Consumer Power Report #223

Published May 28, 2010

Where to begin this week? How about the overall political environment? It is beginning to look like the wheels are coming off this bus, to the point that even Democrat loyalists are getting nervous.

Obviously the President of the United States can’t do much about plugging the oil leak in the Gulf of Mexico. The federal government doesn’t have the equipment or the technical expertise to do it. But there is a whole lot the federal government could be doing – and is not – about cleaning up the oil that has already leaked. This is serious enough to call for a mobilization of the Navy and Coast Guard, not to mention hiring all the out-of-work fishermen to get out there and collect the oil before it hits shore.

Instead, the Obama administration is getting in the way of what other people are trying to do. It ignores Governor Bobby Jindal’s request to build sand reefs to protect Louisiana’s coastal marshes. It doesn’t provide needed oil booms, but it talks like gangsters about having its boot on the throat of BP and promises to create a commission.

Then there is a charge by Rep. Joe Sestak that he was offered a bribe to get out of the primary with Arlen Specter. The administration keeps repeating there is nothing to it. Oh, really? Isn’t that what Nixon said about Watergate?

Then there was Arizona’s effort to deal with illegal immigrants, of whom there are at least half-a-million in the state, including many drug gangsters, human traffickers, and kidnappers. The administration has tried to make it seem like the Ku Klux Klan had taken over Arizona government, but it is failing. If you haven’t seen Governor Jan Brewer’s video response please look here. She makes the administration look ridiculous and petty.

And the International Monetary Fund (IMF) released a report that the national debt will exceed 100 percent of GDP by 2015. The report included a devastating graph of the level of American debt since 1950. It was pretty flat during the Bush years but has soared since Obama took office.

And as we describe below, support for the health care monstrosity continues to plummet as more people find out what is in the law.

It remains to be seen if Congressional Republicans can do anything with all this. So far there is very little evidence they have learned anything about health care in the past two years, so it is hard to be optimistic that they will be effective even if they have big gains in the coming election.

— Greg Scandlen



Rasmussen reports that the sentiment for repealing ObamaCare is now two-to-one, with 64 percent of likely voters in favor of repeal and 32 percent opposed. This is the first time since the law was signed on March 23 that the percentage in favor of repeal has exceeded 60 percent, and with every passing week support for the law erodes.

SOURCE: Rasmussen

And small wonder. Every day reveals more awful things about this law. The media writes these up and says they are “little noticed” provisions. There have been so many of these stories that a professor at the Cornell Law School decided to do a search for the expression “little noticed.” He came up with more than 20 separate articles, and the number is growing.

SOURCE: Legal Insurrection Blog

The Mercer company conducted a survey that found one-fourth of large employers believe the new requirements under ObamaCare will add 3 percent or more to their cost of benefits in 2011, on top of the usual increases. These provisions include the slacker mandate, the elimination of lifetime limits, the requirement to auto-enroll new hires, and the definition of full-time workers to include anyone working at least 30 hours a week.

SOURCE: Mercer

Writing in The New York Times, Robert Pear finds, “about one-third of employers subject to major requirements of the new health care law may face tax penalties because they offer health insurance that could be considered unaffordable to some employees.” He explains, “If a company offers coverage but requires any full-time employees to pay premiums that amount to more than 9.5 percent of their household income, the coverage is deemed unaffordable, and the employer may have to pay a penalty.” The penalty could be $3,000 per worker if the worker gets government assistance.

Now, this provision raises a host of issues beyond the simple cost of the new penalty. You’ll notice the standard is 9.5 percent of household income. But that includes income from a spouse, from a second job, from investments, and so on. Employers know how much they pay their workers but they have no idea how much a worker earns on the side. Does this mean you will have to report to your employers all of your income from all sources? Does the standard apply to worker-only coverage or also to family coverage? Does “income” mean gross, AGI, or after all deductions are taken? How is a worker supposed to know what his income is for one year until April 15 (or later) of the following year?

Finally, who is the idiot that wrote this stuff?

SOURCE: New York Times

Towers Watson has issued a release that predicts, “Health care reform’s so-called ‘Cadillac plan’ excise tax will affect more than 60% of large employers’ active health plans by the provision’s 2018 effective date.” Randall Abbott is quoted as saying, “Assuming even reasonable annual plan cost increases to project 2018 costs, many of today’s average plans will easily exceed the cost ceiling primarily directed at today’s ‘gold-plated’ plans.”

SOURCE: Towers Watson

But that’s okay, because small employers will be getting a generous tax credit for providing coverage, right? Well, no. Virtually no small employers will qualify for the full tax credit and very few will qualify for any tax credit at all.

The administration likes to say that employers with up to 25 employees and an average wage of under $50,000 will be eligible for a tax credit. But like a lot of what comes out of this administration, it is simply not true. In fact, the full tax credit is available only to companies with fewer than 10 employees, making less than $25,000, and paying 50 percent of the workers’ premium. Then the tax credit will be 35 percent of the premium paid by the employer. The worker gets no tax help for the part of the premium she pays. And family members of the owner – even brothers-in-law or step-siblings – are not eligible.

As soon as the threshold of 10 workers and $25K income is crossed, the credit tapers off steeply, reduced due to both larger size and higher incomes. A recent Associated Press story illustrated this in the case of Zach Hoffman, owner of an office furniture company with 24 employees. He will get no tax credit, even though he has fewer than 25 workers and has an average payroll of $35,000. The article says, “Hoffman used an online calculator to figure his company’s eligibility. At least four [calculators] are available, including one from the House Energy and Commerce Committee, which helped write the legislation. All produced the same result.”

The article concludes, “To get the most out of the new federal credit, Hoffman said he’d have to cut his work force to 10 employees and slash their wages. ‘That seems like a strange outcome, given we’ve got 10 percent unemployment,’ he said.”

SOURCE: IRS Notice 2010-44; Associated Press


Small wonder, then, that the NFIB has completely changed its tune. You may remember the NFIB had joined AARP and the SEIU to form the “Divided We Fail” coalition. It put a lot of money into advertising in support of comprehensive health reform and in misleading people about the problem of bankruptcy related to health care expenses. After Obama was elected NFIB was one of the voices calling for immediate action on health reform.

Then about a year ago NFIB’s president was removed and replaced by Dan Danner, who has always been a stalwart defender of free markets. It has taken a while to change the direction of the organization, but it has now announced it is joining in the lawsuits against ObamaCare. Insurance Financial Advisor quotes Danner as saying, “This health care law directly undermines [NFIB’s] core value. The outpouring of opposition to this new law was overwhelming and our members urged us to do everything in our power to stop this unconstitutional law.”

The article explains, “The multi-state suit claims the new law infringes upon constitutional rights by mandating all citizens and legal residents to secure health insurance or face a penalty, that the tax penalty under the law also violates the U.S. Constitution and that the new law infringes on the sovereignty of the states and the Tenth Amendment by requiring the state[s] to spend billions of additional dollars without providing funds or resources to meet the state’s cost of implementing the law.”

And Danner has now published an op-ed in The Wall Street Journal in which he writes, “President Obama and his allies in Congress pushed through a law that will dramatically raise health care costs and increase the overall cost of doing business. What’s more, the federal mandate requiring that nearly all U.S. residents carry health insurance by 2014 seriously threatens our basic constitutional rights and individual freedoms.”

He goes on to list many of the taxes and mandates that will make it much harder for a company to stay in business, and concludes, “if this law is not overturned, then all citizens should be prepared for the long arm of the federal government to reach even further into how we choose to live our lives, spend our money and pursue our own definitions of happiness.”

BRAVO, NFIB! Now, where is the alphabet soup of other Washington trade associations, including AMA, AHA, AHIP, and NAHU?

SOURCE: Insurance Financial Advisor; Wall Street Journal


The IRS is the designated agency for enforcing the ObamaCare mandate, but USAToday wonders how effective it will be. This is a really wonderful article that needs to be read in its entirety, but to give you the flavor, the article says, “The IRS is ‘being put in a position where it will be sending notices that will annoy people’ and not much else, says James Maule, professor of law at Villanova University and author of the tax blog MauledAgain. ‘It’s basically designed for failure.'”

Among other problems, “The law will make it more difficult for the IRS to carry out its primary job of collecting taxes. Only 64% of taxpayers who called the IRS during last year’s tax-filing season reached an IRS representative, according to a report by the IRS’s national taxpayer advocate.”

And, “The IRS does a poor job of managing social programs. Critics of the legislation say problems with the Earned Income Tax Credit, a federal program that provides tax rebates to low-income working families, illustrate the pitfalls of putting the IRS in charge of administering health care reform. The EITC program ‘has one of the highest fraud and abuse rates of any tax provision out there,’ Grassley said at the April 15 hearing.”

But, as with all things, the supporters of this law think none of this will be a problem. After all, people will gladly comply because they get a credit for buying insurance. Mmm, hmmm.


Of course, the IRS will be busier than ever with the new requirement that businesses file 1099s for any other business with which they spend $600 or more in the course of a year. Tax advisor Dan Pilla reports that the current load of tax forms may double from the 1,833,000,000 to nearly 4 billion once that provision takes effect.

The burden on the IRS will be considerable, but it will be eclipsed by the burden on taxpayers. Pilla writes, “Consider this: according to the National Taxpayer Advocate’s 2008 Annual Report to Congress, businesses and individuals spent approximately 7.6 billion hours meeting the tax code’s filing requirements in 2006. That is equivalent to 3.8 million full-time workers. These numbers will skyrocket if this new information-reporting requirement stays on the books.” The cost of compliance currently is $193 billion per year and will “skyrocket” once this provision takes effect. Pilla concludes, “As a country, how can we continue to tolerate this deadly hemorrhaging of our productivity and resources? I fail to see how this can continue.”

SOURCE: Tax Help Online