by | ARTICLES, BLOG, RETIREMENT, SOCIAL SECURITY
The Wall Street Journal recently published a discussion on the pros and cons of privatizing Social Security (“Should Social Security Be Privatized?”, March 27). Gus Sauter did a decent job outlining the positive aspects of this pathway showing that privatization is better for both retirees and taxpayers. On the other hand, Nancy Altman claimed that privatization would weaken people’s economic security, but filled her argument with erroneous information.
Nancy claims that Social Security is insurance and not a retirement savings plan — but that could not be farther from the truth. A retirement plan is exactly what it is, is how it was sold, and how it is even referred to on the government’s Social Security website. The problem is that the amounts paid in are not invested and therefore not sufficient to pay the promised benefits, which the federal government fraudulently hides by not recording the true cost of the program in the annual budget.
Therein lies the problem. By not doing that with their accounting, the federal government is able to simultaneously mischaracterize Social Security as a tax that is drafted from every wage earner’s paycheck. If wage-earners had been given the option to save and invest their own money instead, they could have easily earned a better return on it; if they wanted more fiscal security, they could buy an annuity.
Nancy goes on to describe Social Security more “universal, secure, fair and efficient — but at the same exact time, her article casually mentions “a projected shortfall.” In fact, the projected shortfall is some $30 Trillion – which in fact shows that it is not universal secure or fair (since it is in fact insolvent), nor it is efficient (it has lower costs because it does not invest the funds it collects). Her solution of making higher earners pay more is duplicitous – it simply has higher earners make pension contributions that inure solely to other people (this is known in the real world as embezzlement).
Nancy claims that a minimum-wage worker pays 6.2% of his income in Social Security taxes, but a person earning $1 million contributes “only eight-tenths of 1% of all their wages.” But this would only be a valid point if the retirement pension was based proportionately on income. And she certainly knows that it is not. As it is, social security is already a welfare system, with higher earners getting benefits much less than proportional to the amount they contribute.
Nancy’s entire rationale for supporting Social Security? “Government is permanent.” It’s too bad that the prior generation’s funding For Social Security has already been spent — the antithesis of permanent. It would be laughable if it wasn’t so tragic. If we privatize Social Security, it would give folks at least a fighting chance with their own money.
by | ARTICLES, BUSINESS, ECONOMY, OBAMACARE, TAXES
Last year, Aetna announced it would cease providing insurance in 11 states. Then in April, Aetna said that it would leave Virginia and Iowa, leaving just a few states with Aetna coverage. Now, Aetna has announced that it will leave Obamacare altogether, citing cost as the major factor.
According to Bloomberg, “Aetna had indicated it might pull out earlier this month, when Chief Financial Officer Shawn Guertin said the company would take steps to limit its financial losses in the program. Aetna has said it expects to lose more than $200 million on individual health plans this year in the four states where it’s still selling Affordable Care Act plans.”
As has been the case with other insurers like Humana, who have left the healthcare system, Aetna has been derailed by the dysfunction of Obamacare: the amount of Obamacare enrollees has been far fewer than originally projected (off by nearly 50%!) and those who have signed up have been more ill than expected.
The recent enrollment period was abysmal. “A total of 9.2 million Americans signed up for plans sold on HealthCare.gov, which serves 39 states, by the close of open enrollment. That’s about 400,000 people fewer than had signed up last year.”
It’s clear that Obamacare has been a catastrophic financial failure, so it’s no wonder that insurers have continued to flee the system. It’s damage to the economy over the last few years has been brutal and yet Obamacare stalwarts continue to blame everyone else except themselves and a poorly written, poorly executed law. How to fix the irrevocable damage remains to be seen.
by | ARTICLES, BLOG, ECONOMY, FREEDOM
In this morning’s Washington Post, George Will penned a column proclaiming, “[G]ood news: You are as rich as John D. Rockefeller. Richer, actually.” Will drew inspiration for his column from my good friend Don Boudreaux, who is an economist at economist at George Mason University’s Mercatus Center and creator of one of my favorite blogs, Cafe Hayek.
“Boudreaux asks if you would accept this bargain: You can be as rich as Rockefeller was in 1916 if you consent to live in 1916.”
At various times on Cafe Hayek, Boudreaux explores the grandeur of being a billionaire 100 years ago along with the living conditions of the time and finds a stark contrast. As Will concurs, “Having bestowed the presidency on a candidate who described their country as a “hellhole” besieged by multitudes trying to get into it, Americans need an antidote for social hypochondria. So, thank Boudreaux for making you think about this: How large would your net worth have to be to get you to swap the life you are living in “hellhole” America for what that money could buy in 1916?”
Will’s article is worth reading in its entirety, and Boudreaux’s blog is invaluable for any serious student of economics.
by | ARTICLES, BLOG, OBAMACARE, TAXES
Americans For Tax Reform put together their usual compilation of taxes affecting a piece of legislation. They have been following the crushing Obamacare taxes for years; now they have a list of taxes that are abolished by the ACHA bill passed on Thursday, along with potential tax savings:
“The American Health Care Act (HR 1628) passed by the House today reduces taxes on the American people by over $1 trillion. The bill abolishes the following taxes imposed by Obama and the Democrat party in 2010 as part of Obamacare:
-Abolishes the Obamacare Individual Mandate Tax which hits 8 million Americans each year.
-Abolishes the Obamacare Employer Mandate Tax. Together with repeal of the Individual Mandate Tax repeal this is a $270 billion tax cut.
-Abolishes Obamacare’s Medicine Cabinet Tax which hits 20 million Americans with Health Savings Accounts and 30 million Americans with Flexible Spending Accounts. This is a $6 billion tax cut.
-Abolishes Obamacare’s Flexible Spending Account tax on 30 million Americans. This is a $20 billion tax cut.
-Abolishes Obamacare’s Chronic Care Tax on 10 million Americans with high out of pocket medical expenses. This is a $126 billion tax cut.
-Abolishes Obamacare’s HSA withdrawal tax. This is a $100 million tax cut.
-Abolishes Obamacare’s 10% excise tax on small businesses with indoor tanning services. This is a $600 million tax cut.
-Abolishes the Obamacare health insurance tax. This is a $145 billion tax cut.
-Abolishes the Obamacare 3.8% surtax on investment income. This is a $172 billion tax cut.
-Abolishes the Obamacare medical device tax. This is a $20 billion tax cut.
-Abolishes the Obamacare tax on prescription medicine. This is a $28 billion tax cut.
-Abolishes the Obamacare tax on retiree prescription drug coverage. This is a $2 billion tax cut.
As a presidential candidate in 2008, Barack Obama had promised repeatedly that he would not raise any tax on any American earning less than $250,000 per year. He broke the promise when he signed Obamacare. With the passage of the House GOP bill, tens of millions of middle income Americans will get tax relief from Obamacare’s long list of tax hikes.”
For a different analysis on the substance of the American Health Care Act (ACHA), see my piece on Michael Cannon and “community ratings.”
by | ARTICLES, BLOG, ECONOMY, GOVERNMENT, OBAMACARE
With the narrow passage of the GOP Healthcare bill this week, Michael Cannon wrote his critique of the legislation (GOP Healthcare Bill Is Not Repeal — It Is ObamaCare-lite, or Worse, May 4, 2017). Cannon is considered one of the foremost experts on Obamacare over the last 7 years. His displeasure with the bill focuses on problem of “community rating” inherent in Obamacare — which remains in the ACHA. Here are his principle concerns:
“House Republicans went behind closed doors and emerged with a bill that does not repeal the core provisions of ObamaCare, and therefore cannot begin to repair the damage those provisions are causing.
ObamaCare’s core provisions are the “community rating” price controls and other regulations that (supposedly) end discrimination against patients with preexisting conditions.
How badly do these government price controls fail at that task?
Community rating is the reason former president Bill Clinton called ObamaCare “the craziest thing in the world” where Americans “wind up with their premiums doubled and their coverage cut in half.”
Community rating is why women age 55 to 64 have seen the highest premium increases under ObamaCare. It is the principal reason ObamaCare has caused overall premiums to double in just four years.
Community rating literally penalizes quality coverage for the sick, to the point where Harvard economists found patients with multiple sclerosis and other high-cost conditions “cannot be adequately insured” under ObamaCare. It is the driving force behind ObamaCare’s narrow networks and the exclusion of premier hospitals.
Worst of all, community rating is taking health care away from the sick. Community rating has driven every last insurer from the Exchange in east Tennessee, leaving 43,000 Americans – including many with expensive conditions – with no coverage after December. It may soon do the same in Iowa, and another 1,000 counties that have only one insurer remaining in the Exchange.
Why? Because community rating forces insurance companies to cover the sick below cost, which simply isn’t sustainable. The only solution ObamaCare supporters offer is to keep throwing more money at the problem – which also isn’t sustainable.
ObamaCare is community rating. The AHCA does not repeal community rating. Therefore, the AHCA does not repeal ObamaCare. In fact, Republicans are modifying ObamaCare’s community-rating price controls and other regulations in ways that will accelerate ObamaCare’s race to the bottom.”
There is much more to Cannon’s piece than this, and it’s worth it to read in its entirety. The original piece was published on The Hill (Online) and reprinted via the CATO Institute.
For a different perspective on the ACHA, see my piece noting the list of Obamacare taxes abolished with this legislation.
by | ARTICLES, BLOG, ECONOMY, GOVERNMENT, POLITICS, TAXES, TRUMP
From the WSJ: “With Wednesday’s proposals—which include a 15% tax rate for all businesses, lower individual rates, a bigger standard deduction to benefit middle-income households and the repeal of the estate and alternative minimum taxes—Mr. Trump hopes to speed up economic growth and make his mark as a historic tax cutter.
What the administration delivered Wednesday largely hews to tax-cut proposals Mr. Trump made during his campaign last year, but includes some crucial changes. Most notably, he is proposing to repeal a provision of the tax code that allows individuals to deduct the state and local taxes they pay from their reportable income. That will hurt residents of high-tax states such as Mr. Trump’s home state of New York, New Jersey and California, and is already spurring objections from Republican lawmakers in those largely Democratic states.
Such a repeal has the potential to raise more than $1 trillion over a decade, which would help fund the reduction in rates and get the tax plan through Congress, which is focused on deficits in part because of budget rules.”
“Unless Mr. Trump can attract votes from Democrats—which appears unlikely—the plan must comply with legislative procedures that allow for a party-line vote in the Senate, where Republicans have 52 seats out of 100.
The key to those procedures: Any tax plan can’t increase budget deficits beyond a 10-year period. The Committee for a Responsible Federal Budget said Wednesday that the plan would cost about $5.5 trillion in lost revenue over a decade. Those limitations could lead Republicans to make some or all of the tax cuts temporary to limit the long-run fiscal effect.
Mr. Trump’s team intends to argue that his tax cuts will spur economic growth and increase revenue, which would help avert increased deficits. Lawmakers and Congress’s nonpartisan tax policy scorekeepers—the Joint Committee on Taxation—need to agree for the plan to proceed. Independent experts cautioned that the administration’s growth assumptions appear optimistic.”
As more details of this plan emerge, we can assess its merits and pitfalls.
by | ARTICLES, BLOG, ECONOMY, GOVERNMENT, OBAMACARE, POLITICS, TAXES, TRUMP
I’m sick and tired of reading over and over again in places both liberal and conservative that Trump’s (as well as the Republican’s) proposed tax reforms are going to give the lion’s share of the cuts to the top 1%. The entire concept is totally distorted.
In fact, nobody has been talking about the series of tax changes that occurred when Obama and his Democrat cronies passed the Obamacare increases. These raised the Bush tax rates on only the wealthiest from 36% – 39.6 % and then again raised the tax rates on the wealthiest by adding a net investment income tax (NIIT), otherwise known as the “Obamacare tax,” which covered all investment income. The increase also raised capital gains on the wealthiest ones from 15% – 20%. When the 3.8% tax would get tacked on, capital gains rates effectively went from 15%- 23.8% — an increase of about 55%. That’s ridiculous!
Those ludicrous tax increases were principally responsible — along with the hemorrhage of regulations coming out of the Obama administration — for the horrific economic performance since Obama took office. The first step of any meaningful tax reform should be to reverse those Obamacare tax increases, which went 100% to the higher income individuals, and 0% to the middle class and lower income. The reversal of those insane tax increases should in no way be considered a tax cut. It is just restoring what was in fact an egregious toxin on our entire economy.
by | ARTICLES, ECONOMY, FREEDOM, GOVERNMENT, POLITICS, TAXES, TRUMP
The clearest example yet of Media abuse of Donald Trump has surfaced in connection with the recently released excerpts from Pres. Trump’s 2005 federal income tax return. The return shows clearly and unambiguously that he paid an effective federal tax rate of 78.2%. Yet the press twisted the truth- outright lied – in reporting a tax rate of 25%, or even less.
It is outrageous that the media is distorting the true tax rate that Donald Trump paid for the 2005 tax year. His 1040 that was released last week showed that he paid an effective tax rate of 78.2% — not the 25% that some outlets are reporting (or the 5.3% figure that even other uninformed pundits have tried to peddle).
Let’s break this down: Trump’s Adjusted Gross Income (AGI) was reported to be $48.6 million. The AGI is an important number for all taxpayers, because it is derived from a taxpayer’s gross income net of allowable, rational, and legal adjustments to it. Every taxpayer reports an AGI and is the base figure from which taxable income amounts are calculated. Trump’s tax was $38million. Trump’s tax rate was effectively 78.2%: 38 million in federal taxes/48.6 million AGI = 78.2% tax rate.
In a clear attempt to avoid admitting that Trump paid such a high rate of tax, the pundits began manipulating and distorting the data. AGI was raised from $48.6 million to $152 million by arbitrarily – and inappropriately – adding back what appeared to be a $103 million perfectly legal carryover loss. Carryover loss provisions are necessary in that prevent people from paying taxes on profits that just restore losses that were actually incurred in a prior year.
Because Trump is a high income earner, he must calculate his taxes both by the regular tax rate and the Alternative Minimum Tax (AMT). The AMT is a parallel tax rate used by the IRS that disallows some or all legal deductions and credits that other taxpayers enjoy to ensure that such taxpayers pay “at least their fair share.” The AMT has been used for decades to collect more taxes by denying or minimizing income-reducing tax benefits that lower income-earners use. In Trump’s case, most of his deductions, including the carryover loss, were disallowed or reduced, resulting in his federal tax liability ultimately rising to $38 million.
That means on Trump’s AGI of $48.6 million, he paid $38 million in federal taxes.
It is always standard procedure to calculate one’s tax rate using the AGI as the starting point — not the gross income amount. No other politician (Romney, Obama, Clinton, etc.) has had tax rates calculated and published with other than their adjusted gross income as the base. Applying the standard used by the media for all other important figures, Trump’s tax rate was effectively 78.2%: 38 million in federal taxes/48.6 million AGI = 78.2% tax rate.
Continuing to focus on the $153 million as the starting point serves the media two purposes: 1) it makes Trump sound like a greedy capitalist who earned gobs of money and is out-of-touch with the average American; and 2) they want to highlight his $103 carryover loss as something that is unethical or wrong or a “sneaky loophole” that Trump should not have been allowed to do — even though virtually every business and investor makes uses of such tax provisions. Carryover losses are a necessary tax tool that is used as a means to continue to encourage investors who put up capital for long-term investments in the economy and deal with the ebb and flow of the market.
The real story here is this glaring example of the AMT creating yet another unfair and irrational burden on a taxpayer by siphoning extra tax revenue through the elimination and reduction of basic tax law provisions that other taxpayers enjoy. A 78.2% tax rate is extremely outrageous — about as outrageous as the media who ignores basic tax calculations in an effort to sensationalize and demonize Trump.
