Looking into the future - Taxes

[New Thinking]

As I look into the future, it seems evident to me that tax rates must go up..I just don't see MAJOR changes to Medicare, SS, or Medicaid..The boomers hitting retirement will result in even higher deficits going forward..Whatever your politics might be, what you saw with the SS debate last year was that it was tremendously difficult to change an entitlement program even for those who are not on the cusp of retirement..I just see higher and higher tax rates..I also see some means testing for Medicare..I doubt that you will ever see it for SS as it would be a disincentive for people to save for retirement...and the onus is on the individual to save since DB pensions are fading away..But with Medicare, I do see higher premiums being paid by those who have higher income..In fact, it is not known by many but the recent Medicare law (which includes prescription drugs - Part D) includes higher premiums for those with AGI over a certain amount...Bush's proposal this week included more of the same..I do see this coming more and more to fruition..I don't see Medicare being cut drastically because retireee healthcare paid by employers is vanishing and the AARP and others are very powerful voting blocks and only getting stronger..Therefore, the only answer may be to raise taxes and raise premiums for those with higher incomes....The bottom line is that I think getting as much income into Roth will be a very valuable exercise..Get your AGI below $100k and convert to Roth..This will make your nest egg last longer..Also, contribute to a Roth 401k if your employer will offer it..The government could always choose to tax Roth but I doubt that would ever happen as politicians would be run out of office..What is more probable, but still highly unlikely is that Roth income becomes "countable" when determining how much of one's SS is taxed and what their Medicare premium is.

I would be interested in your own thoughts. Have a good day.

 

[yakers]

Well another approach (or "solution"?) would be to have a national sales or VAT tax. By taxing consumption sources like savingings, Roths and "invisble" money would be tapped. So the wealthy would pay more but only when they bought something. This seems to work OK in Europe but it hasn't been tested by their low population growth yet. It may be that no one (US, Europe, Japan, China) has a solution.

 

[macdaddy]

I think that around 2015 we will see the return of an upper bracket in the 40s and an estate tax at around 2 million (which will of course sound harmless but will affect a lot more families due to 401ks and real estate).  The bottom line is that the money to fund medicare and SS will have to come from somewhere and the US will not be able to borrow the entire amount forever.  At that point I don't think a top bracket in the 40s will even be much of a disincentive for people to work, as they will need every penny they can find to make houes payments and cover the increased COL.  So it may even force them to work more for less. 

A means test on medicare is a possibility.  My parents have anticipated this and have discussed some options.  They receive a pension of ~ 75k/year with COLA and will receive whatever the maximum SS payment is.  That should put them at 100k/year.  They also have two rental properties (1 million each) ~ 1.5 million in retirement accounts and 500k in cash investments.  I am sure they are the type of boomer who the Government will try to soak to help pay for the others who weren't as lucky/didn't prepare as well (and it was definitely a combination of both).  They want to put the two properties and the 500k in cash investments into a corporation (where the profits will be reinvested) that my sister and I will slowly take over - over the course of 15 or 20 years.  They also want to try to somehow gift down the 1.5 million in retirement accounts to me so that I can hold it in my name.  I am not sure how to do this and need to look into it.  So in the eyes of the Government they will just have their primary home paid for and fixed income of 100k.  But of course the other money will be there for them if they need it (and I can pay their nursing home/medical bills which are not considered gifts and subject to tax).  This will also avoid an estate tax if one is implemented.

I don't know how many other people in their situation have anticipated this and have started to plan for it, but I would think that a fair number have.

 

[Nords]

I don't know how many other people in their situation have anticipated this and have started to plan for it, but I would think that a fair number have.

Sounds like lifetime employment for lawyers & accountants, but it's unfortunately what the legislation forces one to do at that asset level.

I'm sure your parents would rather have their assets go to their long-term care rather than to income taxes or estate taxes.

 

[rmark]

Social Security might be a fully taxed fixed pension after non-cola AMT and rising Medicare cost.

 

[Marshac]

New Thinking- check out the book "the coming generational storm" Also, check out this MIT lecture by one of the authors (grab a cup of coffee, it's not a quick lecture, but it's very good)

http://mitworld.mit.edu/video/202/

 

[Marshac]

I'm strongly against means-testing a system which everyone paid into- everyone should have equal access since it is NOT welfare.

If medicare switched into a Canadian type of socialized medicine, it could be a lot cheaper than that we have now. In 2005, Canada spent $130B CAD while the US is proposing to spend $450B USD in the FY 2007 medicare budget..... which doesn't even include what we spend on medicaid.

So what's going on here? Why can Canadians provide a base level of coverage to everyone in their country, while we spend much more on medical coverage and STILL have millions uninsured? Many Americans like to think of socialized medicine as the boogie man, but our lack coverage is becoming a competitive liability as well.

 

[New Thinking]

Marshac - Thanks..I had read the book when it came out..Quite good..Ironically, what might bail us out from some of this is that 80% of boomers say they are going to work during retirement...As everyone (even if collecting SS and Medicare) still pays into FICA, higher funding will occur..

 

[HFWR]

Yes, I fully expect many Boomers will work because they're in debt up to their keisters and have no savings at interesting, fulfilling avocations...

 

[macdaddy]

I think we will see an interesting split between boomers in professions where there is little/no age discrimination and boomers in professions where this is significant age discrimination. Manual laborers who simply can't put up with their work anymore will also be at a real disadvantage.

 

[grumpy]

I. In 2005, Canada spent $130B CAD while the US is proposing to spend $450B USD in the FY 2007 medicare budget.....

So what's going on here?

Marshac,

Considering the disparity in the population size of the two countries under discussion the difference in amount spent does not seem out of line. Am I missing your point?

Grumpy

 

[macdaddy]

A big difference is that US hospitals like to buy lots of expensive equipment, whereas Canadian hospitals tend not to. If you need certain tests done or procedures performed, they have to ship you off to Toronto or Montreal. A hospital in any US city with a population >125k would be able to offer all the same services in house. I read a report somewhere that said that on average we have more than 10 times the equipment that Canada does, AFTER adjusting for population differences. Whether this is a good use of funds or not is debatable. But if you need the tests in a hurry then it's good for you, and even if you could wait it's a lot more convenient not to have to travel 500 miles away.

"If medicare switched into a Canadian type of socialized medicine, it could be a lot cheaper than that we have now."

Also I don't understand your statement as medicare is already "socialized medicine" - it is a Government payer system that most doctors and all hospitals are forced to accept. If you want to cut back on new investments in equipment then patient care will suffer. If you want to reduce physician salaries then wait times will grow longer. Unfortunately the easiest way to save the most amount of money would be to target a small percentage of the population (chronic smokers and people over 80 years of age) and stop paying ridiculous sums to keep them alive against the forces of nature/their own best efforts. Obviously that will never be a politically viable solution...

 

[Marshac]

Considering the disparity in the population size of the two countries under discussion the difference in amount spent does not seem out of line.  Am I missing your point

You are missing my point. You're trying to compare two totally different systems. One system covers every man, woman and child in the country, while the one we have here covers 14% (42M out of 295M) of the population.

Lets look at how many people are on the Canadian system-32,805,041 (CIA factbook #) which comes out to be about $4k CAD per person.

Here in the US, we have about 42 million people on the medicare (not counting medicaid) system at a cost of $450B USD- this comes out to be almost $11k USD per person.

If the Canadian system were inferior, then why would they have a longer life expectancy, and a lower death rate for cancers? Better access to medicine perhaps?

macdaddy- Usually when one talks about socialized medicine, one talks about a system that covers 100% of the population, not just 14% of it. Technically, you are correct though, the definition of "socialized' means to place it under government control- and since it is a government program, it does fit.

You talk about saving money, how about allowing the government to negotiate for prescription drug pricing the way the VA does? Regardless, take a look at this for a good comparison of the two systems.

 

[samclem]

Marshac,

-- You need to use comparable populations or stop using numbers. Almost all the folks in Medicare are over 65, while the Canadian figures cover the entire population, young and old alike. I'm not surprised that medical care for people over 65 costs 3 times more than the population as a whole.

Newthinking,
-- I disagree with your assumption that Roths won't be taxed. I hope they aren't but I would not be too surprised for the rules to change. (

 

[macdaddy]

"You talk about saving money, how about allowing the government to negotiate for prescription drug pricing the way the VA does? Regardless, take a look at this for a good comparison of the two systems."

Sure, you are correct. The premium the US pays in this area subsidizes drug development for the entire world. As such, that portion of the budget should sort of be considered "foreign aid". Some people might consider the US to have a moral responsibility in this area since we are the richest country in the world and the only current superpower. Eventually I think the US will be forced to stop this practice, probably when the medicare population doubles from 14% to 28% and becomes much older and sicker (~ 2020). The result is that a few drugs that would have otherwise been greenlighted will not make it through, but maybe the money can be better spent elsewhere.

In my experience the US system is more costly but does produce better "care". One example is the higher availability of equipment that I outlined above. There are also problems with any system that is 100% Government run. Sometimes these problems turn ridiculous: a couple years ago Canada found it had trained too many neurosurgeons who were ready to leave residency and enter private practice. The "system" only had 4 spots open I think for 9 graduates. There wasn't any money available to pay for salaries for the others. Now I am sure the wait time for a neurosurgical case in Canada is not less than a month which means that the extra surgeons could have provided a significant improvement in the speed and quality of care. Not to mention providing better call coverage for head/spinal trauma. But because the "system" couldn't find what I am sure would only have been an extra couple million dollars (very well spent), the extra neurosurgeons had to come practice in the US until openings could be found for them.

 

[macdaddy]

-- You need to use comparable populations or stop using numbers. Almost all the folks in Medicare are over 65, while the Canadian figures cover the entire population, young and old alike. I'm not surprised that medical care for people over 65 costs 3 times more than the population as a whole.

This is true. Also we tend to keep sicker people alive longer than they do in Canada. For whatever reason - families in the US seem to prefer to prolong illnesses as long as they can (witness Schivo or whatever her name was). I am sure Canadians are more likely to pull the plug (which I will give them credit for). I don't remember the exact number but something like 50% of health care costs are spent in the last 3 months of people's lives... under any system I would imagine.

 

[Marshac]

Marshac, 

  -- You need to use comparable populations or  stop using numbers.  Almost all the folks in Medicare are over 65, while the Canadian figures cover the entire population, young and old alike.

Believe me, I would LOVE to throw in medicaid, but I couldn't find any good #s- I would think that including medicaid would provide a much better cross section of the population.

I just dislike it when people rag on a system that does a fairly decent job of providing a base level of coverage to everyone in the country. Many people in Canada also carry private health insurance through their employers, and just as one would expect, they have access to an even higher level of coverage. Having had the opportunity to discuss the Canadian system with real Canadians, I honestly believe it's not as horrible as some groups here in the US like to make it seem... usually the ones that make it sound really horrible are the ones who have the most to gain from preserving the status quo.

Universal coverage (or the lack of it) really came home for me about 3 years ago when my fiance developed an abscess in her cheek. First off, she didn't have any medical coverage, and being that we weren't married, my coverage did nothing for her. It really sucked to see her cry in pain and suffer while feeling totally utterly powerless to help. I had just graduated from college and started my first job, and really didn't have the financial resources to pay for anything out-of-pocket. Fortunately she is 1/8th native american, so we were able to drive 5 hours to an indian clinic where she was able to be treated. If it had not been for her lineage, I don't know what I would have done... used the plastic perhaps?

 

[macdaddy]

Universal coverage (or the lack of it) really came home for me about 3 years ago when my fiance developed an abscess in her cheek. First off, she didn't have any medical coverage, and being that we weren't married, my coverage did nothing for her. It really sucked to see her cry in pain and suffer while feeling totally utterly powerless to help. I had just graduated from college and started my first job, and really didn't have the financial resources to pay for anything out-of-pocket. Fortunately she is 1/8th native american, so we were able to drive 5 hours to an indian clinic where she was able to be treated. If it had not been for her lineage, I don't know what I would have done... used the plastic perhaps?

Sorry to hear about your experience Marshac. 1. Depending on what state you were in, and her income, she may have qualified for state aid? In some states this is very easy to get and the hospital will help you get it. 2. Isn't an abscess bad enough to cause that kind of pain considered an emergency procedure? If you went to an ER a General Surgeon probably could have taken care of it for you. You could have either given a false name (I am not advocating that but some people do it to receive free care) or just negotiated the ER bill down afterwards. 3. My mother actually had to deal with the same problem (an abscess) and since I help her with mail I saw the bill - it was $320 for the procedure, which only took about 25 mins. It might not have been as expensive as you thought (in case something like this happens again) and if you make it known that you have to pay in cash with your own funds many doctors will slash the bill 50% for you.

So many moochers abuse the "free" ER system in the US that I would feel happy if some tax payers did also...

 

[sgeeeee]

Many Americans seem to believe their healthcare system is superior to all others and that the superiority justifies the high costs.  Some even seem to question that the cost is high.  But the people who provide data always seem to prove just the opposite.  

 

[Marshac]

Sure, you are correct.  The premium the US pays in this area subsidizes drug development for the entire world.  As such, that portion of the budget should sort of be considered "foreign aid". 

This is 100% false. The pharmaceutical industry spends more money on consumer marketing than they do in R&D- they also employ more people in marketing than they do in R&D.

 

[Marshac]

Sorry to hear about your experience Marshac.  1. Depending on what state you were in, and her income, she may have qualified for state aid?  In some states this is very easy to get and the hospital will help you get it.  2. Isn't an abscess bad enough to cause that kind of pain considered an emergency procedure? 

She belongs to a special group of individuals who are not eligible to receive any form of social assistance, regardless of income or need- she is a student.

As for the ER- this is one of the reasons why insurance/medical costs are so high- ERs are legally required to render services regardless of the ability to pay, so they pass some of the treatment costs onto people who can. What's the old saying? An ounce of prevention is worth a pound of cure? Simple conditions go untreated due to a lack of affordable medical access, eventually they land in the ER.... and the cycle repeats.

Doesn't the fact that you're somewhat advocating abusing the system by providing false information just scream "something is wrong with the current system"? I'm not advocating Cadillac coverage for everyone by any means- just some base level of coverage that anyone can access so that simple injuries or illnesses don't develop into serious conditions necessitating expensive ER visits.

 

[ladelfina]

Marshac, I'm so sorry about your fiancee's painful experience. You are 100% right. There was an article in The New Yorker that talked about basic care and prevention in pretty much these terms. Those who delay getting small things taken care of end up costing everybody a heck of a lot more when those small things turn into big things, not to mention the unnecessary suffering.

Bad tooth => abscess => infection  => invalidity  => loss of job  => loss of house  => welfare

That's an extreme case, but millions and millions of people are in the position of being too "rich" for Medicaid yet too poor to pay health ins. premiums.

I have arguments with my Republican sister about this all the time. I think capitalism and free markets are fine when you talk about almost anything besides health care. Your house, your clothes, your food, your car, are all choices. Your kid's cancer is not a choice. You are not going to shop it around to the lowest bidder.

Even the Brits, who invented the "stiff upper lip", are not as cruel as we are in this country. Yet we are willing (hypocritically) to pull out all the stops for a case like Schiavo's? Where would she have been if she hadn't had family/insurance footing the bill for all those years and willing to keep on maintaining her ad infinitum? It would have been a non-issue since she wouldn't have been kept around long enough for anyone to make a stink about it. This goes no matter what opinion you hold about the outcome.

There's a lot of info in the article about comparative spending and statistical results, for example:

Switzerland, Japan, Austria, and Finland all have more MRI machines per capita

The United States spends more than a thousand dollars per capita per year—or close to four hundred billion dollars—on health-care-related paperwork and administration, whereas Canada, for example, spends only about three hundred dollars per capita.

 

[Martha]

Bad tooth => abscess => infection => invalidity => loss of job => loss of house => welfare

That's an extreme case, but millions and millions of people are in the position of being too "rich" for Medicaid yet too poor to pay health ins. premiums.

People also seem to forget that just because you are poor, that does not mean you are eligible for medicaid or welfare. If you have no children, and are not disabled, odds are that no matter how poor you are, you will not be eligible for medicaid or cash assistance.

You can go to the hospital and get emergency treatment, but you will owe for the treatment. Try to negotiate rates when you are sick and wanting treatment now.

Minnesota has a program for very low cost health insurance for those who are not eligible for medicaid and cannot afford insurance on the market. The program is MinnesotaCare. It mostly covers middle age and older single people who have few assets, and are not eligible for medicare yet. Often people on the program have chronic diseases that impair their ability to earn a good living, but don't make them disabled under social security standards. However, any poor person without insurance can be covered by the program. Very good program that our esteemed governor keeps trying to cut.

 

[cute fuzzy bunny]

One area to investigate is the availability of medical grants. There may be a better term than that, but I've seen that one used heavily. Some people and organizations set up medical trusts to pay the medical bills of self supporting people who cannot afford medical care. When my brother in law the idiot had a car accident with no medical insurance, his mom the nurse found grants to cover almost all of his medical and recovery costs. Probably helps a lot to have someone plugged into the system.

 

[Eagle43]

A little history might help. Looks like the Republicans, in cahoots with the AMA, defeated Harry Truman's national health proposals in 1948.

http://www.bookrags.com/history/americanhistory/america-1940s-medicine-and-health/sub11.html

Defeat.

When the Republicans took control of Congress in 1946, they had no interest in passing national health insurance. The president focused more attention on the issue as the 1948 election approached. After Truman's surprise victory, the AMA thought the end of the world as they knew it had come. It assessed each of its members an additional $25 solely for the purpose of fighting national health insurance. Its battle in 1949 cost $1.5 million, at that time the most expensive lobbying effort in American history. "Would socialized medicine lead to socialization of other phases of American life?" demanded one pamphlet. It answered, "Lenin thought so. He declared: 'Socialized medicine is the keystone to the arch of the Socialist State.' " (The Library of Congress was not able to locate this quotation in Lenin's writings.) Even though the administration insisted that national health insurance was not "socialized medicine," the AMA campaign was so successful that even supporters of the bill identified it as socialization and therefore tantamount to communism. Public support dropped rapidly, and as anti-Communist sentiment rose later in the decade, national health insurance all but disappeared from sight, defeated by the AMA's considerable wealth, prestige, and publicity and by support from businesses that did not want the additional costs of health insurance. From that time public policy on health care fragmented, and each government health agency pursued its own special agenda. A unifying national health-insurance proposal was down, but not out, and would appear again from time to time in the decades to come.
Sources:

"It's Socialized Medicine, All Right, Says AMA of the Truman Proposal," Newsweek (17 December 1945): 84+;