The biggest problem, in my mind, is that they haven’t simply had a few bad years – they’ve totally lost their way and no amount of re-packaging and re-branding is going to do much until they get back to basics.

The number one basic they’ve totally lost sight of – LIMITED GOVERNMENT.

Not only have they abandon the very principle, they’ve reached a point where they’re really no better than Democrats when it comes to spending, expanding government and imposing more regulations on individuals lives.  These days the Democrats and Republicans really are no more than two-sides of the same coin, with very little difference at the end of the day in how they actually operate.

Actions speak louder than words.

If you say you’re conservative and want limited government, but then spend like there is no tomorrow, increase the size of government and such – well, your actions betray you – you’re no better than the tax and spend Democrat you’re attempting to win against!  In fact, you’re just a tax-and-spend politician calling yourself a Republican.

The Republicans can try to re-brand – but until they start to frame things based on conservative principles, they won’t get much traction with the populace since they’ve allowed themselves to be sucked in by the idea that the government should be regulating social issues, medical procedures and ideas.  They’ve allowed themselves to come to the belief that the Federal Government should be calling the shots, when the reality is that so much of what’s been going on in Washington should have been left to the states to decide.

Until the Republicans start to frame things in terms of how a particular issue involves government, little is going to change and I won’t be voting Republican.  (I won’t be voting Democrat either)

A good example of what I’m talking about – the stimulus package.  Both Democrats and Republicans started from the point of the stimulus package as being a done deal, the quibble was in the details of just how much money they’d spend and on what it would be spent. 

The Republicans failed to step up and clearly articulate that stimulating the economy was not the job of the Federal government; that if anything, the Federal government should be looking for ways to encourage the private sector to work things out so that the economy could get moving again.  They didn’t do this, instead they simply argued over how much money to spend and where.  They joined the chorus of doomsday, that without the stimulus package, the US would collapse.  They joined the Democrats and worked together to achieve the goal to spend more and expand the government rather than step-up and do their duty to work to limit government.

If the Republicans want to get back on track and get back the base of voters whom are truly conservative – their question for each issue MUST be: 

WHY IS THIS SOMETHING THE FEDERAL GOVERNMENT SHOULD DO? 

And then:

WHERE IS THE FEDERAL GOVERNMENT TASKED WITH DOING THIS?

If they can answer the “why” but can’t answer where they’re justified, they need to step back and hold the position that for whatever the issue is, it’s not the business of the Federal government. 

Period.

End of Story.

If we believe that tortue works and that we as a nation will engage in torture because it works….well, then we must accept that each and every last one of our enemies in each and every previous war with our country were justified to torture our captured soldiers since we believe it works too.

On this issue, a nation cannot have its cake and eat it too – either you believe that torture is unacceptable and make no exceptions, or you believe it is acceptable and that its use is then acceptable when it’s our soldiers being tortured.

With regard to healthcare, we’re spoon-fed the idea that our healthcare costs are out-of-control, that we have too many uninsured among us, that we spend an astronomical amount compared to other nations ($7,439 per person on average), and that we need to overhaul the entire system to not only deliver healthcare to all but to also reduce costs.

For a while now I’ve been trying my best to fully understand why this is now a centerpiece issue for the new administration. While many are quickly concluding that this is due to Obama looking to socialize medicine in the United States, I think it’s something else.

Something that few are willing to seriously discuss.

Why exactly might the government be pressing so hard to reform healthcare now?

The most compelling reason may be the fact taht while government programs provide coverage to 27.8% of the population, government spending accounts for 45% of all healthcare expenditures in the United States.

Basically the government is in a terrible financial position at the moment, and the situation isn’t getting better, it’s getting worse.

One quick and clever way to fix the problem is to make the issue a crisis for all of us, make it appear we’re all paying too much, getting too little and the government is able to resolve this problem.

And the way they’re going to attempt to resolve this is by sucking healthy people into the government system, to capture dollars that would otherwise be spent in the private sector – where private insurance is held by 67.5% of the population with expenditures toward healthcare costs at about 43% of the total expenditures in the United States and the remaining 12% are out-of-pocket as either co-pays, deductibles and/or those without insurance paying for their medical services.

So here we have:

Government programs – 27.8% of population; 45% of spending
Private insurance – 67.5% of population; 43% of spending
Out-of-pocket – 12% of spending

The government obviously has a problem and despite lowering reimbursements, shifting administration costs to the private sector, increasing compliance requirements for reimbursement and a host of other ways to frustrate the system, it has not, and can not reduce its financial load without healthy individuals contributing toward its ever increasing burden with our aging population.

Some interesting statistics that you won’t find all in one place, but need to go searching to bring the puzzle pieces together for a look at the bigger picture here:

80% of Americans utilize less than $1200 a year in healthcare services
10% of Americans utilize $1200 to $3500 a year in healthcare services
10% of Americans utilize more than $3500 a year in healthcare services

5% of Americans utilize more than 50% of all healthcare costs each year
1% of Americans utilize more than 27% of all healthcare costs each year

In 2007, medicare spent an average $5,694 per beneficiary on healthcare, medicaid spent $6,120 per beneficiary. That’s just “average” though and does not include that medicare spends an average $22,107 per beneficiary in their last year of life or the $14,858 for blind/disabled beneficiaries with medicaid and $14,058 on aged beneficiaries with medicaid in addition to medicare!

Is it any wonder seniors and senior advocacy groups are concerned about how various changes will impact those 65 and older?

As it is right now we have about 40 million seniors in the United States – in ten years it’s projected we’ll have 55 million, and even if we increase the age of eligibility for medicare, the projected 25% increase of eligible seniors is untenable – unless the government can convince us to suck healthy individuals into its system to capture those dollars.

When we begin to look at the even bigger picture – the $5,400 average for an individual health insurance policy and the $12,500 for a family policy, the bucks start to add up very quickly as we realize that if that money is captured by the government, effectively taken out of the private sector, it’ll be a boondoggle for the government financially – especially when you consider that 80% of the population needs less than $1,200 a year in healthcare.

When you do the math, it’s a no-brainer why the government is so hot on reforming healthcare – taking control of the current flow of money that’s within the private health insurance sector, capture those dollars to cover their butts since they’re going to go broke without those dollars and creating a crisis now is an effective way to convince us the entire system is broken and needs fixing.

Could our entire system need some reform? Sure – but it’s certainly not the crisis the government is making it out to be, except for the government programs themselves right now.

In future posts I’ll attempt to tease out changes that can make a difference and delivery better for the American public – and I can say, it’s not through expanding government programs!

As reported in Reuters, some Dems are open to the idea of taxing healthcare insurance benefits, currently paid by employers, as income!

“I think that tax provision should be on the table,” said Senate Finance Committee Chairman Max Baucus, who will play a major role in writing the legislation to revamp the U.S. healthcare system as promised by President Barack Obama.

“It’s too aggressive. It skews the system,” he said of the tax benefit.

Think about that for a moment. 

Then consider your own situation. 

If your employer currently provides your health insurance, even if you currently contribute something toward the policy premiums through payroll deduction, you do not pay taxes on the cost of your health insurance policy total cost.

Today, the average cost of a policy for an individual runs somewhere in the neighborhood of $5000, and for a family policy an average $12,000. 

The majority of this cost is paid by employers so few employees have any idea how much it really costs for their policy, they just know they’re happy they have coverage, even if they have to contribute toward the premium which is in pre-tax dollars.

If all of a sudden the paradigm changed and now you’re on the hook for paying taxes on that policy, as if the premiums are now part of your taxable income, how does that impact your personal finances and tax burden each year?

Each day it’s looking more and more like the policy makers in Washington are playing a big game of sleight-of-hand with the American taxpayers; as in, no we won’t increase your taxes by way of raising marginal rates falling below the current 33% level, so don’t pay attention to the stealth increases we’re going to hit you with, like cap-and-trade and including your health insurance premiums as taxable income!

As I noted in a post yesterday, a couple with an adjust gross income of $150,000 will not see their income taxes increase.  But what happens when their taxable income now includes a family health insurance policy worth $12,000 a year that’s primarily paid for by one of their employers?

Well, for one thing, today their federal income tax is $25,732 with personal and standard deductions only.

If this type of proposal moves forward and becomes the new standard to calculate income, this same couple now faces a tax increase, taxed on an AGI of $162,000, making their federal income taxes rise to $29,092 – an increase of $3,360 in federal income taxes.

But wait you say – they can deduct medical expenses and medical expenses includes insurance premiums.

Well now, let’s do math.

If their taxable income is $162,000, they can deduct medical expenses which exceeds 7.5% of their AGI – so at this new higher taxable income level, they can only deduct medical expenses exceeding $12,150. 

Ooops, they can’t deduct the cost of premiums that are driving up their tax burden – nope they just have to suck it up and pay, it is, afterall, for the greater good, right?

These four main business structures all feature something few are talking about today – the flow-through of all income to the owners personal income and his 1040.

How the proposed budget and other potential changes may affect his budget can and will directly affect those (s)he employs because the bottomline is the owners income.

Let’s set up a hypothetical couple, married, two kids.  The husband is the primary earner since the kids are small and his wife helps with the business, but isn’t an employee.  His business nets him an income of $300,000 a year.  After federal taxes, social security and medicare (which he must pay both sides of, employer and employee) and living in a no state tax state, taking nothing but the standard and personal deductions, takes home $209,181 each year.  Note, he paid out, in various taxes $90,819 of his earnings from his business.

A very respectable take home at the end of a year of hard work – taking home about $17,430 a month.

How will the family situation change, if the proposed changes take effect?

All things remaining the same, except his federal taxes going up, his take home will be reduced to $196,741; stated another way, doing the same exact thing he’s always done, he’ll now have to pay $9,440 more to the government, taking $787 less home each month.

Would your budget be affected if you had to take a $787 hit on your take home money?

Could it get worse for our business owner?

Sure could, especially if the powers that be decide to remove the cap on social security taxes – abolish the limit that currently exists that taxes the first $106,800 of income so that all income is now taxed.

Doing that, on top of the above hike in federal taxes now will take another $23,957 out of his household budget because right now he pays $13,243 for his social security contribution and will, if the cap is removed, then have to pay $37,200 instead.

Now this couple isn’t simply taking a $787 monthly hit on their income for their household, they’re now taking $2783 LESS home each month, with their annual take home reduced to $172,784….or a 28% reduction in his take home, taking his taxes and social security from $90,819 for a year to $127,216!

Now yes, there’ll be naysayers who can’t quite fathom why this is potentially a problem in our economy, they’ll say this couple should pay the higher amount, they can afford it. 

How many out there can truly say, with a straight face, they can easily take a 28% reduction in their take home pay?

If the hypothetical business owner doesn’t figure out how to adjust income to pay less taxes, he and his wife are going to sharply cut spending (they no longer have the same disposable income) and likely will begin to look at whom to layoff in their business since the wife can step in and do that work instead of their paying someone else to do it.

Either way the economy loses – be it through spending less on services and convenience, or by someone getting laid off to make up the $36,397 in additional tax burden the couple will have to face and deal with.

Take $36,397 out of this couple’s disposible income equation and you’re likely to be hitting the service sector – they’ll reduce meals out, salon services, cleaning services, etc. because they have $3,033 LESS to spend on services each month – and it will domino through the economy as each service provider makes less, they’ll need to cut back on their own use of services, and so on and so on.

Just food for thought, especially when you consider that in an interview, Obama told Fox News:

“In terms of raising the cap on the payroll tax, right now everybody who’s making $102,000 or less pays 100 percent of payroll tax on 100 percent of their income. There are about 3 percent to 4 percent of Americans who are above $102,000 in income every year. So if you want to talk about who’s middle class, me giving cuts to folks making $60,000 or $70,000, and potentially asking more from friends of mine like Warren Buffett. That’s a debate I’m happy to have…because it’s the people making $75,000, $50,000, $60,000 who are hurting.”

I’d like to use this post to set the record straight on something first, we keep hearing that the various changes to the tax code will not affect anyone making less than $250,000 a year.  We hear that 95% of workers will not be affected.  We’re told this must be done to equalize the disparity in income and targeting the “rich” to pay more is fair because they can afford to pay more.

First things first – where you fall for taxes depends on your filing status.  We are told that the two upper tax rates are those that will rise – the current 33% will rise to 36% and the current 35% will rise to 39.6%, all other tax rates will remain the same.

While we keep hearing this magical number of $250,000 a year in earnings – think again, it’s really lower than that number if we look at filing status and when each hits the current 33% and 35% tax rates on earnings. 

To be clear too – this isn’t just your paycheck, it’s your earnings and includes interest earned, dividends, previous tax year refunds from your state or local government, alimony received, etc. on this list of income you list on your 1040 to determine your adjusted gross income.

If you’re single, you’ll hit the 33% tax bracket once your income (including all the goodies above to determine your AGI) hits $175,000; married with no kids, you’ll see yourself hit the 33% tax bracket at $220,000 of income; and if you’re married with two kids, you’ll see the 33% tax bracket when you reach $230,000.

Notice, each of the above are UNDER $250,000 – and they’re all going up! 

So don’t believe the media when they keep singing the $250,000 threshold, it’s bogus and a fairy tale.

Interesting finding for me today – I wanted to understand how it is that those in the upper income brackets aren’t paying their fair share, so I crunched some numbers.

I’m still trying to understand how it’s unfair that, say a married couple with two kids, with an income of $150,000 – who to keep this simple only has the standard deduction and personal deduction – pays $23,963 in federal income taxes, but the married couple making twice as much with two kids pays $71,052 in federal income taxes – or to put it bluntly 2.9-times as much tax rather than twice as much for making twice the income!  That’s somehow not quite fair enough yet?  We have to increase how much is taken from the couple earning $300,000, despite their already paying more than twice as much as the couple earning half what they do?

So now, the powers that be have somehow come to the conclusion that $71,052 isn’t enough, that instead they’ll take $82,023 from the couple making $300,000 to be “fair”? 

I don’t know about you, but taking home $914.25 LESS each month will certainly lead the family with the $300,000 income to figure out how to either live on less OR PAY LESS TAXES because I haven’t even touched on the mortgage deduction being reduced, charitable contribution deductions being reduced, capital gains increased, and the potential that the cap on social security taxes may – it’s being discussed right now – be lifted so all income is affected, not just the first $106,800. 

That last one is going to be the thousanth cut for employers, especially the 23-million small business owners out there that employ greater than 116-million Americans!