The Name “Affordable Care Act” is 33% Accurate

Adding a little kid to a bill signing makes it 236% more adorable and OH MY GOD WHAT IS THAT HIDEOUS ABOMINATION BETWEEN HARRY REID AND MAX BAUCUS KILL IT KILL IT WITH FIRE

Adding a little kid to a bill signing makes it 236% more adorable and WHAT IS THAT GROTESQUE ABOMINATION BETWEEN HARRY REID AND MAX BAUCUS KILL IT KILL IT WITH FIRE

It’s definitely an act, as opposed to a legitimate attempt to reduce bureaucracy and thereby reduce costs in what used to be a faintly uncomplicated sector of the economy. In fact, the bureaucracy the Act creates is staggering in its depth. It not only makes private health a public concern, but places the mandatory purchase of insurance under the purview of the Internal Revenue Service. Buy coverage or pay a fine. In other words, You’re going to be covered, and you’re going to like it. Do we make ourselves clear? 

How do an ostensibly free people get collectively subjected to such a mandate? Not without substantial effort on the part of a political class committed to see its social agenda enacted. In several steps:

1. Come up with a baseless allegation, quantify it, but do so in such a way that it can’t be disproven, e.g. “47 million Americans don’t have health insurance!”

Many Americans go their entire 20s without health insurance, because it makes economic sense for them. For the tiny likelihood of a young man or woman falling off a cliff and needing $500,000 in treatment, it can be a perfectly rational decision to forgo spending the few thousand dollars in premia.

Furthermore, the few policies available in the oligopolistic market offer little in the way of choice. It’s inefficient for insurers to offer perfectly individualized policies, which leads to semi-generic policies that include maternity coverage for single men with vasectomies. To say nothing of contraception for groups of exceedingly post-menopausal celibate women.

Pay for something and get add-ons that you not only didn’t want but have no possible use for? No thanks. After all, this is a society of people who have petitioned Congress to introduce bills that prevent cable companies from selling packages with superfluous channels. Yet there’s little momentum to prevent something similar in the insurance market. Americans would rather pay for unnecessary drug rehabilitation coverage than pay for unwanted Azteca America and RFD TV

2. Sell the allegation as a flaw in the status quo, a wrong to be righted, rather than the cumulation of personal choice.

It’s not as if most of those “47 million” have ever been prohibited from buying health insurance. They just choose not to.

Again, personal choice, if that isn’t an outmoded concept. Forcing health care coverage on everyone, and artificially flattening the prices, gives incentive to otherwise irrational behavior. As the Roanoke Times recently put it,

[Y]oung and healthy people must pay into a system that would otherwise be overburdened with the costs of treating the older, sicker population

Avoid the short-term decisions that will result in diabetes, heart disease, cirrhosis or something else life-threatening down the road? Why bother? An uninsured rational agent today has tremendous implicit encouragement to not be rash. The forcibly insured rational agent of 2015 does not.

3. Take the allegation to its logical extreme and appeal to emotion. “97-year-old Ida Cruikshank of Ames, Iowa has spina bifida and stage 4 lymphoma. You want to throw her out on the street?” If it means impoverishing the rest of us, sure, why not?

4. Stand economics on its head, and this is the complicated step.

Obviously, a little kid with hydrocephaly is going to cost tons to insure. There’s no way an insurer can make money off a policy underwritten for such a patient, so it makes no sense to offer said policy.

Begin with that moral imperative, that overarching objective - Health care coverage for all, at all costs (the dependent phrase there spoken softly) – and find a workaround. Here’s a conversation that doubtless happened between the ruling class and the heads of various insurers. We don’t have the transcript handy, so our reenactment will have to do:

Anthem CEO: We can’t write policies that we know will lose money.
White House: Yes, but you’re not going to lose money. Listen to this.
Okay, you’re going to lose money on a few policies–those of the uninsurable we mentioned above–by charging below-market rates. HOWEVER, what if we more than made up for it by forcing tens of millions more people, perfectly healthy people, to buy your product? Then…
Anthem CEO: [eyes light up]
White House: You can charge whatever you want, pretty much. Triple market rates, quadruple market rates, knock yourself out. You will have the power of federal law behind you. And don’t think we won’t enforce it.
Anthem CEO: This looks like the beginning of a beautiful friendship.

Don’t believe the journalists. Here’s the money quote from the Department of Health & Human Services’ own website:

[I]nsurers can no longer deny coverage to children because of a pre-existing condition, like asthma or diabetes, under the health care law. And beginning in 2014, health insurers will no longer be able to charge more or deny coverage to anyone because of a pre-existing condition.

Name another commodity for which this makes a lick of sense. The people who are going to consume the most resources will pay as much as those who will use the least (the department said in unambiguous language.) If there’s a fundamental difference between this and, say, a mobile phone service provider charging its international roaming customers no more than it charges the customers who never make non-emergency calls, we’re too stupid to find it.

People Are Corporations Too

At least in the '60s, the protesters were YOUNG and stupid. Not sure what these folks' excuse is.

In the ’60s, the protesters were at least young and clueless. Not sure what these folks’ excuse is.

 

You might not remember this, or have ever paid attention in the first place, and we try not to get too political on here anyway, but 4 years ago a lobbying group named Citizens United was the plaintiff in a big Supreme Court case. The group wanted to televise a film that was critical of a prominent Democrat (Hillary Clinton, if it matters.) The Federal Elections Commission said no, you can’t do that because it violates a 2002 law that forbids organizations such as corporations and unions from espousing such political speech within 2 months of a general election. (The passage of that 2002 law, by the way, is why some political commercials now end with the phrase “I’m Candidate X and I approved this message.”)

Citizens United said the 2002 law is malarkey, we’re still Americans here and free speech is free speech. Just because some people choose to organize themselves into a unit, they don’t vacate their right to support a political position or a candidate. People such as the imbeciles in the picture above can’t understand such a nuanced argument, so they resorted to the simplest slogans that could fit on a placard. Equating “corporations” with “people” was a popular mantra of the time, one intended to shock. How dare the Earth-poisoners at Monsanto or modern-day slavemasters at Walmart think they have any claim to flesh-and-blood personhood! (Why, they can get in line behind the unborn babies.) The folks making the comparison had never bothered to look at the etymology of the word “corporation”, or even understand the most basic principles of a corporation.

“Corporation” has the same root as the words “corpse”, “corporeal”, etc. It’s a body. A corporation is an artificial person, and not in the sense of a robot or a cyborg. It’s an entity in the eyes of the law, an entity created to facilitate business.

If corporations didn’t exist, every business would be run by a sole proprietor or a partnership. Those people could then be liable for debts beyond their personal ones. Put $20,000 of your own money into a business, incur a $150,000 loss when your supplier splits town and your customers cancel their orders, then spend the rest of your life with a negative net worth. Hey, you’d be just like those pathetic debt bloggers!

That’s why any ambitious business sets up as an entity that permits limited liability, as opposed to general liability. “Limited” means that as the owner, you’re only liable for what you put into the company. In the previous example, your losses max out at $20,000. It’s also why as an owner of a large corporation, which of course is what you are when you buy shares in Nokia or Alcatel-Lucent, you can’t lose more than your initial investment. No matter how badly the company performs. Procter & Gamble management isn’t going to call you and say, “Hey, Jennifer? Thanks a lot for the $6500 from your last stock purchase, that really helped out a lot. But we’re stretched this quarter, and I mean stretched. Turns out our new ‘tearless’ shampoo is blinding customers left and right. What I’m saying is, what you’ve forked over so far just isn’t going to cut it. Daddy needs another 5 large, and not tomorrow.”

If it’s good enough for multinationals, it should be good enough for you. Unless it’s run by a complete idiot, even the most modest auto repair shop or coffee bar will pay the licensing fee to the relevant state authority and register as a limited liability company or corporation. It’s a small up-front cost that saves you gigantically on taxes down the road. A business registered as anything less complex than a corporation pays both personal income tax and corporate tax, the worst of both worlds. With a limited liability company, you pay only corporate tax, which is typically going to be less than personal income tax.

Our tax code is famously arcane and nonsensical in places, but this is one twist they got right. If there was no added incentive for creating a business, no one would ever do so and the economy would remain static. You need to encourage people to take risks. That doesn’t mean covering their losses, as corporations go bankrupt all the time. It just means making it attractive for people to go into business. That way, if everything works out, they can a) sell goods and services that make customers happy and b) hire people to make/sell/lease/provide those goods and services.

The best part is that even just one person can incorporate. To keep this in language that’s legally and technically sound, you can create a corporation that’s coextensive with just you. You and the corporation are still separate entities as far as getting sued, representing one entity or the other in court, paying taxes, etc., but for practical purposes you’re one and the same. With all the benefits illustrated above. You still need to have a legitimate business behind this – financial accounting, audio post-production, furniture repair, gutter cleaning, tree surgery, whatever – but once you create a limited liability company you’ll be miles ahead of the suckers who can’t understand why life is so hard and why Uncle Sam takes an ever-increasing bite that renders forward movement impossible.

Embrace corporatehood. Start here. Chapter X.

Mail Pouch

Let's play "Guess What's In My Pouch", a game popular with kids in each hemisphere

Let’s play “Guess What’s In My Pouch”, a game popular with kids in each hemisphere

We’d call it a mailbag, but it features only one question. Here it is, barely edited:

Believe it or not, this is a real question (unlike what you find twice a week in The Simple Dollar’s mailbags), and one I haven’t been able to find an answer to thus far.

The situation: my wife and I are pushing right up against it.  In 2012, we were below it. In 2013….I have no idea where we’ll end up, but it’ll be right near the limit.

So here’s my question: if I don’t know if I’ll be above or below the income limit, can I/do I contribute to the Roth IRA? Why isn’t this clearer, by, for example, setting your ability to contribute THIS year to LAST year’s MAGI? (Duh — stupid government making things far too complex.) What happens if I contribute the max to our Roth IRAs this year but we end up OVER the limit? Do we have to pull our money out of the Roth IRAs?

Thanks

Chad, Chicago

Even though Chad’s a lawyer, we’re answering his question during one of our non-billable hours. MAGI is Modified Adjusted Gross Income, which to our horror we discovered that we’ve never defined on this site. By the way, if you think the term is redundant because “modified” and “adjusted” are synonyms or close enough, then you’ve never worked for the IRS. MAGI refers to the amount of income that serves as the baseline from which you’re allowed to make IRA contributions that you’re allowed to deduct from your taxes. MAGI derives from Adjusted Gross Income, which itself is a prolix way of saying “taxable income.” AGI is income (from taxable sources) minus the amounts that IRS agents have deigned to let you deduct. You want your AGI to be as low as possible, relative to your true income. MAGI adds some items back in, including any income you made in another country, student loans you took out, and for Chad’s purposes, contributions to his IRA.

Assuming Chad is under 50, he could contribute up to $5000 to his IRA for 2012, and $5500 for 2013. The income limit he’s referring to is $178,000 for him and his wife for 2013. Up to that point, he can contribute the maximum of $5000. Beyond $188,000 (not a typo), he can’t contribute anything. Between $178,000 and $188,000 is where it gets tricky.

Here goes, and we’ll try our best to turn the IRS’s impenetrable jargon into English. However much Chad & wife’s MAGI is over $178,000 (up to $188,000), he divides it by $15,000, and then subtracts that from 1, which gives a number between ⅓ and 1. Then, take that number and multiply it by the maximum contribution limit – again, $5500 for 2013. That’s the amount that Chad is permitted to contribute, reduced because of his inability to make a particular amount of money that doesn’t fall within the prescribed limits.

So what do to if Chad’s 2013 income, a work in progress, exceeds the limit? The way around it is to open another IRA, a traditional one, with the same company that manages his Roth IRA. At the end of the year, should he have contributed “too much” money to the Roth IRA, Chad can move the excess to the traditional one. No fuss, no muss. Of course, this is assuming that (sigh) neither he nor his wife qualifies for a 401(k) (or a 403[b], or something similar) at work.

(God, no wonder most personal finance bloggers write about how to build emergency funds and sell their DVDs on eBay. It’s way easier than this.)

Upon further review, sure enough Chad and his wife both qualify for 401(k)s. If they didn’t have 401(k)s, they still qualify for them, and that’s as bad as being there. So Chad plans to wait until December, at which point he’ll put a trivial amount – $100 or so – into both his and his wife’s Roth IRAs. By then he’ll obviously have a better idea of what his 2013 modified adjusted gross income will be. He’ll have until the following Tax Day to make contributions to his Roth IRA, contributions that will be considered as being made in or for 2013. He’ll be able to max out his Roth IRAs as much as possible, regardless of what his and his wife’s MAGI are.

There’s one more way around this. Chad and wife can still contribute to their 401(k)s of course, without worrying about the Roth IRAs. Beyond that, if they want to shelter even more of their money, they can read Chapter X of The Greatest Personal Finance Book Ever Written and create an S corporation or a limited liability company. Doing so is more than just shuffling paper – the business would have to be generate some form of income. But that doesn’t mean Chad would have to operate a hot dog cart on nights and weekends: said income can derive from investments. Then, he can shelter that income in a separate IRA, or a defined benefit plan. This is more complex than Chinese differential calculus, but the more money you make, the more you want to keep it from the taxman (and the harder Congress makes it for you to do so.)

Remember, the biggest difference between an IRA and a 401(k) is that the limits for the former are set by the IRS, those for the latter by your employer. We here at CYC prefer IRAs only because we hate having regular jobs.

Send your questions, masochistic or otherwise, to info @ ControlYourCash.com.