RISCARIO INSIDER

May 25, 2013

THE REACTION TO APPLE’S TAX AVOIDANCE

Think different. Imagine your friend earns $1,000,000 and pays $600 in tax. Or earns $10,000,000 and pays $6,000. Well, on $30 billion of net income ($30,000,000,000), Apple paid $21,000,000 in tax. That’s a tax rate of 0.06%.

Exhibit #1a

According to a May 21, 2013 memo on offshore profit shifting (get the PDF)

"Apple Inc established an offshore subsidiary, Apple Operations International, which from 2009 to 2012 reported net income of $30bn, but declined to declare any tax residence, filed no corporate income tax return and paid no corporate income taxes to any national government for five years.“

Apparently, Apple didn’t do anything illegal and has been named the most valuable global brand by Marketing Week.

“We not only comply with the laws, we comply with the spirit of the laws.”
— Tim Cook (May 21, 2013)

Jon Stewart | Tax Men | Apple (click to watch on The Daily Show)

Really? Since the 1980s, Apple has been avoiding tax and invented strategies like the “double Irish with a Dutch sandwich” (InfoWorld, May 24, 2013). Apple’s creativity cost Americans $44 billion in tax revenue in the last 4 years (including $9 billion in 2012) (Bloomberg, May 21, 2013).

In 1952, corporations paid 32.1% of all federal taxes. That’s dropped to 8.9% today. Government expenditures have grown in the last 60 years. Who’s making up the shortfall?

The Scope

Tax avoidance isn’t restricted to Apple or the US. Canadian companies are clever too with “nearly $60 billion flowing from Canada to Barbados, which has a statutory tax rate of roughly 2 per cent for foreign firms” (Global News, May 21, 2013).

Muted Response

Money spent lobbying in 2012 (click to read article on Apple Insider)

There hasn’t been much outrage about what Apple is doing. Some senators even congratulated the company.

On minimizing taxes, Senator Rand Paul said, “It would probably be malpractice for them not to do so”. He even said “I frankly think the committee should apologize to Apple.”

Perhaps lobbying is a factor. Apple is relatively small, spending $2 million in 2012 and an estimated $4 million in 2013. Google is the biggest spender — $18 million in 2012. If there’s no effect, why spend the money?

Fair Share

Whether you consider Apple and other tax avoiders heroes or villains, ask yourself this: how do you feel about the taxes you pay?

Podcast 221

(note: poor recording quality due to microphone problems)

direct download | Internet Archive page | iTunes

PS Imagine what’s going on that we don’t even know about.

May 18, 2013

TIPS FOR FIRST-TIME LIFE INSURANCE BUYERS

Buying life insurance is a sign of maturity. You care enough to protect your family if you are no longer here. Or, if you're single, you avoid burdening others with unpaid financial obligations.

Since life changing events — the purchase of a home or the birth of a child — no longer trigger insurance sales, your actions even more commendable.

Here are mistakes to avoid.

Don't Buy On Price

Insurers create products using the same ingredients: mortality, interest and expenses. If one product looks cheaper, you may not be getting the same quality, features or guarantees. Why would that insurer knowingly choose to earn lower profits?

You can’t buy based on brand name either. Following the building collapse which killed 1,100 people, Benetton, Calvin Klein, H&M, Marks & Spencer and Tommy Hilfiger signed the Accord of Fire and Building Safety in Bangladesh. Companies which refused to participate include Foot Locker, Gap, OshKosh, Macys, Sears, Target, The North Face and Walmart. Maybe this matters to you.

Life insurance is a promise. Will your (legitimate) claim be paid? Probably, but some companies are better at keeping promises. Buying from an insurer ranked high in corporate governance might cost a little more but give you more peace of mind.

Look Beyond Today’s Price

Term 10 insurance looks inexpensive until you look at big increase when you renew. This week, I saw a case where rates increased by 569%. Where will the money to pay for that increase come from? If you're buying primarily to cover a mortgage maybe you want Term 20 if you expect to have paid off your mortgage by then.

Stay fit. You buy insurance with your health. Rates will spike with term insurance. If you're healthy, you can apply for new insurance which will often be much cheaper.

Avoid Buying From A Bank

Banks cut costs to benefit their shareholders (e.g., the RBC-iGate saga). Banks are not known for offering the best value to their customers. They sell unaccountable products like mortgage life insurance. What are they doing to put your best interests first? Why would they change if people still buy?

Avoid Buying From An Association

You might be offered insurance through your alumni or professional association. The rates are rarely guaranteed, healthy lives subsidize the unhealthy, you don’t have any say in selecting the insurer and you have limited flexibility in the products.

Insurance companies pay compensation regardless of whether sales are made through an association, a bank or an advisor. You might want to support your association. Fine. Can you make a donation and get tax savings? When buying insurance, look out for yourself first.

Your needs will change over time. If you eventually need the flexibility and guarantees of personal life insurance, you might as well start now.

Avoid Buying Through Your Employer

You may have some life insurance coverage from your employer (say twice your salary). If that's not enough — it probably is not — you may be able to add more. Avoid this temptation. You have more options, guarantees and flexibility if you buy your own coverage. Buy privately and you also get privacy.

If you lose your job, you likely have a month to convert your group coverage to personal coverage without underwriting. This option may not be explained well. You may not appreciate the value because you're in an emotional state. You might think you'll get another job within days and get coverage there. There may be delays …

You don't want to be shopping for insurance when you’re also looking for work. If you have already built the habit of paying for your insurance, it's much easier than adding a new expense at a traumatic time. Some permanent plans let you skip premiums, which improves your cash flow at just the right time.

Avoid Young Advisors

Advisors have natural markets and tend to sell to people their own age range. New advisors tend to be young. First-time buyers tend to be young too. Two inexperienced parties, do not make a great combination. You won’t save money since products tend to sell at the same price wherever you buy.

Unfortunately, you may not be able to get help from experienced advisor because you are a relatively small client.

Avoid Old Advisors

You might consider the same advisor your parents use. Generation gap. That advisor may be out of touch with your needs. You’re also mismatched. An older advisor has much more experience selling than you do in buying (not just insurance, but in general).

You may feel reluctant to ask questions or feel pressured to accept recommendations you don’t fully understand. Older doesn’t mean wiser, either. You might get proposals better suited to yesteryear.

Don’t Overlook Health Insurance

It's tempting to only buy life insurance. That’s risky. During your working years, you’re more likely to get sick or disabled than die. That's why life coverage costs much less than critical illness insurance or income replacement insurance.

The problem is finding money to pay for all these forms of insurance. You could take money that you're saving for other purposes such as retirement.

Making optimal decisions takes care. Buyer beware.

Podcast 220

direct download | Internet Archive page | iTunes

PS Feel free to comment or ask questions below