www.AsymptoticLife.com

Health Care and the Tax Code

DJ — 2010-03-13T15:30:00Z

(Getty Images photo.)

The Health Savings Account, or HSA, was implemented in 2003 under the Bush administration. It allows people to purchase high deductible health plans (HDHPs), which is cheaper than insurance with lower deductibles, and put aside pre-tax money in an HSA to pay for medical expenses.

I switched to an HSA a couple of years ago, after my conventional health insurance premiums skyrocketed, reaching 58% of the median wage in my county.

The HSA has some great benefits. For a person who needs health insurance (one with medical issues), it really does save money over conventional insurance. Also, those of us who don't have enough itemized deductions to use Schedule A can still benefit from its tax advantages. If your employer makes the contributions, that's an extra $3K in income you don't have to pay taxes on.

But ultimately the HSA plan is designed to fail, as I discovered last week. It allows an individual to set aside up to $2,950 (in 2010) into an HSA. But the HDHP deductible is $5,000. I have found that $2,950 covers my medical expenses in a typical year. But last week, I burned through my $5,000 deductible in a single day. Not only isn't there enough in my HSA to pay for that, but there won't be enough even with an entire year's contributions-- because the tax code doesn't allow it. The excess has to come from my pocket, post tax and nondeductible.

It looks to me like the HSA was designed for people to get cheaper health insurance, except for those who really need health insurance. After all, in the United States, you can only have health insurance if you don't use it.

Canada's Egg Police: Industry vs. Small Farms

DJ — 2010-03-11T06:22:00Z

In Canada, a small farmer with 99 or fewer hens can sell "ungraded" eggs at his/her gate, but nowhere else. So a small farmer who sells eggs at the farmers market is breaking the law. With prices for farmstead eggs skyrocketing, industrial egg producers are fighting back against what they see as an infringement on their territory.

"[Ungraded] eggs offer smaller producers a good revenue source. But this growing market for a different kind of egg is creating tension between the small farms that raise them and the egg marketing board that has helped to develop the mainstream egg industry in Canada and its large chicken farms. This tension now is putting the future supply of this sought-after product in question as what some call the 'egg police' crack down on the grey market."

What's the risk of "ungraded" eggs? Ontario's Ministry of Agriculture, Food, and Rural Affairs says on its site,

"Eggs that are cracked, dirty, or leaking have a higher risk of Salmonella contamination..."

Indeed. But even graded eggs have a risk of being cracked, hence the practice of checking the eggs in a carton before buying them. And, as recent food recalls have shown, industrial food production does not guarantee food safety. On the other hand, proper cooking also kills any salmonella that could be present.

Here's another difference: graded eggs are required to be washed. Ungraded eggs must be clean, but not necessarily washed, depending on state regulations. When washing is not required, small farmers usually don't-- and many consumers prefer them this way because they stay fresh longer.

This isn't going to play well in Utah.

Sue — 2010-03-11T05:25:00Z

Maple caramelized pumpkin encrusted cheese with texurized concord grapes.

There's only one catch...

Thanks, Sue!

DJ — 2010-03-10T15:25:00Z

We've reached that time of year again, when I am too swamped by tax season to think much about blogging. Sue has graciously agreed to write a few posts. Thanks, Sue!

Powerless over ... ?

Sue — 2010-03-10T06:46:00Z

Say 'ah.'

Thirty-one-year-old Toni Tramel was arrested Thursday for public intoxication, a misdemeanor.

But her real troubles started when she squirted a stream of breast milk into the face of the female deputy watching over her.

Just guessing that she'll conclude that her problem is breastfeeding, not drinking....

Strategic default is not a moral failing

Sue — 2010-03-09T19:40:00Z

"Strategic default" involves homeowners deciding to walk away from their homes and mortgages, not because they cannot afford to pay, but because they owe more than their homes are worth. Read the news, and you'll see that a lot of experts and pundits believe this is unethical.

Look again. Investors routinely "strategically" default on agreements -- major pension funds ... commercial-property owners ... bond issuers ... and real estate developers ...The list goes on and on. The very real possibility of default is why banks have -- or should have had -- underwriting standards and loan covenants.

First American CoreLogic has issued a study which highlights the pressures on homeowners with negative equity:

Shame, guilt and fear stop many homeowners from reneging on their mortgages.... The government and big banks actively cultivate those emotional constraints because the economic consequences of a large-scale walkaway phenomenon could be dire...

Strategic defaults have widespread repercussions. Ongoing foreclosures destabilize the housing market because the homes are sold at bargain prices. They also undermine the entire economy because banks must eat huge losses and homeowners rein in spending as their own homes lose value. Empty homes hurt neighborhoods and attract blight. And walkaways may inspire copycats - people who've seen their neighbors deliberately default feel more emboldened to do so themselves.

... Studies estimate about one-quarter of all defaults are voluntary "walkaways," also known as strategic defaults and jingle mail (for the sound the abandoned keys make in a mailbox)....

Of all U.S. mortgage holders, about one quarter, or 11.3 million households, are underwater, according to First American CoreLogic, which collects and analyzes mortgage data. In California, 35 percent of mortgage holders are underwater. ,,,,

First American said a tipping point seems to come when homeowners have negative equity of 25 percent or more - owing $500,000 on a $400,000 house, for instance. At that point, owner-occupants default as frequently as investors. [Emphasis mine].

Mark Gimein, blogger and columnist, argues that while there are many good reasons to keep paying your mortgage to avoid the black mark of foreclosure, "the immorality of sticking the bank with a loss isn't one of them."

It's banks, not home buyers, that are in the better position to judge the real estate market and how much their collateral is really worth. The bank approves the assessment and decides how much equity a home buyer will be required to put up. All the mechanics of mortgages are designed to let a lender avoid the situation in which it is owed more on a house than it is worth. The limits on banks' ability to collect on badly underwritten mortgages places the responsibility for judging the sanity of real estate loans in the hands of lenders.

Clearly in the last few years all these mechanisms failed utterly. They failed, not because of morally bankrupt borrowers who go back on their "promises," but because bankers decided to count on a perpetually rising real estate market to absolve them of the necessity of responsible lending. Far from misusing the lending laws, borrowers who use the rights the law gives them to walk away from mortgages merely place the risks of insane lending where the law intends them to lie. What they do is not dishonest; on the contrary, a key reason we give borrowers the ability to do that is to keep bankers honest and responsible.

In periods of market insanity, this doesn't work. But don't blame the walkaways for exercising their rights. Blame the bankers who didn't worry about lending a whole lot more than they could get back in a foreclosure. The lesson of watching debtors walk away is a harsh one (not least for the taxpayers, who now effectively guarantee most mortgages), but the more bankers pay attention to it now, the better their chances of steering clear of the next bubble.

My opinion: the financial system is corrupt and broken. Congress and the Executive branch, being extremely well-funded by the banks and investment houses, are beholden to and controlled by them. Reasonable attempts to provide control and transparency are thwarted (for example, rejecting consumer protection via a mandated "plain vanilla" mortgage option, the suspension of mark-to-market rules, etc.) Nothing will change until we suffer enough to force change. I support a homeowner's legal right to strategically default, and believe it will be a mechanism of suffering and aid to change.

Full disclosure: I am a CPA and CFE, with no financial or housing investments, and no debts. As a career auditor, I have seen repeatedly that businessmen will cheat, steal and defraud, just because they can. I am favor of strong regulation where there is potential for and a proven history of large-scale economic harm.

Signs of the Times

DJ — 2010-03-07T05:37:00Z

Above: a mall store closing. Below: an entire mall on South Las Vegas Blvd. sits empty. Despite the government's claim that the economy is improving, I have several friends unable to find work, others with their own businesses for whom business is extremely slow. One friend has already lost his home, and another will if his mortgage renegotiation fails.

In the business world, those who are buying, are not always paying-- collections are slow and defaults are up.

Hurt

DJ — 2010-03-04T17:43:00Z

I had never heard this song before, and might never have. But for some reason I am unaware of, it's become a hit on KROQ in Los Angeles. They were playing it about every hour during my recent stay in Los Angeles.

To truly appreciate the unusual nature of this exposure, KROQ trumpets some of the newest music available: young bands, and those that cater to the young. They were the only commercial station to play punk during its time; they broke New Wave before anyone else dared to. They are not the home of old-time country-rock heroes.

The song was written and originally performed by the band Nine Inch Nails. But this 2002 version of it is pure Johnny Cash. If you haven't heard it, please do.

The Economist on American Democracy

DJ — 2010-03-03T17:55:00Z

The Economist on American democracy:

"The blanket statement that America is the "most free, most democratic" country on earth strikes the serious comparativist as what it is: not an empirical fact but as an article of faith, one that needs to be accepted before a true patriot can go on to make minor, qualified criticism. [But it is not] real patriotism: a real patriot is an honest critic."

Amen.

Patti Smith Performs for LNA

DJ — 2010-03-02T18:37:00Z

Our friends at LNA Clothing had an incredible bash at Fashion Week last month, featuring my favorite musician: Patti Smith. The video quality is poor, but you can tell they're having a great time. Nice one!

(Here's a better representation of Patti's work.)

DA and the Federal Government

DJ — 2010-03-01T15:29:00Z

Debtors Anonymous is a Twelve Step program for people with money trouble. They offer a set of characteristics to which many compulsive debtors can relate.

I decided to examine the list for characteristics that our federal government might share-- and have emphasized the that seem appropriate:

The 12 Signposts on the road to becoming a compulsive debtor

Being unclear about your financial situation: not knowing account balances, monthly expenses, loan interest rates, fees, fines, or contractual obligations.
Frequently "borrowing" items such as books, pens, or small amounts of money from friends or others, and failing to return them.
Poor savings habits: not planning for taxes, retirement or other non-recurring but predictable items, and then feeling surprised when they come due; a "live for today, don't worry about tomorrow" attitude.
Compulsive shopping: being unable to pass up a "good deal"; making impulsive purchases; leaving price tags on clothes so they can be returned; not using items you've purchased.
Difficulty in meeting basic financial or personal obligations, and/or an inordinate sense of accomplishment when such obligations are met.
A different feeling when buying things on credit than when paying cash, a feeling of being in the club, of being accepted, of being grown-up.
Living in chaos and drama around money: using one credit card to pay another; bouncing checks; always having a financial crisis to contend with.
A tendency to live on the edge: living paycheck to paycheck; taking risks with health and car insurance coverage; writing checks hoping money will appear to cover them.
Unwarranted inhibition and embarrassment in what should be a normal discussion of money.
Overworking or underearning: working extra hours to earn money to pay creditors; using time inefficiently; taking jobs below your skill and education level.
An unwillingness to care for and value yourself: living in self-imposed deprivation; denying your own basic needs in order to pay your creditors.
A feeling or hope that someone will take care of you if necessary so that you won't really get into serious financial trouble, that there will always be someone you can turn to.

Does our government need a Twelve Step program? You be the judge.

Nevada Buddhist Temple, Las Vegas

DJ — 2010-03-01T04:30:00Z

The Corporate Media

DJ — 2010-02-27T19:59:00Z

My Liberal Friend: "It amazes me how the corporate media gets orgasmic over the possibility of more money being spent in an election. That's sort of a conflict of interest, don't you think?"

Me: "That's why I pretty much ignore the corporate media."

Happiness is a Warm...

DJ — 2010-02-27T15:57:00Z

Or, how to buy an MK760.

Conspiracies

DJ — 2010-02-27T02:48:00Z

A left wing TV commentator interviewed the editor of The Nation about right wing conspiracy theories about people trying to infiltrate our government and dismantle our democracy.

This caught my attention, interrupting a conversation with a liberal friend who was sharing (you guessed it) his conspiracy theory about who is infiltrating our government and trying to dismantle our democracy.

We may differ on who we think is doing it, but it seems we all think someone is trying to take away our democracy. And we're probably right.

Animal Vegetable Miracle

DJ — 2010-02-26T15:46:00Z

Barbara Kingsolver reads the first chapter of her book, Animal, Vegetable, Miracle, about where our food comes from and how to make it better.

The Budget Deficit: Where Did It Go?

DJ — 2010-02-25T22:25:00Z

(Image: Wiki.)

In 2009, the U.S. federal government spent $1.4 trillion dollars it didn't have. That's on receipts of $2.1 trillion, so they spent 67% more than they took in. Ouch! That's like a family earning $30,000 and spending $50,000. Can you imagine?

Where did the money go? The biggest expenditures were:

Social Security $727 billion.
The Department of Defense $637 billion.
Medicare $504 billion
Interest on the National Debt $383 billion.
The bailout $249 billion

The total of these five expenses alone is $2.5 trillion. Receipts are only $2.1 trillion. So these five largest items already exceed the amount we can afford. Forget about NASA, the State Department, the White House, the Smithsonian, the DEA and FBI, veterans benefits, highway construction, unemployment, nuclear power subsidies, and research grants. The money is already spent!

(It's worth noting that Social Security taxes bring in enough to cover retirement payments, but not disability and supplemental payments. Still, it almost pays for itself. Medicare taxes don't come close to covering Medicare expenses. The rest of the expenses get paid primarily from income taxes-- or from printing more money.)

What do you suppose would happen if you intentionally spent 67% more than you earned, and were unable to pay it back? Eventually, you'd go bankrupt. You might even get convicted of fraud and have to go to prison.

But in Washington, they call it "business as usual."

Climate Encounter #2: Save Energy, Save Money

DJ — 2010-02-25T15:27:00Z

WSJ: Lending Falls at Epic Pace

DJ — 2010-02-24T18:13:00Z

According to the Wall Street Journal today (front page, above the fold):

"U.S. banks posted last year their sharpest decline in lending since 1942..."

Remember TARP, which was supposed to get banks lending again? Kind of makes you wonder where all the money went. doesn't it?

Tajikistan: Warming, Drying

DJ — 2010-02-24T15:36:00Z

(World Bank photo.)

Tajikistan has a median income of about $1.33. Life is hard there, and getting harder thanks to climate changes. Oxfam says temperature is rising, with the number of days over 104 degrees increasing. Droughts are more severe, and glaciers-- their primary source of water-- have been shrinking steadily.

Tajikistan's carbon footprint is 1 ton per person year, putting it 154th out of 210 ranked nations. It makes one of the smallest contributions to climate change, but is one of the worst affected.

In contrast, the U.S. carbon footprint is 19.1 tons per person.

Some other major nations' footprints: Australia 18.8, Canada 17.4, Singapore 12.8, Japan and Germany tie at 9.7, the UK 8.6, France 5.8, China 4.6, and India 1.2.

Tip: Treehugger