Subsidies - What Do You Think?

[RetireBy90]

Separate response to OP about subsidies, don't forget all the corporate subsidies you and I pay for, think of drugs that are offered to low income for $15 a month (just saw the latest commercial on TV last night with this offer).

Then there are mandated corporate subsidies, like the extra tax on your phone(s) to pay for rural areas and now extended to anyone that wants an Obama phone.

Then there are the subsidies provided if you can shoehorn your way into free or reduced lunches. In Fairfax VA there is no reduced, we do free to both groups. Also give them free parking that others pay $300 per year at the high schools, free no-fee band or other activities, and free yearbooks.

You can say these are good or bad, but just wanted to point out another group of off the book subsidies that don't get counted as part of the tax you pay the feds or local govts.

 

[JoeWras]

One time I ate some Government Cheese, early 80s I think. Somehow, our family got a huge block of it from someone else in the family who was eligible for it and apparently they were giving away extra.

Rumor has it that Government Cheese is stockpiled real high right now. Not sure how they give it out these days, but maybe you too may find yourself sampling a bite.

 

[Texas Proud]

For some reason that I can't explain, the only one that really bothers me is Medicaid planning where people structure their finances so that taxpayers pay for their long-term care while subsantial assets get transferred to their children rather than having those assets used to pay for their long term care.

I have thought about this a bit... and I think I can put some meat on the bone...


The reason being is that the help looks at assets... IOW, to get help you are not supposed to have much net worth... hiding net worth is cheating the system...


For the ACA credit, they looked at assets and rejected that as a criteria... so it is income... I report 100% of my income for this credit... since assets has nothing to do with the decision I do not hide it... but if assets were part of the equation then I would not be getting it since I am not going to be hiding assets...


Now some will say that I can choose what my income will be to manipulate the credit and they will be right... however, I am reporting 100% of that income... and I have to take money out of accounts that do not cause taxable income to my detriment as that money is not growing tax free anymore...


And income manipulation has always been done... you sell your losing stocks, you wait for a gain to become LT instead of ST, heck, you do not sell because you do not even want a gain... all manipulation of income.. but still not hiding it...


Edit to add.... the games to hide the assets are such that the person still has control of them... if they got rid of them all where they had no control at all I think it would be different... but maybe not...

 

[pb4uski]

I have thought about this a bit... and I think I can put some meat on the bone...


The reason being is that the help looks at assets... IOW, to get help you are not supposed to have much net worth... hiding net worth is cheating the system...


For the ACA credit, they looked at assets and rejected that as a criteria... so it is income... I report 100% of my income for this credit... since assets has nothing to do with the decision I do not hide it... but if assets were part of the equation then I would not be getting it since I am not going to be hiding assets...


Now some will say that I can choose what my income will be to manipulate the credit and they will be right... however, I am reporting 100% of that income... and I have to take money out of accounts that do not cause taxable income to my detriment as that money is not growing tax free anymore...


And income manipulation has always been done... you sell your losing stocks, you wait for a gain to become LT instead of ST, heck, you do not sell because you do not even want a gain... all manipulation of income.. but still not hiding it...


Edit to add.... the games to hide the assets are such that the person still has control of them... if they got rid of them all where they had no control at all I think it would be different... but maybe not...

I think that in most cases of Medicaid planning, the person loses control of the assets and gives them to their kids.... so they enrich their kids and we pay for their care rather than taking responsibility for their own costs and us stepping in if they run out of money or their kids getting anything that is leftover. Also, the $ magnitude is different and much greater... probably what... $50k+ a year for one person?...ACA subsidies are chump change by comparison.

 

[Teacher Terry]

ERD, for some kids the only meals they get are the free ones at school. Talk to teachers in poor school districts. Not having enough to eat affects people both physically and psychologically sometimes for life. I had 3 kids on my caseload that were born with normal IQ’s but by age 5 were diagnosed with intellectual disabilities previously known as mental retardation due to a lack of FOOD.

 

[ERD50]

ERD, for some kids the only meals they get are the free ones at school. Talk to teachers in poor school districts. Not having enough to eat affects people both physically and psychologically sometimes for life. I had 3 kids on my caseload that were born with normal IQ’s but by age 5 were diagnosed with intellectual disabilities previously known as mental retardation due to a lack of FOOD.

And my point is that a serious issue must be treated seriously.

When some people/groups throw around nearly meaningless statistics (and I'm not accusing you of this), and present them as if they mean more than they do, and apply to a larger group then they do, they undermine the real issue. That is counter-productive, and should be rejected by those who see the problem as being a serious one.

-ERD50

 

[Dtail]

I think that in most cases of Medicaid planning, the person loses control of the assets and gives them to their kids.... so they enrich their kids and we pay for their care rather than taking responsibility for their own costs and us stepping in if they run out of money or their kids getting anything that is leftover. Also, the $ magnitude is different and much greater... probably what... $50k+ a year for one person?...ACA subsidies are chump change by comparison.

Good explanation by Texas Proud and yes the parents do usually give up control through the establishment of an irrevocable trust. This also leads to more use of tax efficient assets in the trust, since the max tax rate hits at below 15k.

I do agree with pb4uski's general reasoning (even though I am a big fan of ACA income management), but my parents pushed heavily for a trust to be set up.

 

[Teacher Terry]

We are not sheltering our money for our kids. To do so shows a lack of integrity. Medicaid is for people that exhaust their assets. As a country we cannot afford it either.

 

[Texas Proud]

I think that in most cases of Medicaid planning, the person loses control of the assets and gives them to their kids.... so they enrich their kids and we pay for their care rather than taking responsibility for their own costs and us stepping in if they run out of money or their kids getting anything that is leftover. Also, the $ magnitude is different and much greater... probably what... $50k+ a year for one person?...ACA subsidies are chump change by comparison.

I am sure that a good number do give the money away, but that is not the only way... you can set up a trust... it was proposed to me for my mom in order to get VA benefits since my dad was in the army during WWII...


BTW, this is a WAG but I would think more people are getting ACA subsidy than people getting medicaid for nursing homes... I am sure if I am wrong someone will show me....

 

[MichaelB]

I think that in most cases of Medicaid planning, the person loses control of the assets and gives them to their kids.... so they enrich their kids and we pay for their care rather than taking responsibility for their own costs and us stepping in if they run out of money or their kids getting anything that is leftover. Also, the $ magnitude is different and much greater... probably what... $50k+ a year for one person?...ACA subsidies are chump change by comparison.

Do you have any idea how big an issue this is? I've looked but not found any reliable data.

 

[pb4uski]

Do you have any idea how big an issue this is? I've looked but not found any reliable data.

No idea... I suspect much less than ACA subsidies.... but I also suspect that the vast majority of ACA subsidies are people who deserve it and a small minority are asset rich folks who manage their income to get subsidies... just like the vast majority of Medicaid LTC recipients are also deserving and a small minority have done Medicaid planning... one difference is that the amount of the benefits are much larger for LTC.

 

[Aerides]

A little googling and AARP:

In 2004, approx 1.5M in the US were in nursing homes (NH)
Approx 65% of NH residents are paid by medicaid, with 45% of all NH costs being paid by Medicaid (don't quiz me on the math)
Avg stay is not long... 68% are <3 months, only 7% over 3 years
Semi Private room is 66k per year

So that looks like something north of 10B per year?

ETA: of course, no way to parse how much of that is truly just poor elderly, vs. hid-the-money to meet medicaid.

https://assets.aarp.org/rgcenter/il/fs10r_homes.pdf

 

[Texas Proud]

Well, I will put one down that I find over the top....


Farm subsidy... more specifically them paying NOT to farm... my last boss's father had a farm in north Texas and was paid to not farm... when he passed his widow was also paid to not farm, but she had zero intention of farming... this went on for many years until she could not take care of herself and he sold the land...


And he was big into complaining about all the taxes he had to pay etc. etc.....


At least with these kind of payments they should look at them every once in awhile and make sure they are warranted...

 

[Huston55]

No idea... I suspect much less than ACA subsidies.... but I also suspect that the vast majority of ACA subsidies are people who deserve it and a small minority are asset rich folks who manage their income to get subsidies... just like the vast majority of Medicaid LTC recipients are also deserving and a small minority have done Medicaid planning... one difference is that the amount of the benefits are much larger for LTC.

A little googling and AARP:

In 2004, approx 1.5M in the US were in nursing homes (NH)
Approx 65% of NH residents are paid by medicaid, with 45% of all NH costs being paid by Medicaid (don't quiz me on the math)
Avg stay is not long... 68% are <3 months, only 7% over 3 years
Semi Private room is 66k per year

So that looks like something north of 10B per year?

ETA: of course, no way to parse how much of that is truly just poor elderly, vs. hid-the-money to meet medicaid.

https://assets.aarp.org/rgcenter/il/fs10r_homes.pdf

So, here’s a bit more research. Short answer is the $ impact of “Medicaid Planning” (those who hid the money) is small.

This study (excerpt & link below) is a bit dated but, is directed precisely at this question. If Aerides rough estimate of Medicaid funded LTC is close, then the $ impact of “Medicaid Planning” is miniscule compared to the larger “subsidies” discussed earlier in this thread.

“Policy Implications”
“The findings of this research are similar to those of most previous studies: Although asset transfer to secure Medicaid eligibility does occur among elderly people in the community and 9% to 15% of new Medicaid-eligible nursing home residents have in fact transferred assets, the mean amount transferred by institutionalized recipients was only about $4,000—less than the cost of one month of nursing home care in many markets. The policy implications are similar as well to those drawn by most previous researchers: Though it may be inequitable for more affluent elders to transfer assets to children in order to qualify for Medicaid nursing home benefits, the absolute dollar losses to the program—at least from this kind of estate planning—are small.”

https://www.ncbi.nlm.nih.gov/pmc/articles/PMC1450010/#!po=29.1667

 

[daylatedollarshort]

As long as billionaires are getting farm subsidies and stadiums paid for with tax dollars, I will quite proudly do all the legal Medicaid planning I can in my later years with zero guilt.

 

[Independent]

When I look at the dollars of tax preferences, retirement plans are significant.

I'm okay with direct payments to old people (regular Social Security and SSI). I can support programs that allow old people to live indoors and buy food in grocery stores. Maybe we should increase the minimum benefits for them.

However, we give tax preferences to defined benefit pension plans all the way up to $218,000 of annual benefits, and defined contribution up to $55,000 of annual contributions (combined -er -ee).

I don't see the point in that.

I can see the argument that we shouldn't tax ordinary workers on nominal gains which aren't real due to inflation. And, I can see that one practical way to do that may be to provide IRA-type defined contribution plans.

So, I'm really talking about the max. The ordinary IRA number ($5,500) is much closer to the maximum I'd pick than the numbers I see for employer sponsored plans.

(Yeah, I know, this is probably the worst possible internet forum to post that opinion.)

 

[Chuckanut]

As long as billionaires are getting farm subsidies and stadiums paid for with tax dollars, I will quite proudly do all the legal Medicaid planning I can in my later years with zero guilt.

A good point. If we do away with subsidies it must be for everybody. My fear is that the middle class subsidies will go first, and then the train will come to a quick stop.

Remember that crease in the SS law that let some people collect on their spouses SS record while letting their own SS payment increase until they are 70? The Congress did away with that very quickly and efficiently with little partisan bickering. Hmmm......

 

[NW-Bound]

... Remember that crease in the SS law that let some people collect on their spouses SS record while letting their own SS payment increase until they are 70? The Congress did away with that very quickly and efficiently with little partisan bickering. Hmmm......

Right. What was the rationale for that, initially?

I am still mad that they took it away before I could use it.

PS. Not just collecting 1/2 off the spouse, but one could also collect off the ex's SS (if still unmarried) while waiting till 70.

When SS fund was flushed, they were just looking to "blow some dough".

 

[Moemg]

As long as billionaires are getting farm subsidies and stadiums paid for with tax dollars, I will quite proudly do all the legal Medicaid planning I can in my later years with zero guilt.

I would take a good look at the options given to Medicaid only patients before you make that decision .

 

[daylatedollarshort]

I would take a good look at the options given to Medicaid only patients before you make that decision .

I am sure when the time comes our family will look at the options and make a good decision regarding the various trade-offs. But wanting to save money for the federal government over my kids by my not taking advantage of perfectly legal Medicaid planning strategies won't be high on my list of considerations.

 

[ncbill]

I am sure that a good number do give the money away, but that is not the only way... you can set up a trust... it was proposed to me for my mom in order to get VA benefits since my dad was in the army during WWII...


BTW, this is a WAG but I would think more people are getting ACA subsidy than people getting medicaid for nursing homes... I am sure if I am wrong someone will show me....

Direct transfer or trust the "look-back" period is 5 years.

So not a big deal in the scheme of things.

Those on Medicaid for long-term care have simply run out of whatever money they have.

In hindsight, however, I wish I had transferred the house to my younger sibling.

They lived with and took care of mom for longer than the 2 years required to be an exempt transfer under Medicaid rules (didn't know about that option at the time)

Instead I made them move out to what turned out to be a series of crappy apartments.

Which I'm sure cost them far more than if I had simply told them to keep the house.

 

[Huston55]

Direct transfer or trust the "look-back" period is 5 years.

So not a big deal in the scheme of things.

Those on Medicaid for long-term care have simply run out of whatever money they have.

In hindsight, however, I wish I had transferred the house to my younger sibling.

They lived with and took care of mom for longer than the 2 years required to be an exempt transfer under Medicaid rules (didn't know about that option at the time)

Instead I made them move out to what turned out to be a series of crappy apartments.

Which I'm sure cost them far more than if I had simply told them to keep the house.

I lived through a similar situation with DM and a sibling who already owned her own home so, no ‘series of crappy apartments.’ So, I understand the gratitude you have for a sibling who was there with you carrying the load. Have you thought about making it up to her/him now? It’s not too late, and might be good for you both. Just a thought.

 

[bada bing]

The CBO & JCT links are great reference material for describing the big picture of ‘subsidies.’ However, it seems somewhat ironic to me that CBO/JCT call them “Tax Expenditures”, when what they are is taxes not (yet?) taken from us. So, the chart in post #121 illustrates that the government could take half as much more (50% more) than they currently take.

This is a very common way of estimating tax receipts, but this type of analysis is economically false. Taxes (and subsidies) influence the underlying economy in a complicated feedback loop. In other words, the Laffer curve is a very real first simplified approximation of how taxes interact with the economy. In the real world a tax rate increase does not necessarily result in greater tax receipts and a tax cut does not necessarily result in a loss in tax receipts. Since in the case of the two major tax rate cuts tried in the last 60 years (under JFK and Reagan), both resulted in substantial increases in tax receipts, it could be inferred that the economy (and tax receipts) are generally stifled by being above the peak of the Laffer curve. Increasing tax receipts is also a predicted result of the current "Trump" tax cuts, but it is too early to tell.

If we, as a nation, were really interested in doing our best, we would collectively realize that there is an optimum tax rate that results in the most possible money to put towards government. We are forever "killing the golden goose" by taking more money out of the economy than it can give without impairing growth and productivity. What would be a much wiser approach to taxes would be to strive for maximum absolute tax receipts to the government irrespective of what that tax rate is. But the idea of using taxes to "sock it to the fat cats" is incredibly strong. We tend to focus on "goring the other guy's ox" and don't notice we are all economically connected. So we all get by with less, rich and poor alike. The model of "Here is what the need is, we must remove this much from the economy" doesn't work. The correct model is "Here is what the economy can provide, what can we do with that" is a much wiser approach to the problem.

 

[Rianne]

And my point is that a serious issue must be treated seriously.

When some people/groups throw around nearly meaningless statistics (and I'm not accusing you of this), and present them as if they mean more than they do, and apply to a larger group then they do, they undermine the real issue. That is counter-productive, and should be rejected by those who see the problem as being a serious one.

-ERD50

Two questions: Who decides which statistics are meaningless?
Who decides the problem is serious?
My assumption is the person who hears the statistics and gets the most/least benefit from either solving the problem or ignoring the problem.
I think we have 400 million different opinions on what is a problem and what statistics are fact.

 

[Independent]

This is a very common way of estimating tax receipts, but this type of analysis is economically false. Taxes (and subsidies) influence the underlying economy in a complicated feedback loop. In other words, the Laffer curve is a very real first simplified approximation of how taxes interact with the economy. In the real world a tax rate increase does not necessarily result in greater tax receipts and a tax cut does not necessarily result in a loss in tax receipts. Since in the case of the two major tax rate cuts tried in the last 60 years (under JFK and Reagan), both resulted in substantial increases in tax receipts, it could be inferred that the economy (and tax receipts) are generally stifled by being above the peak of the Laffer curve. Increasing tax receipts is also a predicted result of the current "Trump" tax cuts, but it is too early to tell.

If we, as a nation, were really interested in doing our best, we would collectively realize that there is an optimum tax rate that results in the most possible money to put towards government. We are forever "killing the golden goose" by taking more money out of the economy than it can give without impairing growth and productivity. What would be a much wiser approach to taxes would be to strive for maximum absolute tax receipts to the government irrespective of what that tax rate is. But the idea of using taxes to "sock it to the fat cats" is incredibly strong. We tend to focus on "goring the other guy's ox" and don't notice we are all economically connected. So we all get by with less, rich and poor alike.

I can't think of any economist (other than Laffer) who thinks we're currently at the peak or on the right side of the Laffer curve. The Chicago Booth school gets a diverse panel of economists to respond to questions like this.

http://www.igmchicago.org/surveys/tax-reform-2

Only 2% of them voted that the recent tax bill would raise GDP in the long run. "Raise enough that the tax receipts on the increase will more than offset the loss in revenue from lower rates" wasn't asked, but it's a higher bar to clear.

People who look at the incentives will differentiate between rates (which you mention) and targeted deductions in the "tax expenditures". We might argue that a lower rate would cause some workers to try to work harder, it's hard to see how eliminating the deduction for home mortgages or religious contributions would do that.