The Cost of Obamacare


 

OLYMPUS DIGITAL CAMERAI was talking to a gentleman today who works part-time as a professor at a local community college.  He also spends part-time running a local non-profit.  His experience shows why the recovery from the 2008 recession has been so slow.

When the Affordable Care Act, a.k.a. Obamacare, was forced through Congress by the thinnest of margins, one issue pointed out was that it discouraged employment.  This is because the law requires a company provide healthcare to employees who work for more than 30 hours per week.  It also requires employers with greater than 50 employees to offer health insurance.  This creates a digital change in the cost per employee.  If you give someone a few extra hours per week, your cost for that employee may jump by $8,000 per year or more.  Even worse, if you add another employee to the payrolls and pass the 50 person threshold, your cost may just by $8,000 per employee per year, or $400,000 for a 50 person company.  This is a recipe to reduce hours and keep companies from creating jobs.

While the intentions of the law were good – get everybody health insurance – the way it penalizes businesses who go above a certain threshold is a bad idea.  It has caused businesses to cut people’s hours to stay below the threshold.  Likewise, it has caused businesses to not expand and hire more people because they can’t pay for the huge cost of adding healthcare for all of their employees.

The gentleman I was speaking to saw his hours cut at the college because they could not afford to pay for health insurance for him and others like him who were not full-time professors.  For the individual, this means that not only do they not have health insurance, but they also have less money in general to pay for things like healthcare, food, and housing.  This makes people drop out of the workforce entirely so that they can get Medicaid.  Otherwise, they may need to work a few part-time jobs because they cannot get a single full-time job.

So is there an answer to healthcare?  I think that there is a solution that will work for most people, and for the number remaining it would be easy to take care of them.  It involves going back to the way healthcare was paid for before health insurance was offered through work, but adding a measure of personal responsibility.  It involves the following:

  1.  Everyone who is working is required to put 10% of their salary away into a health savings account for their immediate family.  This account is disconnected from their job – it is money sitting there waiting for them when they need it whether they are working at the time or not.  Lower income workers would receive a subsidy to boost their contributions.
  2. Parents are required to put away $500 per child per year into a health savings account for their children from the time their children are born until they turn 18.  That means the child will have a starter HSA of $9,000 when they leave the house.  Parents can contribute more if needed.  Poorer parents would get a subsidy.
  3. Individuals would be required to purchase major medical insurance.  They could choose policies that pay for bills that exceed certain thresholds, such as $5,000, $10,000, or $20,000.  Choosing a higher threshold would require enough money be saved in the HSA to cover the deductible.  Higher thresholds would charge lower premiums, encouraging individuals to keep the balance in their HSAs high to reduce their major medical insurance bills.  These policies would cover all medical costs after the individual met the threshold and would continue to pay for that condition.
  4. Doctors would be required to post their rates for procedures so that individuals could determine the price of services and compare among providers.  Doctors could also have flat rates per year and sell healthcare plans.

The reason that this plan would work is that most individuals would have the money needed to pay for care when needed, meaning that people wouldn’t be hit with outrageous bills that are the result of many people not paying their bills.  Because the bills would be more reasonable, more people would be able to just pay their bills.  The major medical insurance means that most people would also be able to pay for the rare, high cost events like major surgeries and accidents.

This would also disconnect health insurance from employment, resulting in increased employment, increasing the amount of goods and services produces, leaving people better able to take care of themselves. and improving the economy.  This in turn would further lower healthcare costs since it would increase the percentage of people who could pay their medical bills.  Soon, the ability to pay for healthcare costs would be as common as the ability to pay for food and most people would be paying their costs out-of-pocket, saving their HSAs for the rare major expense..

Contact me at vtsioriginal@yahoo.com, or leave a comment.

Disclaimer: This blog is not meant to give financial planning advice, it gives information on a specific investment strategy and picking stocks. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

It’s Tax Day – Thank your Boss


 

Coffee money

In a speech in New York Hillary Clinton slammed the Sanders “free college for all” plan because it would mean that even Donald Trump’s children would have their college costs covered.  How terrible that these evil, sinful, malevolent people might have their college costs paid for.  Their crime?  Their parents make too much money.

I am not one of the top 1% of income earners, but I think this tax day we should give those who are a huge, “Thank you.”  I am sick of seeing the people who create the engines that create most of the products we use and who provide jobs for the majority of people be demonized.  I am equally tired of seeing the people who pay for most of the government services we enjoy being scorned.  “How dare they get to have their children go to college using some of the money they paid in taxes.  They must be punished for their deeds.”

I’m in the process of filing my taxes.  I’m only in the 25% bracket, but I hate to seeing $250 taken from each additional $1,000 I earn.  If I work over and earn some extra money, I need to work a quarter of the time for free.  I can’t imagine seeing 40% of my time spent working to pay taxes and only seeing 60% of my time result in additional income.

I can understand how Ronald Reagan said that if he had already made a movie or two during a year, he might pass up the chance to do the next one.  This was when rates were extremely high for the top earners – approaching 90% –   so it really didn’t make sense for him to leave the poolside and spend several weeks working long hours to make another movie.  He would only get paid for 10% of his time.  Would you make a third movie if you got paid $100,000 for that one but got paid $1,000,000 for each of the first two?   And when he didn’t make the movie, it meant all of the supporting actors, crew, and caterers didn’t work either.   This is why the economy took off after he cut back the top tax rates – productive people were spending more of their time working, which in turn meant other people were working as well.

So before you complain that the rich aren’t paying “their fair share,” imagine writing a check for $400,000 to the government for your taxes this year.  Think about the home they could have bought with that money.  Think of the early mornings they arrived at the office and the late hours they spent finishing up the work needed to build the company at which you now work.  Think of the years they spent without a paycheck and borrowing from relatives to get their company off of the ground.  Sure, there are a few trust fund babies that live off of record royalties or the work of their parents, but most of the people paying those top rates spent a lot of time and effort building the machine needed to make that income, and they probably lifted a lot of other people up with them along the way.

So this tax day, thank a high earner.  Thank her for your job.  Thank him for paying for the train you ride.  Thank her for the school your children attend.  Thank him for helping to pay to keep your family safe.  If you aren’t thankful, then send in more in taxes until you pay out 30-35% of your income.  I guarantee the IRS will accept the extra money.  There’s even a space on the form.

Your investing questions are wanted. Please send tovtsioriginal@yahoo.com or leave in a comment.

Follow on Twitter to get news about new articles. @SmallIvy_SI

Disclaimer: This blog is not meant to give financial planning or tax advice. It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

 

 

How to Never File Taxes Again


"Come and Take It" Flag from Revolutionary War
“Come and Take It” Flag from Revolutionary War

How would you like to never need to file taxes again?  Never save a receipt.  Never worry about making a contribution to your IRA before April 15th again.  Never need to give your Social Security number to your employer, or even have a social security number at all.  How would this be possible?

The answer is the Fair Tax.  The Fair Tax would replace all federal income taxes and payroll taxes with a national sales tax on new goods sold.  This means that you would get your whole paycheck (there would be no withholding) and then only pay taxes when you buy things.  Any money you save and invest would not be taxed until you cashed in your investments and bought something.

But wouldn’t this be a regressive tax, hitting those at the bottom who needed to spend most of their income by necessity, while those who made a lot of money would pay very little?

The answer is “no,” because the Fair Tax also includes a prebate, by which everyone receives a check at the beginning of the year or the beginning of each month that covers the taxes for a certain level of income.  For example, if the Fair Tax was 20% and you got a prebate of $5,000 per year, you would not be paying any taxes until you spent $25,000 of income.  This mean that people making up to $25,000 per year would not pay any taxes even if they spent all of their money.  People making $10,000 per year would actually be getting more back than they paid since they would be paying at most $2,000 in taxes but receiving $6,000 in their prebate.  You could set the prebate at whatever level you wanted to exempt enough spending to cover basic necessities.

But 20% in taxes seems high.  Isn’t that a lot more than I pay now?

Probably not.  Even if you’re in the lowest tax bracket, you’re paying about 10% of your income in taxes plus 13% in payroll taxes (Social Security and Medicare).  This means that you’re paying 23% on all of your income even if you save it all.  The other factor is that corporations wouldn’t be paying taxes on income either, which means they could lower their prices because they wouldn’t need to spend so much money on tax planning and taxes.  Plus, you wouldn’t need to spend your time or your money preparing your taxes and keeping records, which represents another savings.  Think of all of the money wasted preparing tax returns and filing receipts.

Is that it?  Any other advantages?

The biggest advantage is that you would no longer need to keep records.  Just as you don’t need to keep records with state sales tax, you wouldn’t need to keep anything for federal taxes.  You’d just buy something, pay the tax, and be done.  The only ones the IRS would need to check on is the merchants, meaning there would be a lot fewer IRS agents needed.

So, we could fund the country but get rid of all of the paperwork.  We’d pay less since there would be a lot less money being spent on tax compliance, tax avoidance, and record keeping.

So where do I sign up?

Write to your representative and both senators at least once a year (how about April 15th) requesting they enact the Fair Tax.  You can email them from the government sites for the House and Senate.  Plus, tell a friend, or two or three.  Tweet about the Fair Tax.  Put a post on FaceBook.  People who hear about the Fair Tax generally like it – it is just a matter of educating people. It will take time (change is always difficult to create), but if enough people write and request it, it will happen.

Got and investing question? Please send it to vtsioriginal@yahoo.com or leave in a comment.

Follow on Twitter to get news about new articles. @SmallIvy_SI

Disclaimer: This blog is not meant to give financial planning or tax advice. It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.