually do say G’Day Mate there, which translated into Texan means “howdy.”

 My hosts at Associations Forum (John Peacock, CEO, and all his staff, and Allen Blewitt, the Moderator for the Symposium) were most gracious, and they made Carolyn and I feel very welcome and at home. I found the association community in Australia is quite similar to ours here in the U.S. Their leaders are focused on, among other things, issues like building more competitive and sustainable organizations, using social media to better serve their members, and developing leadership that helps motivate employees and volunteer members. I commented that I felt like I was sitting in a conference here at home except for the accents of the speakers. They reminded me that I was the one with the accent!

In addition to attending the CEO Symposium, we got to spend some time exploring part of Australia. I say part because it is a big country similar in size to the U.S., so you aren’t going to do it all in a week to 10 days. But what we did get to see was quite impressive. Both Sydney and Melbourne (where we spent some time) are world-class cities, with modern amenities, but also lots of history. Each boasts parks and botanical gardens that are amazing to see and full of all kinds of plants and birds. The harbor in Sydney, with its famous bridge and Opera House, is extraordinary in its beauty. The Ocean Road out of Melbourne, and the beaches along it, was stunning.

Probably the most unique was Tasmania. It is an island the size of West Virginia, but with a wide variety of climates and demography. Its total population is 500,000, but almost half of that lives in the capital city of Hobart where the Symposium was held. The locals – known as “Tassies” – are a laid back lot who enjoy nature and the outdoors. The food and wine in Tasmania were outstanding and all locally grown. It is a hiker’s paradise that I hope one day we get to return to and explore more.

In the words of rockers Crosby Stills and Nash, “When you see the Southern Cross for the first time, you understand now why you came this way.” Having been to Australia, I finally get what they meant.

Here are a few pictures from the trip:

 

Myself, Premier Lara Giddings - Primier of Tasmania, Treasurer and Minister for the Arts and Alan Blewitt - Consultant, NFP Analysts Pty Ltd.

Remembering Your Why

We recently held our TSCPA Midyear Board of Directors meeting in College Station. It had been a while since we visited the Brazos Valley for our meeting, and the local chapter members were out to show us a good time. They accomplished their mission and we had a great meeting. The chapter treated us to Blue Bell Ice Cream during one of our breaks – always a good way to the heart of a Texan or anyone who likes ice cream – and they hosted entertainment at our reception – the Aggie Wranglers, a dance team from Texas A&M, although dancing doesn’t quite describe what these young people do. It is more like a dancing/gymnastic combo. I got worn out just watching them! Their talent and enthusiasm was inspiring. My thanks goes to all who attended our meeting and especially to our local chapter leaders – Lyn Kuciemba, Tracy Stewart and Linda Johnson. They made us feel welcome and at home during our brief stay. At the meeting, our current TSCPA Chairman, Donna Wesling, provided a brief update to the board on recent activities and issues, and I highlighted the results of a membership survey we conducted back in the fall. This information is important so that board members know what we have been doing. We spend a lot of time at TSCPA making sure members know what is going on and what we do for them. But it also got me thinking about the fact that while we are always making sure we tell our leaders and members what we do, perhaps we don’t focus enough on reminding them why we do it. Understanding and promoting your “why” is critical for any organization (or person). It helps employees and customers appreciate your purpose for being. What you do – actions, programs or services – are all results. So are money or profits. They don’t explain why you exist. They don’t define your purpose, cause or belief. You can get a better appreciation for this concept by reading some of the works of Simon Sinek. One of his books, Start With Why, explains that all highly successful organizations and people start with defining their why. They work the opposite of most people, who instead start with what they do, perhaps describe how they do it and rarely get to why they do it. Highly successful and innovative people always start with defining the “why” of what they do, and Sinek provides a number of real-life examples that are interesting to read about – Steve Jobs/Apple, the Wright Brothers and Dr. Martin Luther King. In the case of TSCPA, perhaps we can look to our founding members and how they described our “why” in the Articles of Incorporation of TSCPA: “The TSCPA is established to promote and maintain high professional and moral standards; to advance the profession of accountancy by research and cooperation with other organizations of professional accountants; to protect the interests of its members and of the general public; and to act in a representative capacity for the profession.” What’s your “why?” It’s worth thinking about.

New Year Prognostications

Well, it is a new year and I have been delinquent in blogging. A combination of the holidays, some vacation, a conference out of town and preparing for upcoming meetings got the better of me. Those are my excuses – legitimate or not. I have found in writing a blog for a few years now that it is a lot like exercising. You can always find an excuse as to why you are too busy to exercise. Or you can claim you don’t feel good or you are not in the mood to do it. The same is true of writing a blog. So I am climbing back on the wagon for my blog and, hopefully, I will get back into my routine.  

As we start a new year, it is a common time to make predictions and prognostications about various things. I thought I would go out on a limb and make some calls – professional, political and otherwise – just for the fun of it. Fortunately, my predictive powers are of no consequence other than how foolish I may look if most or none of them end up coming true. So here goes:

• The Financial Accounting Foundation (FAF) will end up adopting its proposal for a Private Company Standards Improvement Council (PCSIC) that will be subject to FASB. So there will not be a new independent board to establish standards or exceptions to GAAP for private companies. While this is not the outcome many wanted, it is still an improvement over the current situation and I am hopeful that with the increased focus and interest in this issue, some meaningful changes will actually start to occur for private companies.
• The SEC will not adopt IFRS for all U.S. companies, but will allow certain companies to use IFRS in making their filings. They will continue to encourage FASB and IASB to work on converging their standards, but they will support the U.S. maintaining its own standard-setting process.
• The Bush (actually they should now be the Bush/Obama) tax cuts/rates will not be renewed when they expire at year end. If Congress votes to extend them, the President will veto the legislation.
• President Obama will be re-elected with less than 50 percent of the vote. A third-party candidate will enter the race and affect the outcome.
• The Republicans will maintain their majority in the U.S. House of Representatives, but with a smaller margin.
• The Republicans will gain control of the U.S. Senate.
• The Texas Rangers will not make it back to the World Series. I really hope I am wrong about this one. But in the last 30 years, a team has gone to the World Series three consecutive years only four times. And only two teams have done it – Athletics and Yankees.
• The world will not end when the Mayan calendar does.
• Charles Barkley will regain some of the weight he has lost. Is anyone else tired of those Weight Watchers’ ads? And I like Charles!

Now on to exercising.

The Giving Season

Tis the season to be jolly – and to give gifts. The tradition of giving gifts at Christmas goes back centuries. Because gift-giving and many other aspects of the Christmas season involve heightened economic activity, among both Christians and non-Christians, the holiday has become a significant event and a key sales period for retailers and businesses. So Christmas is way beyond a religious holiday and has been for some time.

When I was a kid, the marketing for Christmas never started until after Thanksgiving. Now, you start to see Christmas advertisements and marketing right after Halloween, and Thanksgiving has been transformed into a major “kick-off” of the Christmas blitz. This year, there were a number of “Black Friday” events where shoppers went crazy. The economic impact of Christmas is a factor that has grown steadily over the past few centuries in many regions of the world. In the United States, it has been calculated that a quarter of all personal spending takes place during the Christmas/holiday shopping season.

While I personally do not care for the over-commercialization of Christmas that has occurred during my lifetime, the idea of gift giving is something I do like. I just think we have taken it “over the top” as we Americans seem to do with a lot of things.

It seems like giving is a human characteristic. We like to give gifts to others – those we know and those we don’t – because we like to make those we know and love feel good and we want to help those who are less fortunate than we are. Research shows that generosity directly benefits the well-being of those who give too, so maybe to some extent we also give to make ourselves feel good.

Research seems to confirm that proposition. One study from the University of British Columbia shows that people who give are happier than those who don’t. Even donating as little as $5 helped people feel better. A University of Oregon study showed that giving activates the same pleasure centers of the brain as receiving. And people who leave money to charity in their wills live three years longer than those who don’t, according to a U.K. study. (Our TSCPA Accounting Education Foundation would be happy to help you extend your life if you have an interest!) Other studies show a correlation between generosity and popularity. The more generous participants received more gifts back from others. So being generous and giving helps bring happiness, longevity and popularity if you believe the research.

But maybe we really didn’t need to do all that research. We could have just remembered what the fellow the holiday is named after said, “It is more blessed to give than to receive.”