A couple of months ago, my son was in a bicycle accident. Fortunately, he was not seriously injured, but he did need several MRI's for which we received a hospital bill for $3,000. My wife called the hospital to provide our health insurance information and was told, "Oh, we didn't know that you have insurance. Our insurance company rate for your son's MRI's is $6,000." Since we have a high deductible insurance plan, and do not expect to meet the deductible this year, my wife told the hospital to disregard the insurance and that we would pay the $3,000 charge. The hospital told her that would be a mistake on our part, because in the end, we would only have to pay the amount approved by the insurance company, which might wind up being around $1,200.
One of the major problems with health care is that no one ever knows or understands the costs. When a health care service is provided, the consumer does not have the slightest idea what the charges will be, but the provider has no idea either! In our case, there are at least three different prices for the same diagnostic service, and there may be many more, depending on which insurance company covers the patient. I don't see how the service changed, as it has already been provided. This is the craziest system I have ever heard of, and is bad for all participants. Not only do patients have no idea of the cost of care, providers have no idea of how much they will receive for their services.
Health care is the only industry I can think of that has this type pricing structure. And to make matters worse, the pricing is kept secret. No one ever understands the charges. Why can't physicians, hospitals, and laboratories establish and make public fixed pricing for fixed services, and have the same pricing for all patients, regardless of if they are insured or who they are insured by? As far as I know, a blood test is a blood test and an X-ray is an X-ray. A little competition is healthy. If people can save by price shopping for health care services, everyone will benefit. Not everyone will use the lowest cost provider, but at least they will have the information to make an informed decision. Health care costs are out of control because there is no price competition. Imagine what would happen to those costs if consumers knew in advance what they were.
August 26, 2012
August 12, 2012
The System Doesn't Work After All
In June and August 2011 I wrote about attending a dinner and meeting New Jersey Assemblyman Jon Bramnick. I told Assemblyman Bramnick about a problem one of my clients was having with a particularly unfair provision in the New Jersey Unemployment Law. In a situation in which a business engages another business to perform a service, and the hired business does not properly pay its New Jersey Unemployment Tax liability, the first business can be held responsible for the unpaid unemployment tax. For example, if you own an office building and hire a landscaping company to take care of the the grounds, and the landscaping company does not pay its NJ Unemployment Tax, you can be held liable to for the tax. In my client's case, it was a transportation company that did not pay the tax on their drivers' wages.
Anyway, I described this situation to Assemblyman Bramnick, who agreed with me and proceeded to stand up at the dinner and announce to all that he would be introducing a bill to repeal this unfair provision. A proposed bill was actually written and sent to me so that I could offer my opinion about whether the bill actually accomplished the purpose we discussed. It did.
Several months went by and I heard nothing else regarding this matter, so I sent an email to the Assemblyman's office to inquire of its status. The response was that the Unemployment Division had a problem with the bill. What a surprise! An objection to their ability to arbitrarily and unfairly assess tax! I guess the system doesn't work after all, and it is clear that Assemblyman Bramnick's office follows the first rule of Fight Club.
Tomorrow I am taking my daughter to start her freshman year at Indiana University. I am going to miss her a lot. I know that she doesn't read this, but I have always been very proud of her, and I know that she will continue to make me proud. I hope that the next eighteen years don't go by as quickly as the last eighteen.
Any comments on this or anything else, contact me at GShanker@krscpas.com. I would like to hear from you.
I took this picture at Kips Castle in Verona, NJ. It's a pretty cool place. If you click on the picture, you will get a larger version.
Anyway, I described this situation to Assemblyman Bramnick, who agreed with me and proceeded to stand up at the dinner and announce to all that he would be introducing a bill to repeal this unfair provision. A proposed bill was actually written and sent to me so that I could offer my opinion about whether the bill actually accomplished the purpose we discussed. It did.
Several months went by and I heard nothing else regarding this matter, so I sent an email to the Assemblyman's office to inquire of its status. The response was that the Unemployment Division had a problem with the bill. What a surprise! An objection to their ability to arbitrarily and unfairly assess tax! I guess the system doesn't work after all, and it is clear that Assemblyman Bramnick's office follows the first rule of Fight Club.
Any comments on this or anything else, contact me at GShanker@krscpas.com. I would like to hear from you.
I took this picture at Kips Castle in Verona, NJ. It's a pretty cool place. If you click on the picture, you will get a larger version.
August 2, 2012
Why Tax the Wealthy is Unfair to Business Owners
I have received strong positive and negative feedback on my blog entries regarding increasing tax rates on the "wealthy." After seeing these reactions, I understand why our Congress is unable to reach agreement on this issue. Based the feedback, it appears that business owners have the strongest objection to proposed tax increase.
Although I have many problems with increasing taxes, my biggest one is subjecting business owners to higher tax rates on income that they never receive. Since a significant 1987 tax law change concerning the tax on the sale or dissolution of a business, it has made sense for most closely held businesses to operate as a flow through entity for tax purposes. Flow through entities are S corporations, partnerships, and limited liability companies. In these entities, the business generally pays no federal income tax. The taxable income of the business is passed through to the owners for inclusion on their personal income tax returns. In this framework, the business owners are taxed on all company income, whether or not such income is actually received by the owner. In a growing business, it is common that business profits are reinvested in the business, in order to fund the growth. To the extent the profits are reinvested, they are not received by the business owner, although he (or she) is responsible for paying tax on this phantom income. My concern is that although it is not received by the business owner, this income will put him in the wealthy 2% category and subject him to higher tax rates.
Where will the money to pay the increased taxes come from? It is likely that it will come from the business. And if this money is used to pay taxes, it cannot be used to hire employees or be reinvested for business expansion. What is the solution to this problem? My proposal is that in determining who is a wealthy taxpayer, the only business income that should be considered is the income that was actually received by the business owner. Income that is reinvested in the business should be disregarded for the purpose of calculating the tax rates.
Unfortunately, the very few of the politicians who determine who and how much tax tax have ever faced the challenges of running a business. That is why this issue has never even been discussed.
Although I have many problems with increasing taxes, my biggest one is subjecting business owners to higher tax rates on income that they never receive. Since a significant 1987 tax law change concerning the tax on the sale or dissolution of a business, it has made sense for most closely held businesses to operate as a flow through entity for tax purposes. Flow through entities are S corporations, partnerships, and limited liability companies. In these entities, the business generally pays no federal income tax. The taxable income of the business is passed through to the owners for inclusion on their personal income tax returns. In this framework, the business owners are taxed on all company income, whether or not such income is actually received by the owner. In a growing business, it is common that business profits are reinvested in the business, in order to fund the growth. To the extent the profits are reinvested, they are not received by the business owner, although he (or she) is responsible for paying tax on this phantom income. My concern is that although it is not received by the business owner, this income will put him in the wealthy 2% category and subject him to higher tax rates.
Where will the money to pay the increased taxes come from? It is likely that it will come from the business. And if this money is used to pay taxes, it cannot be used to hire employees or be reinvested for business expansion. What is the solution to this problem? My proposal is that in determining who is a wealthy taxpayer, the only business income that should be considered is the income that was actually received by the business owner. Income that is reinvested in the business should be disregarded for the purpose of calculating the tax rates.
Unfortunately, the very few of the politicians who determine who and how much tax tax have ever faced the challenges of running a business. That is why this issue has never even been discussed.
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