muses of the moment

June 30, 2012

HeathCare Upheld

Filed under: Economic Crisis, Odds 'n ends, Taxes — totallygroovygirlfriday @ 1:52 am

gg is sure that everyone has now heard about the Supreme Court ruling on the Healthcare Act.

Here is something that was sent to me, a breakdown of the highlights of the Act. gg doesn’t claim this is 100% correct. Just a starting point for your own research.

From what gg can see, between the health care act and the expiration of the Bush tax cuts; small business is completely doomed, the economy is totally screwed, and wealthy individuals should exit the country immediately. For a law that is not supposed to be a tax, taxes are sure mentioned a lot in the next section 🙂

Supreme Court Largely Affirms the Affordable Care Act

On June 28, 2012, the U.S. Supreme Court issued a complex series of opinions concluding that most of the provisions of Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (together, the ACA) are constitutional. Most importantly, a majority held that the individual mandate was constitutional, but only by viewing it as a tax and not as an exercise of the power of Congress to regulate interstate commerce. As a result, all of the rest of the Act, (including its tax provisions) with one significant exception, is also constitutional.

The sole exception pertains to the provisions of the Act requiring the states to either significantly expand their Medicaid programs or lose all Federal funding for their existing Medicaid programs. A majority held that this mandate on the states was unconstitutionally coercive. As a result, states may now elect to avoid the law’s mandate to increase their Medicaid coverage for certain classes of poor, disabled or elderly citizens without losing any existing Federal funding. However, states that opt not to extend Medicaid coverage will not receive the supplemental funding the Act provides to states that do increase the size and scope of their Medicaid programs.

Following is an overview of some key tax provisions of the ACA, especially those affecting employers and employees that are not directly engaged in providing health care.

Additional Medicare tax on wages
Effective in 2013, the ACA adds an additional 0.9 percent Medicare tax on wages above $200,000 for individuals and $250,000 for married couples filing jointly.

New Medicare tax on investment income
Starting in 2013, there is a new Medicare tax that applies to investment and business income. The ACA has added a 3.8 percent tax on the net investment income of single taxpayers with adjusted gross incomes above $200,000 and joint filers with an adjusted gross income over $250,000. Individuals who are material participants in a trade or business may be exempt from this tax, and instead subject to self-employment taxes only on the portion of their incomes that represents compensation for services. Business owners should consult their tax advisors regarding the complex interaction of these rules.

Individual mandate
The decision to uphold the ACA means that a tax penalty will apply to most U.S. citizens and legal residents if they fail to maintain minimum essential health coverage on themselves and their dependents. This provision is effective in 2014, with the full phase-in of the penalty amounts occurring in 2016. The basic penalty for an individual (without consideration of any dependents) is $95 for 2014, $325 for 2015, and $695 for 2016 and later years (adjusted for inflation after 2016). A variety of exemptions and limitations are included to prevent the penalty from imposing undue burdens on low income individuals and families, as well as on certain specified classes of individuals (e.g. members of an Indian tribe, individuals not living in the U.S., etc.).

Employer mandate
One part of the ACA aimed at expanding coverage is the concept of requiring employers to provide health insurance, also known as the employer mandate. Under that provision, an employer with 50 or more full-time equivalent employees is subject to an assessable payment if any full-time employee receives an applicable premium tax credit or cost-sharing reduction payment because of the employer failing to provide affordable minimum essential coverage. The employer must pay an additional non-deductible tax of $2000 for all full-time employees. If any employee actually receives coverage through the exchange, the penalty on the employer for that employee rises to $3,000. This part of the ACA is scheduled to be effective in 2014.

Insurance exchanges and health insurance premium tax credit
In order to implement the individual mandate and certain other provisions of the ACA, affordable insurance exchanges must be created. The exchanges will be state-based competitive marketplaces where individuals and small businesses can purchase affordable private health insurance. The insurance exchanges are scheduled to be operational by 2014. Starting in 2014, taxpayers may also claim a new refundable tax credit to help offset the cost of the health insurance premiums paid through an insurance exchange.

Health insurance coverage of older children
A popular provision of the ACA is the requirement that all group health plan or insurance issuers that provide coverage of dependent children must continue to make dependent coverage available to an adult child of the plan participants until the child turns 26 years of age. The ACA also amended the Code to provide that cost of such mandatory coverage was excluded from income.

Small Business Health Care Tax Credit
The ACA includes a small business health care tax credit, which is effective immediately. The credit applies to small employers that pay at least half of the premiums for employee health insurance coverage under a qualifying arrangement. The credit is specifically targeted to help small businesses and tax-exempt organizations that primarily employ 25 or fewer workers with average incomes of $50,000 or less.

Increase to the AGI limit of deductible medical expenses
Starting in 2013, in order for a taxpayer to claim an itemized deduction for medical expenses, those expenses must exceed 10 percent of AGI, up from the current threshold of 7.5 percent. For taxpayers who are age 65 or older, however, the 7.5 percent threshold will continue to apply through 2016.

Limit on employee contributions to health flexible spending arrangements
The ACA imposes a cap of $2,500 on the amount that an employee can elect to contribute to an employer’s flexible spending arrangement. This cap is scheduled to go into effect for plan years beginning in 2013.

Medicare Part D Deduction
Effective in 2013, the ACA eliminates the tax deduction for employer-provided retirement prescription drug coverage in coordination with Medicare Part D.

Limits on deductions for health insurers with respect to executive compensation
Effective in 2013 and with respect to services performed after 2009, a health insurer cannot take a deduction of more than $500,000 for any current or deferred compensation paid to an officer, director, or employee.

Medical device excise tax
Effective in 2013, there will be a 2.3 percent excise tax on the sale of certain medical devices. The tax is payable by the manufacturer, producer or importer of the device.

Imposition of annual fee on health insurance providers
Beginning in 2014, health insurers will begin paying a fee on their net premiums.

Excise tax on high cost health insurance plans
Effective Jan. 1, 2018, there will be a new 40 percent excise tax on so-called “Cadillac” health insurance plans. This tax may be payable by the health insurer or the employer, depending on the nature of the arrangement.

Nondiscrimination testing for employer-provided health insurance plans.
One provision of the ACA is that an employer plan providing health care coverage on an insured basis needs to comply with the same nondiscrimination standards that are currently applicable to employer sponsored self-insured plans. Under the ACA, if a plan is discriminatory, then the employer sponsoring the plan is subject to a $100 per day per individual excise tax. The IRS has delayed the effective date of this provision until it issues regulations. With the Court‘s decision affirming the ACA, employers sponsoring employee health insurance plans need to prepare for the IRS’s eventual release of regulations to determine whether an insured plan is discriminatory. It is equally important to remember that there are current nondiscrimination rules that apply to both self-insured health benefit and cafeteria benefit plans.

Automatic Enrollment
The ACA requires that pursuant to regulations to be issued by the U.S. Department of Labor, any employer to which the Fair Labor Standards Act applies, and that has more than 200 full-time employees, must automatically enroll new full-time employees in one of the employer’s health benefits plans (subject to the employee’s election to opt out) and to continue the enrollment of current employees in a health benefits plan offered through the employer. The DOL anticipates issuing regulations on this provision that would be effective in 2014.

ACA rules already in effect
Several parts of the ACA are already in effect, including:

  • Restrictions on over-the-counter medicine. The ACA amended several provision of the Code to restrict the reimbursement of expenses incurred for a medicine or a drug to only those medicines or drugs that require a prescription (regardless of whether such drug is available without a prescription) or is insulin. This change was effective on Jan. 1, 2011, so sponsors of flexible spending and similar arrangements should already have made adjustments.
  • Health Savings Account (HSA) and Medical Savings Account early withdrawal penalties. As of Jan. 1, 2011, the penalty or additional tax on non-medical early withdrawals from an HSA increased from 10 percent to 20 percent. Similarly, the early withdrawal penalty from Archer Medical Savings Accounts increased from 15 percent to 20 percent.
  • W-2 reporting of the value of employer provided coverage. Beginning in 2012, the ACA requires employers to report the cost of coverage under an employer-sponsored group health plan on an employee’s Form W-2. The amount reported does not affect tax liability, as the value of the employer excludible contribution to health coverage continues to be excludible from an employee’s income, and, thus, is not taxable. Reporting this information is optional for employers that issued fewer than 250 W-2s in 2011. This optional reporting will remain in effect until the IRS announces otherwise.

Contributed by:
Bill O’Malley, director, Washington National Tax
Jim Sansone, director, Washington National Tax
Don Susswein, principal, Washington National Tax

Disclaimer
The information contained herein is general in nature and based on authorities that are subject to change. McGladrey LLP guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. McGladrey LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein. This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer.

This article represents the views of the author or authors only, and does not necessarily represent the views or professional advice of McGladrey

June 29, 2012

Martin Armstrong on FinancialSense

Filed under: Gold and Silver Investing, Martin Armstrong, Precious metals, US Government Debt — Tags: — totallygroovygirlfriday @ 6:43 pm

Mr. Armstrong was on financialsense.com’s newshour on 6-27-2012. You have to be an insider to get access (which gg doesn’t have), but here is the short intro summary:

Jim is pleased to welcome back Martin Armstrong from Armstrong Economics. Martin and Jim cover a wide range of topics, including the US banks not passing on interest savings to consumers, the likelihood of stagflation, the real reason you need to own gold, and why the debt markets will implode within three years. Martin sees a true bubble in the bond market, and would buy stocks at this stage. He also estimates a gold price of $5,000 oz. by 2017.

Here is a link to all-access audio interviews with Martin Armstrong, most recent from May 2012.

Martin Armstrong comments on ObamaCare decision

Filed under: Martin Armstrong, Odds 'n ends — Tags: — totallygroovygirlfriday @ 11:34 am

Click here dated June 28, 2012.

Middle Class Death Rattle

The Burning Platform has issued a series of posts on the declining wealth of the US middle class. This is an excellent series and worth the long read.

Click here for part 1.

Click here for part 2.

Click here for part 3.

I think this is one of the best detailed explanations of what I refer to as the Wall Street Suicide. Many others have touched on this. And still others shake their head in unbelief.

Why would Wall Street destroy the very thing that is keeping them alive? Although Burning uses the scorpion analogy of it’s just the nature, groovygirl likens Wall Street (or expanding-government for that matter) to the addict. The addict is completely unaware that his/her behavior is alienating him from society and will ultimate be his complete downfall, even as it is happening. It is why dictators are so surprised when their people revolt. The possibility that reality is not as they see it, never even enters their mind.

June 28, 2012

Gold as good as cash

I have mentioned this little piece of information before, but I am reposting another link because of its importance in the long-cycle of gold and continuing global debt and currency crisis.

The official definition of gold is about to change from barbaric to same as cash. But, as readers of muses of the moment, you already knew that.

Click here.

In what might be the most underreported financial story of the year, US banking regulators recently circulated a memorandum for comment, including proposed adjustments to current regulatory capital risk-weightings for various assets. For the first time, unencumbered gold bullion is to be classified as zero risk, in line with dollar cash, US Treasuries and other explicitly government-guaranteed assets. If implemented, this will be an important step in the re-monetisation of gold and, other factors equal, should be strongly supportive of the gold price, both outright and relative to that for government bonds, the primary beneficiaries of the most recent flight to safety. Stay tuned.

A few observations from groovygirl:

  • gg would like to know where banks are going to find unencoumbered gold, as almost everything held in the financial and investment system is leased. Then gg would like to know what proof regulators will demand from banks that their gold is unemcumbered. You can see the probability that banks will just fudge balance sheets with “unencumbered” gold just as they do with their current assets.
  • If gold is called zero-risk asset by bank regulators, it kind of flies in the face of Ben and every other economics ya-hoos who calls gold “barbaric”.
  • Banks will be lining up for you to “loan them your gold” for a hefty return as we move along this debt implosion. Their assets, even with the Fed-zero-interest window cash, are shrinking not expanding.
  • This is what happens in a debt collapse cycle. Anything connected to debt becomes worth less and more risky. Physical assets owned outright are worth more. And debt-ladened assets are available cheap for cash or cash equivalent, which will soon be gold, according to even the banking industry.
  • This regulation is set to go into effect in January 2013.
  • I do not agree that this bank regulation necessarily sets up gold as a basis for fiat currencies now or in the future. It sets up gold to be as good as cash on any balance sheet. It sets up gold to be attractive to shore up a failing balance sheet in a global debt collapse. Remember the FED, EB, and others can’ t continue to print to plug the debt hole. We are getting to the point that even the clown accounting can not work. This is just another option to help keep the banking system from collapsing. They are running out of options and grasping at straws here.
  • And just as the Fed has suppressed gold to hide the decline in the purchasing power of the dollar, they can now let gold rise at certain times to “raise the value” of banks’ balance sheets to allow them fall within bank regulation guidelines without actually lending them any money.
  • No mention of silver and how this might affect the prices of both moving forward.

Groovygirl doesn’t know if any of these things will happen as a result of this banking regulation, they are just some possibilities. This should be interesting. Although there are many unknowns and MSM is not covering this at all, this is a major shift in the long-term gold cycle.

June 27, 2012

Interesting exchange

Interesting exchange of ideas in Jim Simclair’s website. Click here and scroll down to Dear Jim.

Groovygirl’s comments:

A currency crisis (like what Jim is describing by using the words “currency-induced cost push inflation”) and inflation are two different things. A currency crisis is caused by a loss of confidence in the currency. It happens quickly, weeks and months, not years.

The reader seems to suggest that the velocity of money and inflation or the velocity of money and the loss of purchasing power of a currency are inversely related. They are not. If that were true, the real inflation rate and value of the dollar, as stated by John Williams of shadowstats.com, would suggest the trend line of that chart should be up, not down, since 2000.

A currency crisis (and the resulting extreme high inflation in prices) is a confidence event, not monetary process.

Taxmageddon

Filed under: 401K and IRAs, DOW and S&P500, Taxes — totallygroovygirlfriday @ 1:44 am

Click here for Newshour audio on the coming tax storm. It’s going to be ugly if they don’t do something soon. Very important information here. This is part 2, you can also access part 1 on the main website.

As you listen to this audio and the tax changes coming, here are a few things to think about:

  • If they extend the tax cuts, like they did in 2010, it will solve the problem short-term, but people/businesses will not plan beyond the extension because they do not know what the future tax consequences will be.
  • If they wait until the last minute to extend the tax cuts, investors and businesses will have already prepared for the coming taxmageddon and the damage to the economy will still be done. It’s not like they can let the tax cuts expire on December 31 and everyone can sell at that moment to protect their profits. They will sell prior to the expiration.
  • The tax consequences effect how profitable an investment will be. In this way government affects investments.
  • Groovygirl has said on many occasions that 401ks are not the best way to invest. One of her main reasons for this is the fact that when you take money out of your 401k to spend on expenses during retirement, you are taxed at a wage rate, not an investment rate. With the Bush tax cuts, a 401k structure forces you to lose profit through taxes. However, if the Bush tax cuts were expire or investment tax rates were to go up at some point in time, that may not be the case anymore.
  • Groovygirl has also said that she always suggests that you keep your 401k, but not put any money into it. Instead take the same amount of money and invest outside the 401k system. The unknown of future tax rates is the very reason she suggests this. We can not predict what the government will do with taxes, so at some point in the next 20 years, the 401k may be the best place to invest, at another point, it may be outside that system. And different investments may be better than others simply because of the tax rate.
  • You must take a long-term approach in your investment structures, your estimated income at/during retirement, and their possible tax consequences. If you do not, you may lose profit and if it is over a 10-20 year period, you will lose compounded profit.
  • Most people just focus on the amount of money they have in their 401k or other savings accounts. You can’t just say invest in stocks, put money in a 401k, or even invest in gold over a 30-50 year period and get the results you need before and after retirement. Value of currencies, tax laws, debt collapses, even regular business cycles affect all those investment vehicles. What is good at one point may take all your profit at another point.

June 26, 2012

Retirement planning

Filed under: Fiat Currency, Inflation, Odds 'n ends — totallygroovygirlfriday @ 1:04 am

Financialsense.com on its Newshour program put on an excellent audio on retirement. Listen twice, great questions to ask yourself/family for retirement planning.

Click here.

These are also excellent questions for someone staring at long-term unemployment/disability scenarios.

Before deciding on what investments to chose, you must understand how much you will need over the 30-plus years of retirement.

June 25, 2012

Bill Moyers

Many readers have sent me the link to the latest Bill Moyers and Company show. Finally got around to watching it and it is excellent. It’s about an hour long, but worth the time.

Click here.

Mr. Moyers interviews some of the best still covering the on-going Banking Crisis issues.

Side musing: interesting geo-political developments this weekend. Syria shoots down Turkey’s plane in international waters, 33 members of the military defect from Syria, and the Muslin-Brotherhood wins in Egypt (but military intends to stay in “temp” control).

Key fundamentals that should effect the markets, but, fundamentals are out the window. It is all a confidence game now.

And don’t forget, the coming health care decision.

June 24, 2012

A plague o’ both your houses! They have made worms’ meat of me

Filed under: Odds 'n ends — totallygroovygirlfriday @ 3:03 am

To illustrate how two Houses (and their agendas) can destroy the youth of a nation.

Mercutio is groovygirl’s favorite Shakespearean character (with Richard III and Hamlet not far behind). Here is his key scene from Romeo and Juliet (about 9 min).

No, ’tis not so deep as a well, nor so wide as a
church-door; but ’tis enough, ’twill serve: ask for
me to-morrow, and you shall find me a grave man.

This is Zeffirelli’s version. And although, gg loves Baz’s Romeo and Juliet, she doesn’t care for this scene in his version.

(Side musing: and yes, that is Michael York playing the part of Tybalt .)

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