Five Questions about the Affordable Care Act

“Give me liberty or give me death!” Patrick Henry exclaimed. We all know this line, but can we quote anything else he said? He opened that famous speech with other wise words. After complementing the patriotism of the gentlemen who had just spoken, he said:

I hope it will not be thought disrespectful to those gentlemen if, entertaining as I do, opinions of a character very opposite to theirs, I shall speak forth my sentiments freely, and without reserve…[In] proportion to the magnitude of the subject ought to be the freedom of the debate. It is only in this way that we can hope to arrive at truth…

 I have good friends on both sides of the health care debate. Like Patrick Henry, I hope I do not sound disrespectful when I speak. We need the truth. Let us have free debate.

My five most important questions about the Affordable Care Act are as follows:

1. Who should address the health care problem, the federal government or the states?
2. Can we afford the ACA?
3. Will the ACA work?
4. Will the ACA impair our freedom?
5. Are there feasible alternatives to the ACA?

I plan to address these questions in a series of posts. I hope I do not antagonize my friends. I want free discussion. As Patrick Henry said, “Should I keep back my opinions at such a time, through fear of giving offence, I should consider myself as guilty of treason towards my country…” Please join me in this search for truth.

Ferrari Giveaway! See Details Below.

I’ve found a guaranteed way to get music students to continue lessons throughout high school. Give Ferraris for graduation presents. Can I afford it? Hm…maybe I’ll stall a little. This promise only applies to future high school students. If you’re graduating this year, tough luck.

I’ll have four years to save money before starting my giveaway. My income will be great because I’ll have so many students. I’ll have a balanced budget. I’ll have no debt. My financial statistics will be incredible. As long as you don’t look at my future promises.

Stupid plan? I agree. But why do we fall for it when politicians propose similar things?

When accessing the financial well being of our state and nation, let’s remember to ask all the questions.

• Are we bringing in as much money as we’re paying out?
• Is our debt sustainable?
• Have we made promises we cannot keep?

Political promises include social security, Medicare, retirement for government employees, health care, and many other things. What have politicians not promised? Do we trust them?

If we cannot keep our promises, we need to change direction immediately. The promise may be wonderful. I know my students would love a Ferrari, but they shouldn’t get their hopes up as I attend graduation parties this spring. Want a Matchbox car?

These dead shall not have died in vain.

The dilemma of every Memorial Day: Can I post a unique, thoughtful Facebook status to honor those who died for my freedom? Words cannot describe the ultimate sacrifice. The only words that come to mind are those of President Lincoln at Gettysburg.

It is for us the living, rather, to be dedicated here to the unfinished work which they who fought here have thus far so nobly advanced…that we here highly resolve that these dead shall not have died in vain – that this nation, under God, shall have a new birth of freedom – and that government of the people, by the people, for the people, shall not perish from the earth.

How can I be dedicated to their unfinished work? I’ll let Benjamin Franklin answer that: “Those who surrender freedom for security will not have, nor do they deserve, either one.”

What are my priorities in this election season? Will I vote for the person who promises me security, who promises a chicken in every pot? Gifts are never free. Someone pays the price. If the government promises me one thing, I will pay for it in a different way. Or my neighbor will pay.

Freedom isn’t free. Someone paid the ultimate price for me. Will I, like Esau, sell my birthright for bread and pottage?

I'm Puzzled.

President Obama visited Master Lock Company in Milwaukee, WI, on Wednesday to promote his jobs plan, which includes tax breaks for companies that bring jobs back from overseas. In his speech, the President mentioned Diamond Precision, which plans to add jobs in Milwaukee, and Collaborative Consulting, which wants to open a call center near Wausau.

Why does this puzzle me? These companies benefited from Governor Scott Walker’s pro-business tax incentives. See Walker’s announcement about Diamond Precision and the WEDC announcement about Collaborative Consulting, Inc.

If the President favors a federal tax incentive for job creation, why have Democrats opposed Walker’s tax reforms? What is the difference between the plans?

The only significant difference I can find is that President Obama plans to fund his tax breaks by closing tax loopholes on corporations that outsource jobs. Should Walker have done the same thing? Can Wisconsin penalize companies for outsourcing jobs to other states? Are there specific loopholes Gov. Walker should have closed?

At the end of his speech, Obama listed three values that have made America great: hard work, fair play and shared responsibility. So let’s play fair. If Walker’s tax incentives enabled Diamond Precision and Collaborative Consulting to create jobs in Wisconsin, maybe we should give him credit.

Profit or No Profit?

Did you know that you sometimes pay taxes on profit that isn’t profit at all? The government might be taxing you on inflation.

Pretend I’m saving for a new violin. Yes, this entire post will be a “pretend” because I bought a violin a year ago, and I love it.

What if I find an instrument I like for $8,000? I only have $3,000 saved. I buy gold with my $3,000 and keep saving. Or rather trying to save. You know how it goes. Emergencies keep coming up, and I just can’t squirrel away any more money.

Finally, I check the value of my original investment and see it has doubled. Now my gold is worth $6,000. I’m excited until I find out that the price of the violin has also doubled. It costs $16,000.

I’m no closer to my goal. And when I sell my gold, I have to pay capital gains taxes on its “increased” value. If the capital gains tax rate is 15%, I’ll be sending $450 to the government.

Alan Blinder, a former member of the Federal Reserve Board, admitted that up until 1980 most capital gains taxes were paid on increased prices due to inflation and not on true increase in value. See "Capital Gains Taxes" by Stephen Moore.

The Economic Effects of Capital Gains Taxation makes a similar point. The table at the top of page eleven shows how much investors would pay in capital gains taxes due to inflation if they bought stock in certain years and sold it in 1994.

When the price of everything goes up, it isn’t profit. It’s inflation. Don’t tax it.

Capital Gains Taxes – Part 2

I will now prove how good I am at debate. I am so good that I can argue both sides of an issue. I will proceed to argue against my last post.

It is sometimes true that capital gains taxes are double taxation. Corporations pay high taxes on their profits. This negatively affects the price of their stock. The little bit that the stock increases in value is taxed again if the investor sells it and reports capital gain.

But not all capital gains are from stocks. If someone invests in gold and sells it at a profit, it’s pure profit. No corporate taxes have been paid.

Or is it pure profit? There is that awful word inflation, but I’ll leave that for my next post.

Capital Gains Taxes

Is the capital gains tax rate too low? Not if you look at the whole picture. Pretend you risk your money by investing in a new company. With your money, the business manages to make $100 profit (after expenses, employee's wages, etc.).

"Yay!" you think. You didn't lose your investment. You made money instead. But you forgot one important thing – the corporate tax rate. That business has to pay approximately 40% of its earnings in taxes (state and federal) before it can give any money to you.

So this new business that you supported sends $40 to the government. “Oh, well,” you think, “I still get $60.” Not quite. Once the company sends the $60 to you, you have to pay taxes on it again. Granted it’s only 15% since it’s capital gains. But 15% of your $60 is still $9.

You send the $9 to the government. You figure it’s a rough deal, but at least you got to keep $51 of the $100 that the business made with your money. But then your neighbor complains that you didn’t pay enough taxes – he has to pay 35% income tax.

Ugh! Forty-nine percent of your profit went to the government, and someone is complaining. Well, that’s his problem. You have a different problem. You’re staring at that $51 in your hand and wondering if it’s worth investing it again. Investments are a little risky. Maybe you should hide it under your mattress.