Posts Tagged ‘Obamacare’

The Supreme Court Rules on Obamacare

In a 5-4 decision, the U.S. Supreme Court upheld the constitutionality of Obamacare (the Patient Protection and Affordable Care Act).  Lawyers, politicians, journalists and citizens are scouring the judicial rulings to understand its implications.  The law is exceptionally complex, so it will take time fully comprehend the ramifications of the ruling.

Here are a couple of the most significant elements of the Court’s ruling.

  • The penalty for failing to purchase health insurance is equivalent to a tax, which Congress has the authority to assess.  Thus, the individual mandate is Constitutional.
  • Congress does not have the power under the Commerce Clause to force you to purchase insurance.
  • Congress can require states to increase their Medicaid roles and provide financial incentives to do so, but it can’t withhold all Medicaid funding if it doesn’t.  It seems confusing and contradictory and will likely lead to further litigation.

Here are a couple of quick thoughts and observations.

  • The logic of the Court regarding the individual mandate was interesting.  Apparently, Congress can’t force you to purchase something, but they can tax or penalize you if you don’t.
  • The Medicaid issue is one of the most unclear parts of the ruling.  Unlike the individual mandate, it seems Congress can require the states to increase their Medicaid roles, but can’t penalize them if they don’t.  The issue hinges on state sovereignty, and it will be interesting to see how this plays out, especially since several states have already passed legislation opting out of Obamacare or the individual mandate.
  • The split ruling was no surprise, but it was a shock that Chief Justice John Roberts upheld the constitutionality and Justice Anthony Kennedy did not.  The unpredictability of judges and juries is what’s often referred to as the hazards of litigation.  No matter how strong you think your case is, a judge or jury may see it differently.

Today’s ruling by the Supreme Court isn’t going to end the discussions or fights over Obamacare.  There is still a lot more to come.

I welcome your comments and thoughts regarding the Supreme Court decision.  Click here if you would like to take a quick poll on whether you agree or disagree.

Do we really want to be European?

Let me start by stating that I’m not anti-European.  I have European roots, European friends, and am fascinated with their rich history and heritage.  I really enjoy the cuisine, cobblestone streets, outdoor cafés and centuries-old buildings.  I also respect their current government and political structures, but I happen to disagree with some of their fundamental economic philosophies.

I often hear politicians and friends say that we should be like____ (insert name of European country).  It was one of the biggest arguments for passing Obamacare (i.e., we were the only major industrialized country without socialized medicine).  People seemed to forget who leads the development of new medical products, procedures and technology, but that is a separate matter.

I’ll admit, that there are days when I would enjoy a 35 hour work week, 4+ weeks of vacation (holiday) and a 13th month pay, but I know that it comes with a cost.

  • Gasoline and diesel prices are nearly double the U.S. pump prices
  • Accommodations are small and vehicles even smaller
  • High taxes
  • Complex and intrusive government regulations
  • High unemployment

Since the recession hit in 2008, the U.S. unemployment rate has been on par with the European Union.  However, the U.S. unemployment rate has historically been considerable lower than France, Germany, Italy and Spain.  The United Kingdom is the notable exception.   We may be contending with a 30-year high rate, but unemployment in France and Spain has barely dipped below 8% in the past five years.

As economic recovery has dragged along, the unemployment rate remains high, which has caused many economists to speculate that we may have reached a new level of “full  employment.” You can read this article for a greater discussion on the rationale for this speculation.

Time will tell if this is true, but there aren’t any indications that unemployment is going to dramatically decrease in the near future.  This may be an unintended consequence of our drive to be more European.  Concerns of higher taxes, more regulation and mandatory health coverage may be causing employers to refrain from expanding their workforce.  You may argue the merits of such structural changes, but it will definitely require a shift in the American psyche for us to accept 7-9% constant unemployment as normal.

I’m not advocating for the Europeans to change their social or economic structures.  It’s great if it works for them, but that doesn’t mean it is right for the U.S.  I also don’t believe that we have all of the good ideas.  We can definitely learn from our international brethren.  However, we must be careful in trying to reshape our economy and society to be like someone else.  Albeit different, every nation has its challenges and struggles.  There is no utopian society.

Consequently, we should ponder whether we really want to be like the Europeans or any other nation for that matter.  Embracing our differences doesn’t mean we have to stop celebrating what makes them or us great.

Burdensome 1099 Tax Reporting

The tax gap is the deficiency between the amount of tax that should have been paid and the amount that is voluntarily reported and paid by taxpayers.  The IRS estimates the tax gap to be $350 billion annually.

Underreporting of income is a primary contributor to the tax gap.  Form 1099 reporting is one of the mechanisms the IRS uses to ensure that taxpayers report income they receive.  A 1099 is issued by the payer to the payee.  The IRS will match the income reported on the taxpayer’s return with the 1099, and a discrepancy will generate a notice. 

A Form 1099-MISC must be filed to report the payment of more than $600 for compensation for services.  This would typically involve people who perform independent and subcontract services (e.g., contractors, lawyers, consultants).  Payments to corporations for these services were exempt from 1099 reporting.

For years the IRS has advocated for an expansion of the reporting requirement to include corporations.  Not only did Congress act upon the suggestion last year, they expanded it. Included in the Patient Protection and Affordable Care Act (aka Obamacare) was a requirement for any business to issue a 1099-MISC to any person or entity for the purchase of more than $600 of goods or services during a calendar year, starting in 2012.

Under the old rules, a taxpayer had to track payments made for services rendered by nonemployees.  The new requirement will force businesses to track the purchase of goods and services.  For instance, if you purchase more than $600 of office supplies, lumber or gas from one retailer throughout the year, you must issue a 1099-MISC.  Imagine the paperwork and administrative nightmare this creates for any business to comply with these rules.

Not surprisingly, this expanded requirement has generated a tremendous firestorm of criticism, especially amongst small business owners.  This provision is supposed to generate $17 billion of revenue over ten years, but I doubt anyone quantified the cost of compliance, both for the IRS and for taxpayers. 

Personally, I think the net revenue generated from this provision is greatly overstated.  It might generate $17 billion in new revenue, but the IRS could easily spend more than that amount just to process the mountain of forms that will be filed.  

It’s been rather humorous to watch the politicians handle this issue.  Congress included this provision in the healthcare bill and President Obama signed it, yet over the past six months, there has been a parade of politicians, including the President, who have talked about how bad this requirement is for business and the need to get it reversed.  It’s funny; the same people who created the requirement are now championing its repeal.  Only in Washington is this considered normal.

Despite months of clamoring, Congress still hasn’t repealed this reporting requirement.  Last week, the Senate added it to a bill dealing with modernization and safety issues of the Federal Aviation Administration.  Most commentators and professionals expect it to be repealed; it’s just a matter of when.  I think Congress knows they will eliminate it too, which is why they aren’t rushing to pass the repeal.

To me, it’s just another example of the dysfunction that is prevalent in our nation’s Capitol.  They know it’s bad, and they know they’ll eliminate it.  Rather than having a simple vote to repeal the rule and move on to other business, it gets dragged out for months and wrapped into some political deal.  I ask… what does 1099 reporting have to do with a safety bill for the FAA?

The expansion of the 1099 reporting was a poorly conceived idea with little consideration of the real world compliance implications.  It never should have been enacted, and I expect it will be repealed this year.  If you’re a business owner, you can be thankful that this is one tax reporting requirement you’ll never have to comply with, but the sooner you know for sure, the better.