401 K

In the governments ongoing plan to redistribute income they have recently discovered the trillions in 401K plans. Since half the people do not pay income tax there is no tax advantage to them to participate in a 401 plan. Upon further investigation experts find that 60% of the money in these plans is owned by one percent of the participants and thus a pool of higher income people are getting most of the tax brakes. There is talk in congress of eliminating the tax deduction for these plans and some say the next step is to tax the money for the second time when it is withdrawn. They already started double taxation of social security benefits for higher income people so this would be the next logical step. Congress says this money will be used to pay down the deficit but most realize it will just be used for existing programs or perhaps start new programs, things like solar power plants.

California pension

The California public education system is in trouble and is symptomatic of other states. For years instead of putting the proper amount into the teacher’s retirement plan they just assumed a higher rate of return on their investment. These higher rates did not materialize and thus the shortfall. Governor Brown has proposed an income tax on millionaires and an increase in the state sales tax. The money to be used for education and herein lies a little secret. The money will be used for education but it will all go to fund the teacher’s pension plan. This is a smart idea financially speaking but it is deceiving the way it is being presented. The finances work like this. Each year the pension fund remains underfunded the cost to fix it increases dramatically and estimated to double every nine years. This is unsustainable and must be fixed. This means that the best use of the money is to fund the pension but this is a very poor way to sell the idea of tax increases so it is not explained to the public. The experts feel it is too complicated to explain and so they just let people think the money is for schools. I guess we are just too dumb to understand and so we need to be misled to get things done. Coming soon to your state!

Tax the rich

The income tax system is complex and difficult to understand and can be easily misrepresented to give a false impression. In order to simplify matters consider the example of ten men going into a restaurant to eat where dinners cost ten dollars. After they finish the waiter brings the bill of $100 to the table. The men decide to pay the bill using the same method that taxes are paid. The first guy pays $70 and the next four split the remaining $30 and the last five pay nothing. As they get ready to leave the waiter comes over and gives one of the guys who paid nothing a one dollar refund. This one dollar is called Earned Income Credit and goes to people who pay no income tax. Now I am all for taxing rich people but I can’t say it’s about fairness. I will be honest and say it’s all about getting those mean ole rich guys.

Europe

In the past those who did not believe Obama was a socialist, and I am one of them, said he wants us to be more like the European Democratic Socialist form of government. This is about to change with the upcoming French election. The European countries have, since the post war era, drifted toward more government control of their economies and recently they have had to cut back on government benefits, much to the dismay of the populous. We have seen the riots and demonstrations in Greece, Spain and Italy and the people revolting against the attempts to reduce their benefits and this combined with the elimination of many government jobs has sent their economies into decline. Now France is on the verge of electing a full blown Socialist Francois Hollande as President. He has promised to reverse the trend toward reducing government benefits and reinstating many that have been reduced or eliminated. This puts France in direct conflict with the German position of continuing the austerity programs instituted in the past two years. Since all the money to keep these countries afloat comes from Germany the whole concept of the Euro is at stake. Germany will be forced to return to the Deutsch Mark and that will be the end of the Euro and many of these countries will go into default. This is referred to in the news as a contagion meaning it will act like a disease and infect the rest of the world including the US who relies heavily on exports to Europe.

Gulf Oil spill

On the news this week there appeared an environmental expert regarding the Gulf Oil spill. In answer to the question as to where the oil went she responded that the entire Gulf was affected because the oil had spread throughout the Gulf. When I hear statements like that, my math antenna sticks up and I start calculating. The total amount of oil that escaped from the BP well was 200 million gallons and the amount of water in the Gulf is 643 quadrillion gallons. This comes out to be one-third part per trillion. As a way of comparison if you filled the New Orleans Super Dome with water it would take 1.2 billion gallons and if we added the equivalent amount of oil to match the Gulf spill we would add less than a quart. If what this lady says is true I am hard pressed to believe that the spill is affecting commerce in the Gulf States. I wonder if there is some financial incentive in the form of aid to business or grants for research.

Auto ins

For some time now I have expressed concern about the financial stability of auto insurance companies. They are all begging people to change policies every six months and this is very costly for them. I mentioned that it is difficult for them to reduce benefits as many are set by law but most have other lines of casualty insurance and one of the main ones is home owners. Last week I got a letter from GMAC who has my home owner’s policy letting me know that they were reducing my benefits and yesterday I got my renewal and the price went from $917 to $1,378. I will be changing companies since a 50% increase is a little much. The Net is filled with stories about GMA|C’s problems. When you have to raise premiums that fast I think the company is going broke but just hasn’t figured it out yet.

Stimulus

The American Recovery and Reinvestment Act, known as Stimulus one was passed in Feb of 2009 included 825 billion dollars almost all of which has been spent. A report from the government came out this week saying that it created somewhere between 500,000 and 3.3 million jobs. If we use the 3.3 million figure and do the math we find this is $225,000 per job. I don’t even want to calculate the cost for 500,000 jobs. The CBO report provided a broad range of the estimated number of full-time jobs created because of the stimulus — from a low of 500,000 to a high of 3.3 million jobs

Health care reform

PROPOSITION: That politics is the reason that the government cannot solve today’s problems. I propose that the main reason we cannot solve the major domestic problems of our time, which include social security, Medicare, Medicaid and health care, is that politics gets in the way. I will prove my statement by offering simple solutions to these problems in a way that is understandable and feasible. Let’s begins with social security since it is the most expensive and with the onslaught of the baby boomers approaching retirement the most pressing. It requires four steps each of which can be implemented immediately. First, raise the age for full retirement benefits to 72. This does not mean that you cannot retire at age 62 but it means that your benefit will be less. Second, require that benefits paid to individuals with more than $100,000 be phased out and all benefits cease as the income reaches $150,000. For couples these income limits would be $200,000 and $250,000. Third, begin withholding social security tax on all income not just the first $110,000. This is currently done with Medicaid. Forth, consider all benefits as taxable income. All these changes to begin with people who are now under age 55. The history of social security is replete with reductions in benefits but most people are not aware, since most people have no idea what the benefits are to be and therefore cannot recognize a reduction. Back in the 60’s the government begin tightening up on the definition of disability and the number of applicants who were declined increased dramatically but social security didn’t change the law for those already receiving benefits and instigated a procedure that they use in all cases known as grand fathering. This means that those receiving benefits under a given program are not affected by changes. Survivor benefits used to be paid to children of the deceased until their ages 22 but that was changed to 18 and once again those getting benefits were grand fathered in. The mother used to get benefits until the youngest child was 18 and that has been lowered to 16. The retirement age for full benefits used to be 65 but now for all people born after 1937 that is raised up to 67. Once again no one noticed since you can still get benefits at 62 but they are less. Since no one knew what they were supposed to be, no one knew they were less. Social security benefits have been taxed since 1984, which means double taxation since money paid into social security was already taxed when received. Medicare and Medicaid have the same solution and it requires that we ration benefits. We have done this for years but no one talks about it. We cannot afford to offer all procedures to everyone and things like quality of life and cost/benefit ratios must be taken into account. For example, for many years there were not enough dialysis machines and a committee was set up in most cities to determine who got to use the time on the machine. We have the same set up today with various organ transplants. On a subtler basis, people have been advised for years by hospital staff on less expensive ways to achieve acceptable results. Does this mean that very wealthy people will get more expensive care? Yes it does but that is the case throughout our society, the most obvious cases being in the court system where the best lawyers get the best results and cost the most money. We must be mature enough to recognize that we cannot risk destroying the entire system in the name of fairness, if fairness means spending unlimited amounts of money on each case. We live in a world of limited resources and we must act accordingly. We must face the fact that death panels have been around for a long time. Reform of the health care system is the hot item in the news and it is easy to see how politics has distorted the issue. Since 85% of the people are currently insured and polls show the majority of those are satisfied let us leave them alone and focus on the 15% who are not insured. Who are those 45 million people? They fall into three categories not counting illegal aliens. One third are people who are eligible for Medicaid and SCHIP who have not signed up. The reason they are not signed up is that it cost a modest fee and since there are no pre-existing conditions, people just wait until they need help and then they sign up. Another one-third are young working people who can afford health care but choose not to buy it. And finally one-third who need help. The first two groups can be forced by persuasion or by law to sign up for health care. The third group can receive government aid based on their income. A formula can be devised based on percent above poverty level to help this group. It is estimated that this will cost about $50 billion per year and much of this cost can be offset with tort reform and allowing everyone to purchase insurance across state lines which will increase competition and lower premium cost. Once everyone is insured the pre-existing condition clause can be eliminated. Illegal aliens will continue to use the emergency rooms until such time as they are removed from the country or made legal and this will put pressure on congress to take up this problem instead of just talking about it. This is just the first step in health care reform and should be followed up with the elimination of the third party payer concept, which is the basic cause of the high cost of health care. To understand this concept, consider the purchase of a food insurance policy. With this policy you go to the super market and purchase your food items and present the clerk with your food insurance card. The bill is then forwarded to your insurance company and they pay. As long as you continue to pay your monthly premium the insurance remains in force. As time passes you will become more concerned with the quality of the food and the location of the store and less concerned with the price of food. This in turn will cause the price of food to rise at a higher rate than other items since you will no longer be price shopping. Everyone is familiar with the hospital bill that shows two dollars for a cotton ball or four dollars for an aspirin. People actually laugh about this since those costs are borne by the insurance company. The door was opened in 2003 with the passage of the Medicare drug bill. A part of this bill allowed for the idea of the health savings account. If you work for a major company your group health care cost them about $14,000 per year for a family plan with the standard deductible, co-pay and stop loss. They can purchase a plan for you with an annual family deductible of $10,000 for about $5,000 per year. When they do this they agree to put $5,000 per year into a pretax account in your name. You agree to cover all medical expenses up to $10,000 per year out of your own pocket. Now you will begin to purchase health care the same way you purchase other items, that being, you will shop around. In doing so you introduce competition into the market, which will lower cost dramatically. A recent example is the cost of Lasik eye care. The cost of that has come down by half in just a few years. But the real cost savings will be in paper work or what is called administrative cost. Under our current system health care the annual cost is $2.2 trillion, and 25 to 30 percent of that is for paper work. Since 95% of all claims are less than $10,000, once you start the pay as you go system you eliminate 95% of all claims and thus save about $500 billion per year. This is ten times the cost of insuring the poor as mentioned above. The doctors will love this since they no longer have to have a full time insurance person on their staff and they get paid up front with cash or your credit card, the way you pay for other items. What this means for you is that any money you save by being a wise shopper belongs to you. Let’s take the worst-case scenario. The very first year you have a $100,000 medical bill but your insurance only pays everything over $10,000. Now your company only put $5,000 in your account so where are you going to get the other $5,000. Well you go to the hospital and show them your plan and ask for a monthly payment plan and in a couple of years you have them paid. Now look at a more likely case. Each year your medical expenses are less than $5,000 and the savings in your account continues to grow on a tax-deferred basis. Any money that is in this account when you retire is yours to keep. Recent legislation has been introduced to allow you to withdraw this money tax free after retirement even if it is not used for medical expenses. I think it is amazing that someone sitting on the sidelines like myself can come up with a solution to these major domestic problems while experts sitting in Washington seemed completely baffled. The difference is politics. I am not running for office and unlike our elected officials I put country ahead of party.

Interest on Wealth

Having been a financial planner for many years and specializing on retirement, it was not unusual for me to hear people express concern about running out of money after they retired. They wanted a plan that would allow them to live off of the interest from their savings since they realized that once you started using principal it was a downward spiral to bankruptcy. This brought me to a new way of understanding the difference between government and private business. Government provides services but does not create wealth. Private industry creates wealth. Now think of the wealth as interest on your investment. As long as we continue to create wealth (interest) the government has money to function and provide services, but if they use up all the wealth and start going after principal the country is on the downward spiral to bankruptcy and I believe we are close to that point. 6 million on unemployment 58 million on Medicaid 5 million on SCHIP 61 million SS and SSI 41 million on food stamps There are currently 145 million Americans working. About 70 million of those pay no income tax and 20 million of that 70 get back an average of $2,000 per year from the government from Earned Income Credit (EIC). Have we reached the tipping point?

I normally do not get involved in criminal behavior except when it involves business executives or politicians but I will make an exception in the current case of Mr. Zimmerman, who is accused of killing a man in Florida. I believe the District Attorney has just found this man innocent. I say that because she charged him with 2nd degree murder. As I understand it, this means he had, “intent,” that is, he intended to kill this man. I feel that will be very difficult to prove based on the facts available at this time. If she wanted to get a conviction she could have charge him with involuntary manslaughter which means the unintentional taking of a life. Now here is the tricky part and it involves the 5th amendment which says in part, nor shall any person be subject for the same offense to be twice put in jeopardy of life or limb. Reading law can be as tough as reading the tax book but here is one interpretation of the so called double jeopardy rule. an acquittal or conviction for murder will bar any prosecution for manslaughter if based on the same facts If what I have concluded here is factual then one of the talking head lawyers will soon be pointing this out. If this doesn’t happen then my theory is probably wrong. We shall see.

Nero and Rome burning

I was reminded these past two weeks of the old saying that Nero fiddled while Rome burned. Last week it was a Romney aide talking about the Etch-a-sketch and this week it is a remark made by a Obama aide about stay at home moms. Instead of taking about the deficit, the debt, entitlements and jobs (Rome burning) we are talking about fiddles. I can’t decide whether this is because this is what people want to talk about or is it what the news media want to talk about?

Diesel

A typical semi driver uses 15,000 gallons of diesel per year. The cost of natural gas as compared to diesel is $1.30 per gallon. Diesel is now over $4 and this could save a driver $40,000 per year so it is coming. It cost about $20,000 to convert a diesel to natural gas and this can be paid for in 6 months. Since there are about 7 million of these big rigs on the road it will replace 2.5 million barrels of oil per day. We currently import 1.5 million barrels per day from Saudi Arabia so we would no longer need their oil. A bill was put forth in the Senate, called the Pickens Plan, to use 5 billion dollars to incentivize the changeover of semis to natural gas and it passed 52 to 47 but that is not good enough. It needed 60. The Republicans stopped the bill because they are indebted to the oil industry. While the Pickens plan is co-sponsored by Democratic senators Menendez of New Jersey and Reid of Nevada, and Republican senator Burr of North Carolina, the Republican senate caucus is responsible for its defeat. Forty-four Democratic senators but only 7 Republicans voted to pass the Natural Gas Act. Thirty-eight Republicans and 9 Democrats voted against it. The defeat of the Pickens Plan largely was the result of conservative ideology, as exemplified by the editorial page of the Wall Street Journal, that opposes any effort to accelerate the substitution of oil with natural gas. Some people oppose natural gas because of fracking and I understand that but to oppose it just to help the oil companies is putting politics ahead of the country which of course is business as usual. One oil company Anadarko does invest in both oil and natural gas and it would seem logical that other big oil companies do the same but not yet. Instead of fighting natural gas perhaps they should join in this new technology and invest in gas.

Ryan Plan

The Ryan budget plan, approved by all Republicans and Romney, reforms entitlements that are the major causes of our debt. The President, on the other hand is talking about the Buffett Plan which will bring in 4 billion a year and removing oil company subsidies which will bring in another 4 billion for a total saving of 8 billion, to attack the 1,300 billion deficit. The President, of course is winning this debate because for too many people, the debt and the deficit are just words. Down the road when these problems explode these same people will be asking why someone didn’t do something about this. Many experts say the Ryan plan has come too late. They say we have already become an entitlement society and there is no going back. This election is supposed to be the opportunity for the voters to signal a change in direction but instead of voting on the important issues many will be voting on personality in which case Obama wins hands down over Romney.

EIC

Since I do taxes I am quite familiar with what is known as Earned Income Credit or EIC. This is in the news today because the government is placing ads in papers across the country to encourage people to apply for these benefits. This program was started by President Ford in 1975 to encourage people on welfare to work since you only qualify for the benefit if you have earned income, that is, you work. The maximum benefit in 1975 was $400 and this year the maximum is $5,700. One dollar in 1975 would be worth $4.57 today but one dollar of EIC in 1975 would be worth $14.25. Like most government programs they start modestly but grow rapidly. I personally like this program since only low income people are eligible. It is for those with family incomes below $50,000 and they need the extra help. The program cost 60 billion last year and helped 30 million families mostly families with children. The average family received $2,000.

Cost of Obamacare

In the past 6 months there have been 7 studies of which I am aware, that project the cost of Obama care to be much higher than previously thought. They all come out with a note of surprise. Now I ask you to use your common sense and tell me, that when the President said his plan would insure 31 million new people at no additional cost, what did you think? Recall the old adage about no free lunch. Recall when your dad told you that you can’t get something for nothing. Recall when you were warned that if it sounds too good to be true it probably isn’t. When the government promises to give you something, take some time to think it through. Remember the government gets money in two ways. They either take it from someone who earned it or they just print it and if you think printing money is free don’t be surprised when inflation comes roaring back. Many economist think that inflation is the cruelest tax of all.

Legacy benefits

Many businesses and many government agencies are finding themselves in a bind because of the cost of legacy benefits. These are benefits for employees after retirement and GM paying for its 500,000 retirees is costing $2,000 per car. How did this happen. GM led the way with employee benefits in the 60’s and 70’s and they were highly praised for their efforts. It was an easy out for management who wanted the next quarterly dividend to look good to its investors. This also allowed the CEO to keep his job. Rather than give benefits that had to be paid out immediately he choose to offer benefits that would be paid many years later. This arrangement satisfied the unions and kept the dividend up. You might say it was a win for both sides. When the government took over GM they gave a lot of ownership to the unions in return for the unions taking on some of the legacy cost particularly heath care. This same kind of activity was taking place in many companies and in many public jobs. The proof of this is the fact that people who have worked with a defined benefit pension plan are now finding retirement at age 62 too hard to pass up. The reason is that they can have more net pay by retiring as opposed to continue working. We have designed system that has people spending the last 20 years of their lives looking for something worthwhile to do. Seniors are suffering from obesity and alcohol abuse and these lead to many other health problems. People who are retired after 40 years in the work force find themselves looking for a reason to get up in the morning. Amid all the praise over the great retirement plans we now are living with the unintended consequences. Future retirement plans will be designed for later ages and replacing defined benefit plans with 401K plans are the first step.

Election 2012

Now that Romney has endorsed the Paul Ryan Budge Plan, President Obama’s bid for a second term is a done deal. The Ryan Plan tackles the entitlements by offering changes in Medicaid, Medicare and Social Security. His plan was approved by all of the Republicans in the house and 40 of the 48 Republicans in the senate. While the Ryan Plan is courageous in its willingness to challenge the long term problems associated with the national debt, it is political suicide. While everyone knows that the only way the government can control long term spending is to reform entitlements, the President’s Plan does nothing in this area. The President’s Plan was defeated in the House by a vote of 414 to 0. Not one Democrat voted for his plan. The senate refused to vote on it so President Obama is now in the enviable position of being able to go to the voters and offer them financial benefits while the Republicans will be accused of reducing benefits. In the past both parties stayed away from reforming entitlements because they knew it would cost them the election, so these areas continued to grow at a rate that is not sustainable. The only remaining stumbling block in the President’s way is gas prices but it is not likely that even five dollar gas can overcome pushing Grandma off the cliff. The Presidents strategy of focusing on jobs and avoiding the budget deficit is paying off and once again the problem of long term debt is pushed down the road for some future President and congress to confront. We will continue to spend money we don’t have and pass that on to the next generation and we have no one to blame but ourselves. Good luck to all of the millennials out there just starting their careers, as we leave you with 16 trillion in debt on the way to 21 trillion in five years. It is hard to believe that by the end of Obama’s second term we have increased the debt by more than we did in the first 230 years.

Employment

The monthly employment statistics came out this week and there was some startling news. They said that the number of jobs created was 120,000 which is not enough to lower the unemployment rate but then the rate declined from 8.3% to 8.2%. The reason given was that for many people their unemployment benefits ran out and they decided to drop out of the labor force. That is where the report ends. Now I ask you what will these people do for food. If they can just quit working why didn’t they do that a long time ago? They could say they prefer to sleep in or they would rather go fishing so they decided to drop out of the work force. I think it is amazing that no one bothers to ask how they do it.

Auto ins

I have mentioned in the past the dilemma facing the car insurance companies. They are competing on a price basis, each company claiming to save you money by switching. It is well known that the first year cost of installing a policy pretty much use up the first years premium so there is no profit for the company. This is particularly acute for companies that have agents, companies like State Farm and All State since they must pay the agents a commission, a cost not born by companies that have no agents. Because of their advertising they now have people switching every year. Since they cannot raise their premiums and stay competitive they have resorted to other means to save money. Their hands are tied with their auto line because of state laws but they have flexibility in the home owners and since these companies offer both types of insurance they are able to make up loses in the auto side with changes in the HO side. You will likely be receiving notices from your home owners company that they are reducing benefits in the most common claims areas like roof and hail damage. They will tell you that the roof will be adjusted for age and that siding deductibles will be a percentage of your coverage A on the dwelling. I predict that some companies will not be able to keep up with the stiff competition. We shall see.

Health care 2

The question in the news about Obama care is what happens if the court rules it unconstitutional. The administration admits they have no plan B but they claim the Republicans don’t have plan either. If this happens we will be back where we were before Obama care where most people had coveage Polls show that 85% of Americans have insurance and most of these are through their employer. Polls also show that most are satisfied with their plan except for the rising cost. The problem we face is two-fold. First, is how to cover the 15% who are not insured and second, how to keep the cost from rising at twice the inflation rate. Let’s look at the 15% or the 50 million who are uninsured. One fourth of these are young people who work and could afford health insurance but choose not to buy it. One fourth are people who are eligible for Medicaid but do not sign up even though its free because they can sign up after they get sick as it has no preexisting conditions clause. These are not included in the 50 million people who are currently on Medicaid. One fourth are illegal aliens and finally one fourth are people who need coverage but cannot afford it. The solution is now in two parts. First is getting money to the 12 million who cannot afford insurance and second bringing the cost under control for the 85% who have insurance. I will cover the second problem first as it leads to the solution to the first problem. In three words the reason health care cost increase at twice the cost of living are “third party payer”. To explain what that means consider having a food insurance policy. You buy a food insurance policy and you pay a stipulated monthly premium just as you would for health insurance. You go to the super market and pick out your food and at the checkout counter you present your food insurance card and the store sends a bill to the insurance company. As time passed you would become more and more concerned about the quality of the food and the location of the store and less and less concerned with the price. This is just what has happened with health cost. I know people who actually joke about the 4 dollar aspirin and the 2 dollar cotton ball on their hospital bill. They don’t care about the cost since there is a third party that pays the bill. In order to present the solution to this problem I will use a typical large private company as an example. This company pays about $15,000 per year per family for health care. It is a typical plan with a small deductible, a co-pay and a stop loss. Putting in numbers the employee pays an annual family deductible of $200 and 10% co-pay and when the out of pocket expenses reach $1000 the co-pay stops. This means the maximum any family will pay in a given year is $1,200. The company sets up a new plan. The employees will now be responsible for the first $5,000 of health care expenses each year. Everything over $5,000 is paid by the insurance company. The company will put $5,000 into a tax deferred savings account for each employee, the money to be used to pay for medical expenses. This is called a Health Savings Account. The company saves the other $5,000 and that is their incentive to set up the plan. Now let’s look at the plan from the standpoint of the employee. He has $5,000 in his account to cover medical expenses and he knows that if he doesn’t spend it all he gets to keep it for retirement. If a child needs a tonsillectomy they don’t just go to the doctor and sign up. They start to shop around to find out who has the best deal both price and quality. In other words they start shopping for health care the way they shop for other services. This brings competition into the market. Take a look at laser surgery. This was not covered by insurance and the free market was allowed to operate and the price has come down dramatically. Is the employee happy? How about the doctor? Does he like getting paid up front instead of going through the insurance company and waiting a month to get paid. Now let’s get to where the real savings come from. Last year the US spent 2.7 trillion dollars on health care and it is estimate that 27% went for administration. That totals 729 billion dollars for paper work. Since 90% of all claims are for less than $5,000 this eliminates 90% of the cost of paper work and saves 656 billion dollars per year. Here is where we go back to the 12 million people who cannot afford health insurance, the 12 million young people who refuse to buy insurance and the 12 million eligible for Medicaid. We put $5,000 each year into their accounts and buy a Major Medical Plan for each of these families. In 36 million people there are about 20 million family units and the cost to cover them is $10,000 per year. This comes to 200 billion which we take from the 656 billion in annual paper work savings. Now we have everyone insured and they are purchasing their medical care using the same method they buy other items. Competition and paper work savings are keeping the price from rising faster than inflation. The doctor’s office no longer has one or two people just filling out insurance forms. The hospitals and clinics have eliminated entire departments. There is one central insurance company likely Blue Cross that now handles all claims over $5,000. All the other health insurance companies are out of business and this is why it won’t pass congress. To many lobbyist paying off too many officials. Now what is the downside to this plan? There will be about 10 million people who will lose their jobs as paper pushers and insurance executives. These people are mostly computer savvy and most have a high school or higher education. They have been working and they know how to work so they will eventually find new jobs. In the interim the government can add them to the health insurance pool for another 100 billion taken from the paper work savings. PLAN 2 The way to get this type of plan passed is to use the single party payer that Obama care originally wanted but could not get through congress because of all of the complicated pork projects that were included in Obama care. In case you are not convinced that Obama care was not complicated consider the fact that many say it is like the Romney plan in Mass. If that is the case why is Romney care 75 pages and Obama care 2,700 pages. It is all the hidden stuff on Obama care that caused people to turn against it. In order to get a plan that will pass we must take a perfectly good Plan 1 and rip it apart. First we replace the Blue Cross with government administrators similar to Medicare which has about 5% administrative cost. Second the government will put $5,000 in to every families medical savings account at a cost of 750 billion dollars. There are 150 million people employed as single and family. Each family unit will repay the government in the form of premiums on a sliding scale. Those with income at or below the poverty level will pay nothing. Those at twice the level will pay $200 per month, those at three times the level $300 per month and all others $400. That will bring in 600 billion leaving the government short by 150 billion. The 22% savings in administrative cost over the current system would be 600 billion and that is enough to pay for part of the shortage and the claims over $5,000. The government will still lose about 150 billion per year. The government would ration care based on age and condition. They already do a lot of this but it is not well known. Sara Palin created quite a stir when she mentioned death panels but it is true. As long as people continue to live longer and as long as medical treatments continue to be developed, the cost of medical care will continue to increase. Until some new technology comes along we will have to depend on rationing.

Health care

Because of the Supreme Court hearings on Obamacare, health insurance is once again in the news. In the past I have stated that the number one reason why health cost increase at double the inflation rate is because of the concept of, “third party payer”. My solution was to have companies offer high deductible plans and set up tax deferred savings plans for each employee. The company would put money into an insurance savings account and the employee would pay for health care out of that account. Anything left over at retirement would belong to the employee to use as he pleases. While that is a laudable plan it is not politically feasible since it means the downsizing of the insurance companies. The federal government sponsors a major medical plan for all citizens. Major medical means that the government will pay all cost over $5,000 per year per family and each family is responsible for cost up to that amount. Next the government will put $5,000 in a tax deferred health savings account for each employee. The employees will pay a monthly premium based on their income. People at or below the poverty level will pay no premium. Poverty level for a family of four is $23,000 per year. Those at twice the poverty level will pay $200 per month, those at three times the poverty level will pay $400 per month, those at four times the level will pay $600 per month and everyone else will pay $800 per month. These payments will cover 80% of the governments $5,000 per year investment in savings accounts. The other $1000 per year per family (140 billion) will come from savings within the program. Where will this savings come from? Currently we spend 2,700 billion dollars per year on health care cost and 27% of this (729 billion) on administration or paper work. When you have a $5,000 annual family deductible you eliminate 90% of all claims which saves 656 billion in paper work. Notice that this savings far exceeds the 140 billion costs to fund the savings accounts. The government hires someone like Blue Cross to handle the remaining 10% of claims. Since each person is now paying out of pocket for the first $5,000 per year they begin to shop for health services. Instead of making a joke about paying four dollars for an aspirin on their hospital bill they are out raged. When a child needs a tonsillectomy the parent shops around for the best deal. In other words people begin to purchase health care with the same scrutiny that they buy other items. This means that health care cost will increase like other items at about the inflation rate. Does the doctor like the new plan where you pay for services rendered when received like you do other purchases. Does he like the fact that he no longer as to have one or two full time employees to file insurance claims and then he gets paid three months later. Do clinics like eliminating whole departments of people who do nothing but file claims? Do hospitals like not having to absorb the cost of those who do not have insurance? Do hospitals like getting an on time check from one source and not having to fight with patients who are late with payments? What is the down side to the plan? It eliminates about 12 million jobs. The people who were handling the claims but many of these are computer savvy and have at least high school educations which will help them find new careers. The major improvements and costs savings come from the elimination of the “third party payer”.

Nuke plants

With the confusion over energy policy the push toward nuclear power is growing. There is a new type of nuclear power that is much safer. Recall the two major concerns about nuke plants are the core meltdown and radioactive waste. The new technology deals directly with both of these issues. The new plants will likely be what are called “pebble plants”. This fuel is still U 235 but it is incased in tennis ball size units and they are added over time as the old ones are depleted so there is no need to shut down the reactor to recharge. More importantly the pebbles operate at a higher temperature and this allows the heat to dissipate without cooling fluid. In other words if the cooling fluid were disrupted the core would not melt but it would lose heat though natural convection. This eliminates the first danger which is core meltdown. Second it does not use water as the cooling medium but rather an inert gas like helium. Since the gas does not absorb the radioactivity like water, the contamination of other parts of the system is held to a minimum. In operation the heated gas is passed through a heat exchanger which heats water to high temperature steam which is used to power the generators. Since the gas is not radioactive nothing is transferred to the water or in turn to the generators. The radioactivity is maintained in the core area and all this drastically reduces the radioactive waste such as old pipes and pumps. It appears to me that nuclear power represents the transition away from carbon based fuels to the future of either solar or cold fusion.

Hedge Funds

Prior to 1950 if you wanted to start a new business and needed money you had to rely on friends to back you. Banks would not take the risk so you were left to your own devises. In the early 50’s three guys pooled their cash and went looking for people with new ideas. When they found someone who looked promising they would offer to back them for a share of the profits. They had some successes and some failure but because they knew what they were doing they made money. It wasn’t long before other groups started their own investment funds and these people became known as venture capitalist. Today there are thousands of groups like this and they have brought on many businesses that might otherwise never have started. Some of the better known are Digital Equipment, Apple and Genentech. As time passed other investors looked for different ways to help business and one type is called, (Hedge Funds) and these have recently come under attack since that is how Romney made his money. Hedge funds find companies that are not growing or going broke and invest in them in the hope of growing them. Sometimes this means downsizing and reorganizing and sometimes the company still goes under. Since hedge funds are composed of private money there are not regulated and are private. This is the appeal to wealthy investors. Hedge funds have saved many companies. Then there are, “Private-Equity Funds” and these too are wealthy people who invest in companies to grow them and then sell them for profit. They differ from hedge funds in that they have business experts that they send into the companies they buy. My daughter-in-law, Varuni worked for a private equity fund here in Minneapolis. They bought a company out east and she was sent there to reorganize. She closed one plant, opened a new one and sent some production to plants in Europe and some to China. This project lasted about one year and she was done. The company that had been losing money started making a profit. I feel that anyone who criticizes this kind of activity does not understand the free market economy.

Fisker Moters

There is a little known electric car made by Fisker Motors. It is hybrid and gets about 50 miles on the electric engine and another 270 miles on the gas engine. The cost is $100,000 but scheduled to come down as more are sold. The government has financed most of the development of this venture. I have no objection to developing electric cars but to do so under the auspices of reducing carbon emissions is misleading at best and out right lying at worst. The US gets 46% of its electricity from coal and 24% from natural gas both are hydrocarbons and both emit carbon dioxide. The most likely source of non-carbon producing power plants is nuclear but the last nuke plant approved was in 1973 and it is scheduled for completion this year. A reactor currently under construction at Watts Bar, Tennessee was begun in 1973 and may be completed in 2012. Other ideas currently in vogue are using corn or algae and they only make fuels that add carbon dioxide to the air. The one fuel that does not do that is hydrogen whose only by-product is water. There are two methods to make hydrogen. The first is steam reforming of methane and that produces one part carbon dioxide for each part hydrogen. The second method is electrolysis which takes large amounts of electricity. Like any process the energy going in exceeds the energy going out due to heat loss. Other methods to produce electricity without adding carbon dioxide to the air are solar and wind along with water falls. Water falls are ideal but not that easy to create. Wind and solar, are burdened by lack of wind and lack of sun. Someday in the future hydrocarbons will no longer be needed for cars and power plants but that day is a long way off and during this transition period they are needed to keep the world going. As far as planes go there is nothing even on the horizon to fly without hydrocarbons but some day rockets may replace jets and rockets can use hydrogen.

United Nations

The United Nations has approved sanctions against North Korea in an attempt to limit their ability to produce nuclear weapons. After some scandals at the UN in 2008 involving illegal transfers a special committee was established to prevent such activities. This past week it was revealed that some advanced computer programs and equipment were sold to North Korea via a Chinese firm. Upon investigation it was determined that this committee was by-passed and this transaction was approved directly by the Director General of the United Nations Kassym-Jomart Tokayev. He is second in command at the UN and was appointed by top guy Secretary-General Ban Ki-moon who is a South Korean. Director General Tokayev is a Russian who received part of his education at a university in China. This is just one more example why the US should get out of the United Nations. This organization covers up all of its corruption by help children around the world but we can do better.

No heath ins

With all the talk about health care I was wondering what our lives would be like if we didn’t have health insurance. First let’s take a look at how we use our insurance. Imagine a person eating at an all you can eat buffet. They pass by the salads and buns and head right for the lobster and steak. Since payments to doctors and hospitals depend on how much service they give and since the premiums paid by the patient are the same regardless of use, its lobster time. I think it can reasonably be assumed that if we had to pay out of pocket for our medical services we would use less. The average organ transplant cost $150,000 so how many people could afford that. The average stay in the hospital is five days and cost $30,000. Would people change their life style if there were no health insurance? Would we have fewer doctors, clinics and hospitals and how would that affect medical cost. Right now 30% of Medicare funds are spent on 5% of the patients in the last years of their life. Would people spend their estate on keeping themselves alive for one more year? Would the quality of life make a difference? Doctors readily admit that they have elderly patients who come to them because they are lonely. This is so common it has a medical name. It is called grandiose delusional disorder. Would these people change if they had to pay?

Obama budget

When the President came out with his budget a few months ago it was roundly criticized but by Republicans. They called it a joke. I assumed that was just politics but when I examined his budget, I could see that it was mostly a political statement since it had tax increases on the rich but the money was not to reduce the budget but it was used to add more new programs. Last night the house voted down the President’s budget by a vote of 414 to 0. Not one democrat voted for the President’s plan. I believe this proves the contention that it was nothing more than a political statement and not a realistic proposal. This is what I call a waste of time.

Depletion

The President today discussed the special tax breaks given to the oil companies and why they should be discontinued. When oil was first discovered in Texas it was a high risk business. A group would pool their money and go drilling. They were called Wild Caters and many went broke. Politicians, mainly from Texas convinced the government to offer special tax breaks to encourage more drilling. They set up a special type of depreciation called depletion allowance. It was based on the fact that it not only took a lot of risk and a lot of money to drill that even when you hit oil it would run out. This running out or depletion was the reason for the tax break. Texas oil millionaires also fought hard to maintain its tax concessions. The most important of these was the oil depletion allowance. It was first introduced in 1913 and allowed producers to use the depletion allowed to deduct just 5 per cent of their income and the deduction was limited to the original cost of their property. However, in 1926 the depletion allowance was increased to 27.5 per cent Members of both parties tried over the years to get rid of the depletion but powerful Texas officials were able to ward off their attempts. Several scandals erupted from Texas oil men providing large campaign contributions to maintain the tax breaks. In the 70’s because of the oil embargo President Carter came up with a three prong plan to solve the energy problem by reducing demand. First he got rid of the tax breaks for the oil companies which caused the price to rise. Second he pushed for more efficient home insulation and mileage standards. Third he pushed for alternative energy sources. In addition several new taxes were put on imported oil to raise the price. Over the past 30 years new legislation has been introduced and passed giving tax breaks back to the oil companies and this is what The President wants to eliminate. He wants to take that money, about 4 billion per year, and use it for green energy projects. All of this is very similar to the Carter program to reduce our dependency on oil. Let’s hope it works better this time.

Ten amendments

The first ten amendments to the constitution, known as the Bill of Rights, were designed to limit the power of the federal government, as the founders were so adversely influenced by the power of the king, that they wanted to do everything they could to limit power. FDR did not like those limitations and wanted a second bill of rights that would allow government more power. The Supreme Court would not go along with him and this so frustrated him that he tried to change the court. He didn’t have time to pass an amendment to the constitution so he tried to pass a law that said every justice over age 70 had to retire and he wanted to increase the number of justices from nine to fifteen. I point all this out in order to show the extremes he was willing to go to get this change. President Obama is also upset with how the constitution limits the power of the federal government and he has appointed Tsars to work around the congress using agencies like EPA to increase the power of the central government. As an aside, Google A-Z Government Agencies and it will blow your mind. The Supreme Court is currently deciding whether the government can force people to buy health insurance and this is another challenge to the power of the central government.

Federal Reserve

The Federal Reserve met today and if you get past the Fed speak and read between the lines Chairman Bernanke said we need more expansion in the economy to create more jobs and then he hinted at more stimulus. More money into the economy will spur job growth, but it will also put money into the market and weaken the dollar. Since oil is sold on the international market in dollars, a weak dollar means higher oil cost which means higher gas prices. The President is still assuming that unemployment is more important to voters than the price of gasoline and I believe this is a fatal mistake and could cost him the election. We shall see.

Germany taxes

What is fair when it comes to taxation? In Germany the top income tax rate is 45% and this is for couples who earn more than $700,000. The income tax system is progressive in that lower income people pay a lower rate. In addition there is a 19% VAT. A value added tax is similar to a national sales tax. Then add to that the city tax which ranges from 7 to 17%. In Germany a family of four earning $65,000 would pay $11,000 in income tax. They also have 7.75% withheld for social security, and .975% for Medicare, and 9.95% for pension and 1.5% for unemployment and these total 20.2%. So the family takes home $40,870. Now if they spend all of that they would pay $7,765 in VAT tax and on average $4,904 in city sales tax leaving $28,200 for actual expenditures. That same family of four in the US earning $65,000 would pay $2,800 in federal income tax and $1,000 in state income tax and $4,972 in payroll tax leaving a net of $56,227. If you spend all of that and pay 7% city sales tax you have $52,291 for actual expenditures. In Germany health care is paid for by the state and most universities offer free tuition. In Germany they have government paid child care for pre-schoolers starting at age 3. The average pensioner in Germany retires at age 65 with about 70% of their pre-retirement income which would be close to people here. Wages in Germany are similar to wages in the US

Facism

In Fascism you have private ownership of property but the government tells you what you can and cannot do with it so it is ownership in name only. In Communism there is no private property. Both types periodically have elections but they are often rigged and many times people vote for a choice of one. They normally lead to dictatorships such as Spain, Germany and Italy in WW 2. Both of these types of government are the antithesis of free market economies where the people elect their leaders in free and open elections. Both have only government press

Obama care

There is a good possibility that Obama care will be found unconstitutional by the Supreme Court this summer. If that happens there is one part of Obama care that should be retained and that has to do with “rescission” which refers to cancelation of contracts. Insurers have the right to rescind an insurance policy due to concealment, material misrepresentation, or material breach of warranty. This is standard for most contracts and if followed would prevent unfair interpretation however some companies have misused this provision and looked for mistakes in the application caused by something that the applicant forgot. There is a part of Obama care that would prevent the insurance company from doing this and that is a welcome improvement.

Export bank

The Export/Import Bank is a government agency that creates jobs by guaranteeing loans to American companies who export products. Recently a company called First Solar received a loan guarantee from the Export/ Import Bank to make solar panels and sell them to Canada. In September 2011, Ex-Im approved $455.7 million in loan guarantees to subsidize the sale of solar panels to two solar farms in Canada. That means if the solar farm ever defaults, the taxpayers pick up the tab, ensuring First Solar gets paid. The buyer of the panels is a company called St. Clair Solar which is a wholly owned subsidiary of First Solar. This means that First Solar is selling these panels to itself. Now if St. Clair is unable to sell these panels and goes broke the US taxpayers will cover the loss. The question is how is First Solar doing? Here is a recent report. First Solar (FSLR-Q26.11-0.84-3.12%) cut its 2011 sales and profit forecast for the second time in two months Wednesday and said next year’s profits would fall below Wall Street’s forecast, sending its shares tumbling more than 20 per cent to their lowest level since 2007. The U.S. company, long the darling of the solar industry, has suffered amid the dramatic drop in the price of solar panels this year that has nearly erased profit margins across the sector. The next question is how is St. Clair Solar doing because if they default then the Export/Import bank will cover the loss to First Solar to the tune of $456 million. At least it provided jobs to the people at First Solar who built the panels. It may have provided some large salaries to the officers of First Solar and they may be able to use some of the money to donate to political campaigns. Who knows?

child murders

There are about 16,000 murders in the US each year and about one half are black even though blacks represent only 12% of the population and 95% were blacks killing blacks. Many of these are drive by killings and often children are killed. About 1,000 children are murdered each year and many of those are victims of drive bys. These are innocent victims who happen to be in the wrong place at the wrong time. The past few days one of the top news stories is about an unarmed 16 year old black male who was shot and killed by what appears to be an over-zealous neighborhood watch captain. This caused protest around the country and demands for justice.

Taliban

The Taliban's fall promised women some basic freedoms and rights. Indeed, over the past 10 years there have been significant improvements for Afghan women and girls. Official restrictions ended on access to education, work, and health care. Millions of girls went to school for the first time. Women joined government, won elected office, and became police officers and even soldiers. A new constitution in 2004 guaranteed women equal rights, and a 2009 law made violence against women a cri In the decade since the United States invaded Afghanistan and toppled the Taliban government in Kabul, many positive changes have taken place in Afghanistan, particularly for women. There are many oft-cited statistics to illustrate this, including: the 2.7 million girls now in school, the 68 women currently in parliament, a female provincial governor, a female cabinet minister, and advocacy groups all over the country working to better the lives of Afghan women.

Obama to pursue all forms of energy

The President says he wants to pursue all forms of energy which as far as I can tell is what everyone wants. He has stopped drilling in the Gulf and has asked Saudi Arabia to increase production. Some say he is concerned about global warming but burning oil from Saudi Arabia instead of oil from the Gulf makes no difference as far as global warming. Obama followed up on a Bush pledge made in 2007 to provide government loan guarantees to build nuke power plants but the EPA ask for such large fees that companies cannot afford to build. This way the President can say he gave permission to build a nuke plant knowing that it will not be built. The President is pushing a new process called fracking to develop natural gas. Using this process we have enough natural gas to last for 100 years. He is ignoring complaints from environmentalists who oppose fracking. It would make sense to start funding natural gas stations around the country since the use of natural gas as a fuel for diesel trucks would replace all of the oil we buy from Saudi Arabia. He is pushing for electric cars but does not answer the question as to where the electricity will come from. The Obama policy on coal, our most abundant source of energy, is that we should not use it and he has proposed taxes and fees on coal to eliminate its use. Once again the concern about global warming but China is building six new coal fired power plants every month. He has pushed for solar and wind and these are good sources of energy but they are not ready at this time. To use electricity to run trains, planes and semis is a long way off. We are having problems getting cars to run on batteries. What all this tells me is that we do not have a coherent energy policy. What should be done? Step one. Issue permits without fees for nuclear power plants and for oil refineries and offer loan guarantees to build them. Step two. Start drilling for oil in the Gulf and on the continental shelf in the Atlantic and Pacific. Start drilling on government lands, including ANWAR in Alaska. Step three. Offer tax incentives and low interest loans to build natural gas fueling at all gas stations and truck stops. Offer low interest loans to purchase kits to change Semi’s over to natural gas. Step four. Build new clean coal power plants Step five. Provide research money for solar, wind and hydrogen energy. Then let private companies build plants to make use of new ways. In conclusion it is necessary to separate US markets from world markets and to separate gasoline from oil. The US is in a position to reap huge profits from exporting refined products. It takes three years to build a refinery. If business knew that the country was committed to maximizing oil production and offering permits and incentives to build refineries the country could finally make a dent in our negative trade balance by selling gasoline and diesel to China and India. It is obvious that I should be President O

Buffett Rule

Warren Buffett, one of the world’s richest men suggested that he and his other rich friends should pay more tax, so the President thought it was a good idea and promoted it in the state of the union speech. This idea became known as the Buffett Rule and was widely touted as a way to help us out of the economic mess. Today the government accounting office came out and said that this plan if instituted would bring in 5 billion dollars per year and that is great but it doesn’t do much to offset the deficit which this year is 1,270 billion. Well 1,265 billion does sound better, doesn’t it!