Archive | October, 2011

Cutting Medicare and Social Security benefits: senior citizens do not have a right to special treatment. AARP is doing America a great disservice.

31 Oct

While the AARP runs TV ads threatening politicians that 50 million seniors will get even on election day if they touch Social Security or Medicare, there are a few of us who see it differently.  Take this comment from a blog post of mine that I fully agree with.

Keep up the good work. Some of us older folks who have been on “senior wefare” enjoying the unwarranted payments from Medicare and Social Security look in horror at the bills to be paid by our kids and grandkids. AARP, the largest special interest group in the country, has just sent out a request to contact our representatives to preserve our Social Security and Medicare benefits. It seems as if seniors should not have to share in the effort to reduce our national debt.

* * * * * * * * * * * *

From the AARP website:

AARP’s new national television ad tells lawmakers to cut waste and tax loopholes, not Social Security and Medicare. It urges lawmakers not to treat seniors like line items in a budget and lets them know that 50 million seniors are counting on them to protect their benefits.

Cuts to Medicare and Social Security benefits could:

dramatically increase health care costs for seniors and future retirees.
threaten seniors’ access to doctors and hospitals.
reduce the benefit checks seniors rely on to pay their bills.

Watch the latest advocacy video from AARP telling lawmakers that “before you even think” about cutting Medicare or Social Security, remember the 50 million seniors who have earned their benefits. Seniors are putting Washington on notice that they will speak out as long as Medicare and Social Security benefits are threatened .

Those of us who paid our Social Security taxes for decades must realize that those taxes paid the benefits of Social Security recipients during those decades and the surplus purchased special treasury bonds. Today the incoming taxes are insufficient to pay our benefits and those payments are supplemented by interest on bonds…there is no surplus to purchase bonds for our children.

Oops, the next generation wants theirs too.

Medicare is funded by a combination of payroll taxes, general revenue and current premiums. We may count on these benefits because we assume they will always be there, but we have been and are paying only a fraction of the cost.

Consider this from

“In 1959, seniors were the poorest demographic cohort, with 35 percent living in poverty, compared with 27 percent of children in poor families. In 2010, only 9 percent of people age 65 and older were poor, while 22 percent of those under 18 were living in poverty, according to U.S. Census Bureau data.

The trend coincides with a generational gap in federal spending. In 2008, per capita federal spending on those 19 and younger was $3,660, compared with $23,900 for those 65 and older, according to a report by the Urban Institute and Brookings in Washington.”

Have we “earned” our benefits any more than younger people have earned the right to support their families and save for their futures?  Have we earned these benefits so that we have a right to take more from future generations?

The AARP wants to cut waste and loopholes, so does everyone else. Except even if that is done, less spending and more revenue is needed for many areas of the federal budget, not just Social Security and Medicare although those two items equal more than forty percent of federal spending.

We seniors have a right to be treated fairly along with all other Americans. We do not have a right to be protected as a special class. We do not have a right to have our benefits protected to the detriment of others.

Nobody is talking about reducing benefits for existing beneficiaries, or reducing benefit checks. What has to be done is to reduce the future long-term liability of these programs and that means changing the growth of future benefits and asking future generations to pay more for these generous benefits. It may also mean that us seniors who no longer pay Social Security or Medicare taxes will have to give up some of our health care flexibility and pay a bit more for services. Why should it be otherwise for the common good?

Tell the AARP to go sell insurance.

Why do our laws discourage marriage?

30 Oct

Given the declining status of marriage in general it seems strange that tax laws are inclined to further provide an incentive to avoid tying the knot. Look at all the limits on family income for things like contributions to IRAs. They are never twice that of two single people, but less.

Consider the popular definition of “wealthy” these days, $200,000 for a single person and $250,000 for a married couple. So, a couple of living together each earning $200,000 can avoid higher taxes and the stigma of being in the 1% simply by avoiding the official seal of approval on their relationship, but a married couple earning

Married Couple in a Garden WGA

What's living together?

$400,000 are “millionaires” or is it billionaires? Two people each earning $150,000 are ok, but if they marry, OWS camps on their lawn.

Similar discrepancies apply to Social Security and welfare programs. In this day and age when we easily redefine marriage to the point you may be able to marry your pet turtle, it seems like the fairness of our laws is lagging.

2012 Medicare Part B premium increase only 3.6% after three years. Is there mischief afoot? How realistic are the CMS assumptions?

28 Oct

The Center for Medicare and Medicaid Services (CMS) has announced the 2012 Medicare Part B premium to be $99.90.

Me thinks there is mischief afoot.

While I have no figures to support this, but only forty years of experience developing premiums for employer plans, the Part B premium increase doesn’t add up.  Let’s think about this. A premium is $96.40 in 2009 and $99.90 in 2012. That’s a $3.50 increase or 3.6% (coincidently the same percentage as the increase in Social Security benefits) after three years of health care trend inflation or about 1.2% a year. Does that sound reasonable?  The Part B premium increase is constrained to some extent because the cost increase is spread over all beneficiaries unlike the past several years, bet even so, what’s up?  Keep reading.

On top of that the Part B deductible is decreasing by $22. Why?  The Part A hospital deductible increases slightly to $1156.

In 1967, the first year after Medicare had enrolled beneficiaries, the Part B deductible was $50. If that $50 had kept pace with general (not even medical) inflation, it would be $340 today. However, up until 2005 the deductible was fixed by Congress. Thereafter it is indexed to the increase in Part B costs for beneficiaries, so how does it go down even if there is only a modest increase in beneficiary costs?

According to an article in Kaiser Health News:

Officials attributed the premium surprise to several factors, including lower-than-expected use of medical care and slower cost growth. “Some areas of the program where we’ve had high spikes in the past have been virtually flat in spending growth, so I think today’s announcement just confirms a data trend of much lower utilization and spending growth throughout the Medicare program,” said Jonathan Blum, deputy administrator and director for Medicare at the Centers for Medicare and Medicaid Services.

However, the Medicare Trustees said this in their 2011 annual report released only five months ago in May 2011:

Part B costs, however, have been increasing rapidly, having averaged 6.9 percent annual growth over the last 5 years, and are likely to continue doing so. Under current law, an average annual growth rate of 4.7 percent is projected for the next 5 years. This rate is unrealistically constrained due to a physician fee reduction of over 29 percent that would occur in 2012 under current law. If Congress overrides this reduction, as they have for 2003 through 2011, the Part B growth rate would instead average 7.5 percent.

Kathleen Sebelius

You're doing a heck of a job, but how?

Is CMS now saying the trend in utilization is only about 1.2% a year and is expected to stay that way in the foreseeable future? Apparently they are. And why would you ever decrease a deductible, ever even if you had a good experience year? In this case it’s no doubt some shortsighted provision of the law.

Yet at the same time CMS officials are touting the growing use of “free” preventive services by seniors while Medicare benefits have expanded. In addition, CMS officials say the very modest premium increase assumes that Congress will not, repeat will not allow a nearly 30% cut in physician payment to go into effect in January. And no, this “good news” has nothing to do with health care reform.

Nope, something just doesn’t add up. After three years of growth we see only a 3.6% increase in premiums just five months after the Trustees Report say costs were rising at 6.9% and assuming the cut in physician fees does not take place, will rise at 7.5% in the future.   At the same time CMS says its 3.6% increase for 2012 assumes that the physician cut does not take place.

If you don’t believe the figures, read the statement below.

“Because we’ve kept next year’s premium increase lower than the cost of living adjustment to seniors’ Social Security benefits, the typical retired worker will have nearly $40 more per month in their pocket next year,” said HHS Secretary Kathleen Sebelius.

“Because we’ve kept next year’s premium increase lower…”. It’s the “we’ve kept” you have to worry about.

2012 Medicare Part B premium announced – lower than projected.

27 Oct

The U.S. Department of Health and Human Services (HHS) announced that Medicare Part B premiums in 2012 will be lower than previously projected and the Part B deductible will decrease by $22. While the Medicare Trustees predicted monthly premiums would be $106.60, premiums will instead be $99.90. Earlier this year, HHS announced that average Medicare Advantage premiums would decrease by four percent and premiums paid for Medicare’s prescription drug plans would remain virtually unchanged.

Medicare Part B covers physicians’ services, outpatient hospital services, certain home health services, durable medical equipment, and other items. In 2012, the “standard” Medicare Part B premium will be $99.90. This is a $15.50 decrease over the standard 2011 premium of $115.40 paid by new enrollees and higher income Medicare beneficiaries and by Medicaid on behalf of low-income enrollees.

What do colleges and hospitals have in common? You think they are social agencies.

25 Oct

Why do hospitals advertise, why do we contribute to hospitals, can a for profit hospital control costs? Do we understand the cost of our perception of hospitals?

Read my blog post on Health Insurance Illuminated.

The promise of Accountable Care Organizations (ACOs), hopefully not as illusive as it appears. Can you manage care without the patient involved?

24 Oct
Centers for Medicare and Medicaid Services (Me...

Better coordination of health care; something I and many others have harped on for years and most recently after first hand experience with the health care system. The Affordable Care Act attempts to address this issue for Medicare by encouraging formation of Accountable Care Organizations (ACO) including providing financial incentives through shared savings. Nobody should argue with such a goal focused on better, more coordinated care. Whether it can work for the Medicare population, whether there can be accurate measures of success and whether health care providers will embrace it to a high degree remains to be seen. The Center for Medicare and Medicaid (CMS) recently made their initial rules more flexible after receiving over 1,000 comments.

However, to be effective doctors, hospitals, long-term care facilities and other providers must form an organization that provides all or most of a Medicare patients (primary) care. The determination of this is made after the fact and since no limitations are placed on patients as to where they receive care it is hard to see how effective this can be. It is like expecting the results of a closed panel HMO from a more traditional health insurance preferred provider organization (PPO). For example, a patient may receive all primary care from the ACO doctor, but expensive surgery and follow-up care from providers not associated with the ACO and yet the ACO would be deemed responsible for coordinating care. It’s managed care for everyone except the patient.

 No doubt the assumption is that providers of primary care will refer all Medicare patients to members of the ACO.  That’s a heck of a lot of coordination. Some large health networks or groups may already be positioned for this effort, but in theory they already are coordinating patient care with positive results.

 Here are some excerpts from the CMS press release

The two initiatives launched today – the Medicare Shared Savings Program and the Advance Payment model – will help providers form Accountable Care Organizations and reflect the significant input provided by stakeholders as well as lessons learned by innovators in care coordination in the private sector.  

 The Medicare Shared Savings Program will provide incentives for participating health care providers who agree to work together and become accountable for coordinating care for patients.  Providers who band together through this model and who meet certain quality standards based upon, among other measures, patient outcomes and care coordination among the provider team, may share in savings they achieve for the Medicare program.  The higher the quality of care providers deliver, the more shared savings the providers may keep.  

The Advance Payment model will provide additional support to physician-owned and rural providers participating in the Medicare Shared Savings Program who also would benefit from additional start-up resources to build the necessary infrastructure, such as new staff or information technology systems.  The advanced payments would be recovered from any future shared savings achieved by the Accountable Care Organization. 

“As a physician I understand the complexities of caring for a patient who may have multiple providers,” said Donald M. Berwick, M.D., administrator of the Centers for Medicare & Medicaid Services (CMS).  “This opportunity to coordinate care among providers could greatly improve the quality of care Medicare beneficiaries receive.”

Both the Medicare Shared Savings Program and Advance Payment model create incentives for health care providers to work together to treat an individual patient across care settings – including doctors’ offices, hospitals, and long-term care facilities. 

Unlike a managed care plan, Medicare beneficiaries will not be locked into a restricted panel of providers.  Rather, a determination of whether an Accountable Care Organization was responsible for coordinating care for a beneficiary will be based on whether that person received most of their primary care services from the organization.

Ask your doctor what he or she knows about Accountable Care Organizations.

  • ACO Final Rule Released (
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Social Security payroll tax cut for 2012 is a risky bet and not all it appears to be

22 Oct

I am not an economist, I have no mathematical models or sophisticated programs to project anything. However, I do have a great deal of experience dealing with people and their perceptions about money, retirement, savings and health care. For this modest reason alone I must question the wisdom of another cut in the Social Security payroll tax. What gives me the first clue of concern? It’s the spin. Read the papers and you will see that for 2012 the Obama jobs proposal will cut the employes payroll tax in half. For example:

“The President asked for a $175 billion one-year extension and expansion of the employee payroll tax holiday now in place, halving the tax rate to 3.1 percent in 2012.”

Here’s the problem, the payroll tax is already cut from 6.2% to 4.2% in 2011 so a further reduction to 3.1 is not halving the tax but reducing it by 26%. In addition, the results of that “stimulus” are hard to see. Did you even notice the difference in your pay, what did you do with this windfall? A further cut to 3.1% will add about $10.50 a week (before taxes) to the average family’s income. Will this stimulate your spending? And, keep in mind this plan has no impact on the spending by one sixth of the population that is retired and collecting Social Security today. Despite the perception of all-encompassing poverty, this group has a great deal of spending potential.

In addition, the 2012 plan calls for a tax reduction for employers under several conditions.

This reduction in Social Security payroll tax will cost the Social Security trust fund $240 billion. Or, you can accept this estimate:

The tax cut would cause a $289 billion loss in Social Security revenues, which would be replaced by general tax revenue funds transferred from the Treasury.

Social Security is already short $49 billion a year because of higher benefits and lower payroll taxes. In the past the incoming taxes were more than enough to pay benefits. That is no longer the case.

Under the Obama jobs plan general revenue would replace the lost revenue to the Social Security Trust Fund by issuing more Treasury Bonds (debt) which would be offset by higher income taxes on the “wealthy” or under the Reid plan, just on real millionaires. You can be sure these additional taxes will not be temporary for the length of the payroll tax holiday, so now more taxes are in the mix to be spent in the future.

This plan would put an end to the myth that Social Security has no impact on the budget or deficit.

But the real unanswered question for me is what happens at the end of 2012? Once Americans have become accustomed to this extra cash in their pockets, how will they react to a 3.1% cut in pay when the tax is restored, a cut larger than most pay raises (if any) given in a year.  Have our policymakers thought of that?

Will people then reduce their spending, cut retirement savings, hide more of their income or simply Occupy Pennsylvania Avenue? Will employers retain the people they were encouraged to hire when their tax break ends? Even worse is the possibility that gutless politicians will not have the nerve to reinstate the tax thereby assuring that Social Security falls into the abyss of the federal budget. There are worse possibilities of course like politicians convincing people that the shortfall should be permanently shifted to Wall Street and all those millionaires and billionaires who don’t pay their fair share thus making certain Social Security become the largest of welfare systems.

Installation of a sidewalk in Middletown, Rhod...

The sign maker had employment stimulated

The bet is that by the end of 2012 the economy will improve, more workers will be on the job paying Social Security and other taxes, more spending will occur and all the rest that goes with a recovery. Given that the 2009 Economic Recovery and Reinvestment Act  and the current tax holiday seem to have had minimal positive outcome (I know, it saved jobs), this all seems like a risky bet to me.

Let’s hope it has been well thought out beyond November 2012.

Opportunity is dead in America and it’s all the fault of the 1%

21 Oct

A view from the left. Here is a brief excerpt from an article on the Center for American Progress website. The entire article can be read here.

Shrinking income mobility

Massive inequality might well be easier to bear if people felt higher incomes were within their reach, by dint of hard work and education. But the rising inequality fueling the social protests also comes at a time when it’s harder to move from one income class to another.

The American Dream story holds that this country’s greatness is grounded in the ability of its citizens to rise to the top. In fact, the United States now lags behind other developed countries such as Denmark, Finland, Norway, and Sweden when it comes to economic mobility.

“There is no evidence that opportunity has increased in a way that might offset the slower and less broadly shared growth of income and wealth that families have experienced,” according to Brookings Institution scholar Isabel Sawhill. That’s the stuff of Middle Eastern despair, not American Dreams. Makes you want to take the streets and yell at somebody.

“No evidence that opportunity has increased?” Are they kidding? Has opportunity decreased? Opportunity is always there for those seeking it and who do not make self-destructive life decisions.

It costs money to run a winning congressional campaign: about $1.4 million on average for House races, and six times that for a Senate seat, according to the Center for Responsive Politics. While politicians like to boast about ordinary-folk armies of small donors sending in $5 checks, the truth is about three-quarters of all campaign cash comes from people who can afford to make large contributions and from political action committees backed mostly by corporations, business associations, and lobby groups.

Money buys access and the biggest special interest group by far behind all this cash is the combined financial services, insurance, and real estate industries. Through PACs and individual donors, they gave nearly 20 percent of political donations from 1990 through 2010. They also as a group spend more on lobbyists than any other industry.

Oops, seems they forgot organized labor that takes workers dues and uses the money to further the goals of union leaders regardless of the views of the individual members. Could it be this oversight is due to the fact unions donate almost exclusively to Democratic liberal politicians? Oh my, how cynical of me. They also forgot lawyers and law firms who at $15 million were the largest contributors in the last election cycle. Among the top ten PACs are the University of California, Stanford and Harvard University.

Clearly this Country needs a strong middle class and certainly segments of the middle class are hurting, but the cause is not Wall Street or insurance or real estate industries. The 99% would truly be in trouble were it not for the taxes paid by the 1%. Assail the guilty, not the successful.

IRS announces 2012 limits for 401(k), IRA contributions and more

20 Oct

The IRS has announced qualified retirement plan limits for 2012. I have taken excerpts from the press release for simplicity.

IR-2011-103, Oct. 20, 2011

WASHINGTON — The Internal Revenue Service today announced cost of living adjustments affecting dollar limitations for pension plans and other retirement-related items for Tax Year 2012. In general, many of the pension plan limitations will change for 2012 because the increase in the cost-of-living index met the statutory thresholds that trigger their adjustment.

However, other limitations will remain unchanged.  Highlights include:

The elective deferral (contribution) limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased from $16,500 to $17,000.

The catch-up contribution limit for those aged 50 and over remains unchanged at $5,500.

The deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are covered by a workplace retirement plan and have modified adjusted gross incomes (AGI) between $58,000 and $68,000, up from $56,000 and $66,000 in 2011.  For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range is $92,000 to $112,000, up from $90,000 to $110,000. 

For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $173,000 and $183,000, up from $169,000 and $179,000.

The AGI phase-out range for taxpayers making contributions to a Roth IRA is $173,000 to $183,000 for married couples filing jointly, up from $169,000 to $179,000 in 2011.  For singles and heads of household, the income phase-out range is $110,000 to $125,000, up from $107,000 to $122,000.  For a married individual filing a separate return who is covered by a retirement plan at work, the phase-out range remains $0 to $10,000.

The AGI limit for the saver’s credit (also known as the retirement savings contributions credit) for low-and moderate-income workers is $57,500 for married couples filing jointly, up from $56,500 in 2011; $43,125 for heads of household, up from $42,375; and $28,750 for married individuals filing separately and for singles, up from $28,250.

Social Security COLA of 3.6% for 2012 confirmed by September inflation index

19 Oct

Look for a COLA in Social Security benefits next year of 3.6%.

This is based on the increase in the CPI-W index from the third quarter 2008 to the third quarter 2011. The index for the 2008 period was 215.495.

The index for 2011 is: July 222.686, August 223.326 and 223.688 September for an average of 223.2337.

Subtract 215.495 from 223.2337 and you get and increase of 7.738 or a change from 2008 of 3.590% which means a Social Security COLA of 3.6% (assuming I have the rounding right)

This also means the Part B Medicare premium will increase for the 75% of beneficiaries who have had their premium frozen for the last several years.

Bail out student loans …

19 Oct

I am sixty-eight years old and still have a $59,000 mortgage on a house I purchased in 1976. How is that possible you say? I know, he took home equity loans to buy nice cars, remodel kitchens, etc., vacations and stuff. Well my car is eleven years old and besides that I won it. No that’s not it.

In fact, I re-mortgaged my house for one thing, college costs for four children and I don’t regret it for one minute. To my way of thinking that is part of a parents responsibility. My kids all paid their share working and graduating with modest loans, but even twenty years ago $500,000 was a lot of money.

Now I see the Occupy Wall Street gang carrying signs reading “Bail out student loans”. Then I read things like this as reported in the Huffington Post:

John Smith, 31, of Brooklyn, N.Y., works part-time at Trader Joe’s because he hasn’t been able to find work in his field for over a year, despite having a master’s degree. He has about $45,000 in student loan debt. His girlfriend, Meropi Peponides, 27, a graduate student at Columbia University, will have about $50,000 by the time she graduates.

“I don’t know in the end what exactly this will achieve, if anything. But if it makes people wake up just a little bit, it’s worth it,” Peponides said. “The potential is huge. That’s why I’m here. I felt the potential somehow.”

Smith said he has sent out about 200 resumes in his search. He’s looking mainly for work with non-profit organizations. “The jobs that I’ve been applying for are all entry-level jobs in my career field. I don’t think I’m shooting for the stars trying to get those jobs.” Smith said, noting that five years ago, before grad school, he was able to get work at that level.

Tracy Blevins, 41-year-old Manhattan resident, has a doctorate in biomedical science but lost her job as an adjunct professor at Touro College this spring. She’s since been getting by on odd jobs; most recently, she acted as a cross-country driver for $2,000.

“I’m earning money off a license I got when I was 16, and still paying off the loans I had to take out to get my degree,” she said.

Even after nine years of paying down her loans, Blevins said she owes $10,000. She’s current on payments now, but said the loans have crippled her credit score and even prevented her from getting work in the past.

“I have paid and paid and paid and I still owe $10,000. It’s the interest that keeps me in debt,” she said.

Joe Foley, a 48-year-old freelance cinematographer living in Manhattan, finished paying off his $45,000 in student loans just five years ago. His girlfriend has $120,000 in student loans.

Let’s see, Columbia University, (not exactly your typical state college), looking for work in a non-profit (not the greatest paying field), a graduate student, a doctorate and an adjunct professor-the interest keeps me in debt (you need a doctorate to figure that out?), $120,000 in student loans (that ain’t your average BA)

Here we seem to have a collection of bright, albeit naive people, who made the choice to go to top schools and obtain advance degrees and perhaps chose noble but less productive careers and they are the type of people who resent other people who made other choices? These are the people who see it unfair to carry student loans and would rather have loan forgiveness?

Why doesn’t all this resonate with me?  Hey, who am I to criticize, my nine years of night school in two different community colleges and one state college to get a BA was partially subsidized by benefits I earned from two years in the army. I’m making my own sign.

Stop Whining!

Rationing decisions in health care, when will America grow up?

18 Oct

Read the following excerpt from Bloomberg carefully.

Making a quick judgement as to whether this is good or bad, right or wrong is risky. These are the type of decisions any society must make in order to balance the needs of all citizens with affordability. In fact, these are exactly the type of decisions America must make, but is America ready? So far we can’t handle revised guidelines on routine screenings, we think birth control should be “free” and that nobody should interfere between a patient and doctor. Try this objective approach in America and you get cries of “death panels.”

Oct. 14 (Bloomberg) — Bristol-Myers Squibb Co.’s Yervoy drug was rejected by the U.K.’s health-cost agency, which suggested the company consider lowering the price of the skin- cancer treatment.

About 30 percent of patients treated with the drug would have improved survival, with 10 percent potentially experiencing long-term benefits, the National Institute for Health and Clinical Excellence said in a statement today, citing clinical specialists.

The drug costs about 80,000 pounds ($125,600) per patient, said the agency, known as NICE, which advises the National Health Service on whether drugs provide value for money. Yervoy is the first medicine proven to extend the lives of patients with advanced melanoma, the most deadly form of skin cancer.

“On the basis of evidence provided so far, ipilimumab could not be considered a cost-effective use of NHS resources,” NICE Chief Executive Officer Andrew Dillon said in the statement. There’s no way to identify which patients will benefit from the drug, he said.

We will have real reform in America when we can deal with these issues and when we figure out how much such a drug should really cost to give everyone a fair return. In the US when such a drug wins FDA approval it is virtually automatic that it is covered by prescription drug and health plans, no questions asked, no questions about the cost. For now many Americans cannot even deal with the Independent Payment Advisory Board designed to recommend cost savings for Medicare.

Exactly how do Americans expect to make health care affordable or perhaps as I have long contended, nobody really cares.

Oh, one more thing. If the price of this drug is lowered in the UK to obtain approval, guess who will pay more to make up the difference?

Who doesn’t pay a fair share of income taxes, you may be surprised

17 Oct

At this point we are all convinced that despite the fact they pay the bulk of taxes while fifty percent of Americans pay no income taxes, millionaires and billionaires (defined by our divisive President as families earning over $250,000 a year) are not paying their fair share. So called tax loop holes are now considered tax avoidance despite each and every provision of the IRC being passed by Congress and signed into law by a President. Public employee unions enter the fray denouncing the “wealthy” as underpaying taxes and yet public employees benefit from the greatest and most costly tax loop-hole of all; free employer paid employee benefits especially health benefits while these workers have the most generous and costly programs of all paid for by the taxpayers they profess to support.

Not paying ones fair share is indeed a problem. As the following report notes the IRS estimated a few years ago the gap between the taxes paid and what should have been paid at $345 billion for one year. That kind of money would go a long way in dealing with budgets and deficits. All it would take is for all Americans to be honest and pay their fair share… remember, cash is taxable income.

Millionaires and billionaires may have resources to maximum the value of the tax code, but their income is tracked, frequently publicly reported in corporate filings and reported directly to the IRS. Contrary to popular opinion, the wealthiest pay taxes on their taxable income whereas that is not always the case with those Americans who do not have a third-party reporting their earnings.

While it Is SOP these days to blame someone else for just about everything, more Americans should be looking in the mirror before they start camping on Wall Street.

IR-2006-28, Feb. 14, 2006

Washington — Internal Revenue Service officials announced today that they have updated their estimates of the Tax Year 2001 tax gap based on the National Research Program (NRP).

The updated estimate of the overall gross tax gap for Tax Year 2001 – the difference between what taxpayers should have paid and what they actually paid on a timely basis – comes to $345 billion.  This figure falls at the high end of the range of $312 billion to $353 billion per year, an estimate released last March.

IRS enforcement activities, coupled with other late payments, recover about $55 billion of the tax gap, leaving a net tax gap of $290 billion for Tax Year 2001.

“The vast majority of Americans pay their taxes accurately and are shortchanged by those who don’t pay their fair share,” said IRS Commissioner Mark W. Everson.  “The magnitude of the tax gap highlights the critical role of enforcement in keeping our system of tax administration healthy.”

The complexity of the tax law is also a significant factor in causing the tax gap, which can be seriously addressed only in the context of fundamental tax reform and simplification…

As with prior estimates, the updated estimate of the tax gap shows that the largest component of this gap, more than 80 percent, comes from underreported taxes. Underreported income tax is the largest component of this (see attached Tax Gap Map for Tax Year 2001). Nonfiling and underpayment of tax comprise the rest of the tax gap.

Though the net misreporting percentage varies by category of income, the rates reflect that compliance is highest where there is third-party reporting or withholding.
“Simply stated, compliance is highest where there is third-party reporting,” Everson said.

For example, one percent of all wage, salary, and tip income is misreported, contributing an estimated $10 billion to the tax gap.  In contrast, nonfarm sole proprietor income, which is reported on a Schedule C and is subject to little third-party reporting or withholding, has a net misreporting percentage of 57 percent, contributing about $68 billion to the tax gap…

Take a look at some IRS charts on the tax gap

CLASS Act kaput

16 Oct

During the health care reform debate there was much discussion about the CLASS Act, the portion of the law intended to allow individuals to purchase long-term care insurance from the government. A cursory review of that provision of the law made it clear the program was not viable. It is likely the policymakers knew this all along, but because of the way it was designed during the first ten years following enactment of the law this provision generated excess revenue and thus was used to partially fund the reform effort to the tune of $86 billion.

Now the Secretary of HHS has announced the program is not viable and cannot be implemented. There are a lot of people in line to say, “I told you so!”

The real question is what else in the PPACA is not viable … We may never know.

HEALTH INSURANCE ILLUMINATED – a new blog written by R. D. Quinn

16 Oct

Health Insurance Illuminated is a new blog sponsored by Horizon Blue Cross and Blue Shield of New Jersey and written by Richard Quinn the editor of Quinnscommentary.

The blog is devoted to explaining health insurance and issues related to health care and it’s cost.

Take a look and please feel free to comment and suggest topics for discussion.

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