The AHCA: Warren Buffett’s view

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If you haven’t seen this, Bloomberg quotes Buffett as saying:

The AHCA bill is a “huge tax cut for guys like me. And when there’s a tax cut, either the deficit goes up or they get taxes from somebody else.”

Mr. Buffett said healthcare’s high costs put the United States at a disadvantage relative to other countries.

Source: http://www.beckersasc.com/asc-coding-billing-and-collections/warren-buffett-s-thoughts-on-the-gop-healthcare-plan.html

Salt, Food, Sleep, Health and Taxes

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largeThere have been a number of articles relating salt and urination. The more salt you ingest, the more urine you produce.  Simple.

Now a Japanese study relates salt consumption to waking in the middle of the night to use the toilet. More salt means more trips to the bathroom at night.(1)

Salt affects blood pressure, and that in turn contributes to heart disease and stroke..  According to the American Heart Association, on average, Americans eat more than 3,400 milligrams of sodium each day.(3)

  • The recommended consumption amount is 1,500 mgs. per day for most adults, so this is more than double the recommended amount. Either too much or too little can be a problem. 
  • The maximum “safe” consumption is 2,400 mgs. per day.  The average American is way over the limit.
  • Most salt comes from processed foods such deli meats and canned soups. It’s important to read the labels and know what you are eating.

The British National Health Service estimates that salt reduction would result in 14,000 fewer deaths per year, at a savings of more than £3 billion.  The savings to Americans would be proportionally greater.

  • Converted to US dollars, the British cost savings is greater than the annual deficit reduction the recently deceased healthcare reform bill was supposed to produce.

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NOTE: There are contrarians who argue that concerns with salt consumption are a “myth.” I read one by Kris Gunnars, who claims to use an “evidence-based” approach. However, there is a complete lack of data in his argument; it reads like wishful thinking. My strong preference is for experimental designs using test and control groups rather than theory.

If you want to ignore facts, that’s your choice. However, you should know what you are doing and accept responsibility for the consequences of your actions. Making up “alternative facts” to justify your choice isn’t acceptable.

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What you need to consider:

  • What you eat can affect your quality of life, your health care and health insurance costs, and even your taxes.
  • However, this is one of those issues that requires large numbers of people to change behavior to make a difference. You need to mobilize your family and friends.

 


Sources:

  1. Sarah Knapton, “Cutting salt intake could stop excessive toilet trips in the wee small hours,” The Telegraph, 26 March 2017. http://www.telegraph.co.uk/science/2017/03/26/cutting-salt-intake-could-stop-excessive-toilet-trips-wee-small/
  2. American Heart Association, “What should my daily sodium intake be?” https://sodiumbreakup.heart.org/how_much_sodium_should_i_eat?utm_source=SRI&utm_medium=HeartOrg&utm_term=Website&utm_content=SodiumAndSalt&utm_campaign=SodiumBreakup
  3. American Heart Association, “Sodium and Salt.” http://www.heart.org/HEARTORG/HealthyLiving/HealthyEating/HealthyDietGoals/Sodium-Salt-or-Sodium-Chloride_UCM_303290_Article.jsp?gclid=CIbzu9fO9NICFYOKswodxbgPdw#.WNf0OKKVtPZ
  4. Kris Gunnars, “The Salt Myth – How Much Sodium Should You Eat Per Day?” https://authoritynutrition.com/how-much-sodium-per-day/
  5. Centers for Disease Control and Prevention, “Most Americans Should Consume Less Sodium.”  https://www.cdc.gov/salt/

What the CBO Report on the American Health Care Act Actually Says (updated)

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Photo Courtesy of Holden Police Department

By now. most people have seen headlines or soundbytes about the report.  The Congressional Budget Office is a nonpartisan group. The head of the CBO was actually appointed by the GOP. The purpose of the office is to provide Congress with a source of “objective” information about the financial impact of legislation that is independent from information provided by the Executive Branch. In a complex world, this actually makes sense.

 

What the CBO report actually says:

  • Health insurance costs for individuals will under the new act (the AHCA is also known as “Trumpcare”), will increase through the year 2020 and may decrease after that.  The CBO expects increases in health insurance premiums under the new law of between 15% and 20% for 2018 and 2019 under the new law.  However, the CBO argues that by 2026, premiums might be 10% lower than under the ACA.
    • Some professionals refer to these as “hockey stick” forecasts, with a positive result occurring sometime in the remote future.  That could happen, but usually unforeseen events preempt the desired result.
  • Healthcare costs should decline for people in their 20s, but will increase sharply for older Americans.  The proposed tax credits will be insufficient to cover the cost increase.
  • The CBO estimates a $337 decrease in the Federal deficit from the AHCA law, mostly due to the repeal of Medicaid expansion and the end of subsidies for health insurance.  (As noted, the tax credits are smaller than the current subsidies.)  That averages out to about $33.7 billion per year.
    • The current US deficit is $441 billion in the current fiscal year.  Obviously, any reduction is good, but a savings of less than 10% of the deficit isn’t a cause for celebration.
    • The US budget deficit is expected to expand by over $10 trillion over the next decade, after shrinking during the Obama administration.
  • The Medicaid rollback will cost 14 million people their healthcare coverage immediately.  That plus the increase in out of pocket expense will ultimately mean that 24  million people will be forced to do without health insurance.
    • The CBO expects that some states will lose Federal funding for Medicaid in 2020 by their failure to provide the matching funds required under the new law.  That will further reduce Federal spending.
    • The matching funds requirement simply moves part of the tax burden from the Federal government to the states, and may require increases in state taxes.
  • Existing law requires the CBO to provide guidance on the impact of the law on the economy.  However, the CBO claims it has not had sufficient time to do this.
    • My argument is that anything that takes money away from consumers will be a drag on economic recovery.  This law does, by raising health care out-of-pocket expenses for most people.

Sources:

  1. Congressional Budget Office, “Cost Estimate,” 13 March 2017.  https://www.cbo.gov/publication/52486 I’ve downloaded a pdf of the report from the CBO website, and will share it on request.
  2. Emily Stephenson, “U.S. deficit forecast to shrink in 2017 but climb over next decade,” Reuters, 24 January 2017.  http://www.reuters.com/article/us-usa-congress-budget-idUSKBN158217

Alternative Math

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17456_1269532813224_1076952025_30803996_7657050_nWe have “alternative facts” and now we have alternative math.

The Trump administration has proposed changing how the balance of payments number is calculated in order to support their case for trade restrictions and tariffs (taxes on imports).

Now the administration is projecting 3% annual growth in GDP for the next three years.  That’s substantially higher than the 1.9% estimate by the nonpartisan Congressional Budget Office for average growth over the next decade.  At best, the CBO estimates 2.3% growth in 2017, which is in line with the estimate from the IMF.  Kiplinger is forecasting 2.1% growth.  The Conference Board has a 2.2% forecast for 2017.

The last time tax cuts spurred major economic growth was in 1962, under a very different economic environment.  The record since with cuts has been erratic and overall much less productive.  Giving people money that they then invest in overseas markets does nothing for the US economy.

Why does the higher figure matter?

Higher growth means higher tax revenues to the government.  These higher revenues would offset reductions in tax rates for corporations and the wealthy.  Without the higher revenue, the current proposals aren’t “revenue neutral” and will produce a massive increase in the Federal deficit.

Which is precisely what fiscal conservatives don’t want to see.


Sources:

  1. Nick Thornton, “Economist cautions against lavish growth projections,” Benefits Pro, 24 February 2017. http://www.benefitspro.com/2017/02/24/economist-cautions-against-lavish-growth-projectio?kw=Economist%20cautions%20against%20lavish%20growth%20projections&et=editorial&bu=BenefitsPRO&cn=20170227&src=EMC-Email_editorial&pt=Daily
  2. International Monetary Fund, “World Economic Outlook Update January 2017”. https://www.imf.org/external/pubs/ft/weo/2017/update/01/
  3. “Kiplinger’s Economic Outlooks,” Kiplinger, February 2017. http://www.kiplinger.com/tool/business/T019-S000-kiplinger-s-economic-outlooks/
  4. The Conference Board, “The U. S. Economic Forecast,” 8 February 2017. https://www.conference-board.org/data/usforecast.cfm

 

Tax “Reform”: starting the next war before finishing the first

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OK, let’s start a battle over tax reform before we finish healthcare.  That appears to be the ben_franklincurrent mantra in Washington.  Keep enough balls in the air at the same time and people will become confused and bored.

However, if you’re a middle income taxpayer, the proposals on the table aren’t nice.

Here are some of the key options under consideration:

  • Tax reform will be “revenue neutral.”  That means any tax reductions will be offset by tax increases.
  • Reduce the top tax rate for the wealthy from 39.6% to 33.0%. The minimum tax rate would increase from 10% to 12%.
  • Increasing the standard deduction to $15,000 for individuals and $30,000 for married couples filing jointly.
  • Eliminating all personal and dependent exemptions.  That hits people with children as well as those providing care for disabled and elderly adults.
  • Capping or eliminating itemized deductions, and in particular, eliminating the deduction for home mortgage interest. However, some childcare expenses “up to the state average” might be deductible.
  • If some itemized deductions continue, they would be capped at $100,000 for individuals and $200,000 for couples, which will impact major charities and non-profits.
  • Making employer-paid health insurance taxable as income.
  • Elimination of gift and estate taxes.
  • Elimination of Alternative Minimum Tax.
  • Elimination the 3.8 percent tax on net investment income on people with incomes of over $200,000 for single filers and $250,000 for married filers.
  • Reduction of the corporate tax rate from 35% t0 15%.

Most of these changes would not take affect until the 2018 tax year.

According to the Brookings Institute, the primary beneficiaries of these changes are individuals and households earning more than $143,000 per year.

Single parent families would lose deductions and face sharply higher taxes.

Married couples with children would benefit from Trump’s original tax reform proposal, but would be penalized under the House GOP plan.

The loss of the mortgage interest deduction will change the economics of buying a home, making home ownership much less attractive. If you get the same amount off your taxes whether you own a home or not, why pay a premium price to buy? Further, since the housing industry is such an important part of the US economy, that supports forecasts of continued sluggish economic growth.  

Very little is definite at this time on either tax or healthcare reform.

What you need to consider

If you’re thinking about buying a house, you might want to wait to see if Congress eliminates the mortgage interest tax deduction. If they do, housing prices should fall. Conversely, if you are thinking about selling, you might want to hurry up and do it.

The same logic applies to changing jobs. If itemized deductions disappear, that would include deductions for moving to take a new job.

Finally, some analysts feel that the stock market has gotten overly excited about what Trump might include in his tax plan, leading to prices that are unjustifiably high.

It’s time for common sense to “trump” any excitement over change.


Sources:

Gas Taxes

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States have a variety of tools for raising tax revenue, and use them to varying extents.  Thus you can be in a low income tax state and still pay exorbitant taxes.

The gas tax is a case in point.  The average consumer drives approximately 13,350 miles per year.  With an average MPG figure of 25.2, that equates the use of 530 gallons per year.  That’s probably low, as it doesn’t factor in idling, which kills MPG.

In Pennsylvania, that translates into $308 of state gasoline tax the average driver pays each year.  In South Carolina, the average gas tax paid is $89 per year.  In Alaska, the lowest state, it’s $65.

Perhaps people don’t protest the gas tax because it’s not a big check one writes once a year.  Instead, it’s a constant nibbling at one’s wallet.  However, the nibbles add up.

States use a variety of these little taxes to avoid raising income and property taxes, but the effect on the consumer is the same regardless of how its done.

What are the odd little ways your state taxes you?


Sources:

  1. Federal Highway Administration, “Average Annual Miles per Driver by Age Group,” https://www.fhwa.dot.gov/ohim/onh00/bar8.htm
  2. Nora Naughton, “Average U.S. mpg edges up to 25.5 in May,” Automotive News, June 4, 2015.  http://www.autonews.com/article/20150604/OEM05/150609925/average-u.s.-mpg-edges-up-to-25.5-in-may
  3. Samuel Stebbins, “States With the Highest (and Lowest) Gas Taxes,” 24/7WallStreet, 3 February 2017.  http://247wallst.com/special-report/2017/02/03/states-with-the-highest-and-lowest-gas-taxes-4/

The “Bury Your Head in the Sand” Election

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America is no longer the best place for Americans to retire, nor is it the best place in the world to live.  There are reasons for that.

Americans and their political parties practice the politics of avoidance.  We have fundamental issues affecting almost every household, including:

  • The portion of income consumed by healthcare
  • Absurd education costs and need for education/training
  • The widening economic divide
  • An unfair tax system
  • Underwater mortgages and shadow housing inventory (the potential for a new housing bubble)
  • Unemployment and underemployment

Are the parties talking about these issues?  For the most part, no.  Are people conducting  rallies on these issues?  No.  Is the country making progress on these issues?  No.

Yes, people are talking about The Affordable Care Act (aka Obamacare).  That act concerns making healthcare more more broadly available.  It doesn’t actually address healthcare costs.  Whether its repealed or not, your costs are going up.

Trump is talking about tax reform, but his reforms would make tax code more unfair, by cutting taxes on the rich and on corporations.  He talks one thing and walks another.

Government keeps growing because Congress has neither the skill nor the will to actually solve any problems.  Yet, the Executive Branch can’t legally solve them without Congressional support.  So we add a new bureau to deal with a problem, and the bureau never goes away because the problem is never solved.

Government contractors get paid to work on problems, not to solve them.  Not solving them means they continue to get paid.  The military-industrial complex never wanted to “win” the Cold War, just as Halliburton never wanted to win the war in Iraq.  Winning means your assignment ends and you stop getting paid.

That’s the ultimate problem with privatization of government programs.  Privatization doesn’t reduce costs; rather, it locks-in cost long term.

Ultimately taxpayers are to blame.  By not paying attention and not voting, they let their leaders off the hook for the failure to lead.  That leads to the paradox of anger this election among people who really don’t know what’s going on.  A portion of the population knows it is upset, but really has no clue about the root causes of the problems.

The net impact isn’t good.  The US is no longer considered the best place in the world in which to live and work.  According to US News, that honor belongs to Germany.  The US now ranks 4th., also trailing UK and Canada.  I wonder how far down the US can slide before people are motivated to take positive action.


Sources: