Ebenezer Scrooge lived a hard life. Abandoned at Christmas at his boarding college, Scrooge found to reside for himself.
This tactic to life led to exceptional financial accomplishment. But Scrooge was reviled and had no pals. And the future, nicely, the future was even darker.
We know all of this due to the reality 1 Christmas Eve Scrooge was visited by three specters. 1 his earlier, 1 his present and the final his future.
What scared him the most was his future. So, he asked the ghostly specter, was this future set in stone, or could it be changed?
Our nation’s future seems burdened by the growing costs of entitlements. Social Security, Medicare, and Medicaid will want to be funded by a shrinking base of workers.
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So, we ask, is this future set in stone, or can it be changed? There are rather a handful of policy wonks sounding the alarm on entitlements. There have also been some politicians.
I say “have been,” as in the earlier tense, due to the reality appropriate now these politicians are operating from their earlier words.
In his State of the Union address, President Biden stated some Republicans wanted to cut down Social Security and Medicare. This was suitable away met with a shout of “liar” and quite a few attempts to seem shocked and disgusted.
This show suggests that Social Security seems to be the third rail of politics. And even so, with no alter, the specters have shown us what the future seems like.
President Biden himself has suggested 1 alter. Wage earners devote six.two% of their incomes to social security and 1.45% to Medicare. Their employers do the pretty exact same.
Self-employed men and women nowadays devote 12.4% and two.9% of their earnings for the pretty exact same outcome in. Every types of earners do not want to devote the six.two% or 12.4% above an earnings limit.
The president has suggested eliminating the earnings limit. He crossed his heart and hoped to die if he raised taxes on these earnings a great deal much less than $400,000, so this added tax would apply only when earnings exceed $400,000.
This creates a “donut hole.” The tax ends at a certain level of earnings, and then returns at $400,000. “Hole” earnings are exempt.
But this would nonetheless be a six.two% or 12.4% tax raise for greater earners. That may well nicely be a second third rail.
Other people have suggested raising the eligibility age for Medicare, and the “full” retirement age for Social Security. Quickly following all, they say, men and women nowadays are living longer.
Turns out that not as well lengthy ago, Americans have not been living longer. And the Medicare commence age may well nicely be increasingly important offered challenges to discovering pretty reasonably priced all round overall health care.
But we have to do a factor! 1 tactic that gets surprisingly modest interest outdoors of really feel tanks is bending the curve on all round overall health care costs.
Politicians like to inform us that the United States has the greatest all round overall health care strategy in the planet. The truth is that it does not. Americans get lower higher good quality heath care at higher costs than the rest of the designed planet.
Projections of a bankrupt Medicare and Medicaid assume no alter in the future improvement of costs. Altering this assumption is a doable game changer.
There is a factor referred to as the rule of 72. By dividing 72 by a improvement value, 1 can ballpark how lengthy it calls for for a factor to double in worth.
If all round overall health care value grows at eight% per year, it doubles in 9 years (72/9). That implies quadruple in 18 years and improvement to 16 situations in 36 years.
At improvement of six% per year it will double in 12 years and create by eight situations in 36 years. A improvement of 4% will double in 18 years and quadruple in 36 years.
So if we project all round overall health care entitlement costs out 36 years, the improvement in value can range from four situations current costs to 16 situations just by altering the annual improvement assumption from 4% to eight%.
What can America do to halve the annual raise in all round overall health care costs? The capability to answer this query may well nicely be the distinction involving a solvent Medicare and a Scroogian disaster.
The greatest beneficiary of Scrooge’s changed heart was not Scrooge himself, it was Tiny Tim. Possibly some inventive choices to our future all round overall health care costs can save rather a handful of a great deal extra.
Jim Hamill is the director of Tax Practice at Reynolds, Hix & Co. in Albuquerque. He can be reached at jimhamill@rhcocpa.com.