I miss my friend.

And in my last post, I asked for comments regarding views expressed by John Stossell. I got one response (well, two but the second one was generic). The first one was a good one. It talked about Keynesian Economics and the ability of “the rich” to have lots of paid “pre-tax” personal expenses making their “surplus taxable income” more available for contribution to the government. The CBO was quoted and rated ways to create jobs. Overall, it was a very intelligent and educated response. And I tend to disagree and here’s why.
I have been listening to Dave Ramsey for several years and have read his books (a couple anyway). In his economic theory, he believes in living debt free on a personal finance and business finance basis. At first, I thought his position was a bit whacked out. I hadn’t heard any other economist or financial advisor taking this position so Dave was definitely going against the grain. But as I listened more, I came to understand some underlying basics that aren’t clearly stated in the simple “live a debt-free life”.
The issue is risk. When debt is an ongoing part of a financial program, whether personal or in business, risk become a significant consideration in making any purchasing decision. Dave says often, on his radio program, he’s done a personal study and found 100% of foreclosures had a mortgage. I guess that’s true. If a home is debt-free, there’s little worry of a bank knocking at the door. Ok, there property taxes to be considered but it’s better than property taxes and a mortgage payment. In the end, however, when a home is debt free and the economy turns as it has the last few years, the owner of that property has minimal risk.
But what about the mortgage interest deduction to lower my tax rate? one might ask. I’ll use Dave’s example (although I’m sure he states it much better). If a person making …say….$75,000 per year is in the 30% tax bracket and pays $10,000 in mortgage interest to the bank in a that given year (which they will use as an interest deduction on their taxes), that person should be saving around $3000 that year on their taxes. The conclusion is the actual out-of-pocket cost to the home buyer is $7,000. If the home was debt-free, the taxes for that year would be $3000 more. So is it logical to pay a $10,000 to one place to get $3000 back from another? Wouldn’t it be financially sound just to pay the $3000?
Ok, well, let’s take it another route then. Take the same $10.000 that would have been paid to the bank in interest and make charitable donations to a favorite local charity and take the tax write-off that way. It still only costs $7000 in the long run and the choice of where the money is going have the person’s personal stamp of approval. Plus, the home is debt-free.
All that is well and good but the unspoken factor again is the risk associated carrying a debt. Stress is lessened without debt on many levels. If the market takes a turn for the worse and the value of the home decreases (as most people have experienced over the last couple years), it isn’t pleasant but it’s really of no consequence. Pay the property taxes and all is good. Maybe the value will go up again but in the meantime, there’s little concern about making payments in a struggling economy.
I’ve come to believe in Dave’s program. I hope to be debt-free by the end of 2011. Let’s all hope.
The same “risk” issues exist in business. Most people agree the bulk of job creation comes from small business. And most folks would also concede small business is started by average Americans. These folks aren’t the “rich” as stated in the discussion about taxes on the radio or television. There’s just average joe’s who feel a passion for an idea whether that idea is a product or a service or getting away from having a boss or just having control of their own time (which is a myth…. Small businesses own people rather than people owning small business- look at the time a small business owner puts into their dream). To make the “leap” to owning a small business is a “leap” of faith and most potential business owners put everything they have on the line to follow that dream (I know, I’ve done it 4 or 5 times with less than stellar results).
The evidence of the average joe’s desire to employ him or herself can be shown by the number of “turnkey” business opportunities out there. Just send in a certain amount of money and the new business is up and running. Lots of people “invest” in those “opportunities” which nearly always result in failure. But I’m off my topic.
Ok, so those small business owner’s won’t be affected much by increasing the tax rate on those making over ¼ million per year. However, no one goes into business thinking they’ll be a failure, either. Yeah, yeah, yeah… how does all this risk stuff this apply to “the rich”?
Well, to the Bill Gates and Warren Buffet’s of the world, not a whole lot. Should Bill or Warren want to open a small business and it fails, there’s not much affect to their standard of living. Warren just keeps buying businesses and Bill keeps giving his money away to charity. And should the money wear down to a certain point, they’ll just stop doing whatever it is they’re doing. They can continue to expand their holdings and should they lose vast sums of their wealth, they’ll still have enough to live comfortably. Increasing taxes for them is not a concern. At the same time, I don’t see Bill or Warren just writing a check to the government, either.
To the average “rich”, those making just over the ¼ million per year, it seems to me the picture is a bit different and there’s lots more of those folks making just over the ¼ million mark than there are the Bills and Warrens of the world. The expansion of future business is based on past performance and future projections. Making decisions to expand (opening new markets, building expansion, new product development, etc.) is certainly a risk to be considered. So in this economy, the raise of personal income taxes does, in my view, have an effect on what future decisions will be made. The reason, in my view, for that effect stems from the credit nature of our economy. In most cases, business expansion at any level is realized through available loans which of course raises risk. And not just risk to the new venture. Usually the risk includes existing business performance.
To those entrepreneurs who have the next big idea and want to be the next Google or Facebook or Microsoft or Girls Gone Wild, starting up those new ventures becomes more and more difficult at every level, federal, state and local. Licensing, permits, registrations, leases, inspections, misc. fees. Everyone seems to want to get in on the act.
Now if every person or business waited until a stockpile of money was accumulated and available, there wouldn’t be much problem. Once the allotted stockpile of money was burned up without the desired results, the new venture would be shut down and things would go back to normal.
I know several realtors who made well over the ¼ million mark who aren’t realtors anymore. The reason is simple and apparent. Bad things happen sometimes. Unforeseen events occur. More than a few “chain” restaurants here in St Petersburg have closed all their locations after decades of business. Watch “The Apprentice” this year. A few of those contestants had thriving businesses earning more than the ¼ million mark and now they’re out of work. I don’t think I’ll try to tell those contestants bad things happen sometimes. They already know
I would rather let people keep the money they’ve earned. I suppose that’s why I support the Fair Tax (check previous blog posting). Even “the rich”. Let them invest either through their own efforts or through stock holding to build companies. Those “rich” who want to horde their money and not “invest”, no problem. Personally, I don’t know any of those. I believe those folks are few in number. Mostly, people with a river of revenue flowing into their bank accounts have been either lucky or smart. Mostly smart, I think. And I like the idea of having smart people running the show.
Well, that’s what I think. Leave your comments both good or bad. I love the feedback.

Progressives want to raise taxes on individuals who make more than $200,000 a year because they say it’s wrong for the rich to be “given” more money. Sunday’s New York Times carries a cartoon showing Uncle Sam handing money to a fat cat. They just don’t get it.
As I’ve said before, a tax cut is not a handout. It simply means government steals less. What progressives want to do is take money from some — by force — and spend it on others. It sounds less noble when plainly stated.
That’s the moral side of the matter. There’s a practical side, too. Taxes discourage wealth creation. That hurts everyone, the lower end of the income scale most of all. An economy that, through freedom, encourages the production of wealth raises the living standards of lower-income people as well as everyone else.
A free society is not a zero-sum game in which every gain is offset by someone’s loss. As long as government keeps its thumb off the scales, the “makers” who get rich do so by making others better off. (When the government allocates capital or creates barriers to competition, all bets are off.)
Of course, this is not the prevailing view among the intelligentsia. Columbia University Professor Marc Lamont Hill tells me, “Those who have more should pay more.”
But is there a point where they stop producing wealth or leave altogether?
“The rich have always cried wolf like that,” Hill says.
But the wolf is here. Maryland created a special tax on rich people that was supposed to bring in $106 million. Instead, the state lost $257 million.
Former Gov. Robert Ehrlich, who is running again for his old job, says: “It reminds me of Charlie Brown. Charlie Brown was always surprised when Lucy pulled the football away. And they’re always surprised in Washington and state capitals when the dollars never come in.”
Some of Maryland’s rich left the state. “They’re out of here. These people aren’t stupid,” Ehrlich says.
New York billionaire Tom Golisano isn’t stupid, either. With $3,000 and one employee, he started a business that processes paychecks for companies. He created 13,000 jobs.
Then New York state hiked the income tax on millionaires.
“It was the straw that broke the camel’s back,” he says. “Not that I like to throw the number around, but my personal income tax last year would’ve been $13,800 a day. Would you like to write a check for $13,800 a day to a state government, as opposed to moving to another state where there’s no state income tax or very low state income tax?
He established residence in Florida, which has no personal income tax.
Now Gov. David Paterson may have even seen the light.
“We projected that we would get $4 billion, and we actually got well short of it,” he says.
Art Laffer, the economist who has a curve illustrating this point named after him, isn’t surprised.
“It’s just economics,” he says. “People don’t work to pay taxes. People work to get what they can after tax. They’ll change where they earn their income. They’ll change how they earn their income. They’ll change how much they earn, when they receive the income. They’ll change all of those things to minimize taxes.”
We can see it in the statistics. In 1960, federal revenues were 18.6 percent of total output. Over the next 50 years, that percentage has rarely exceeded 20 percent or fallen below 17 percent. As Laffer says, people adjust their activities to the tax burden.
Donald Trump, who knows something about making money, says of course the rich will leave when hit with higher taxes. “I know these people,” he told me. “They’re international people. Whether they live here or live in a place like Switzerland doesn’t really matter to them.”
You haven’t left, I told him.
“I haven’t left yet. … Look, the rich people are going to leave. And other people are going to leave. You’re going to end up with lots of people that don’t produce. And then that’s the spiral. That’s the end.”
And that’s another good reason for us to get on with reducing the size of government.

I understand a few things about business although there are lots of folks who know more than I.  Sometimes, however, the simple basics run a lot further than sophisticated analysis and theory.  And the simple basics, whether running a household budget, family business or major corporation, are to have a surplus of money (profit) after paying for the cost of goods (items for consumption or items for sale) and operating expenses (labor, space, taxes, repairs, interest on debts, etc).  No huge revelation here.

So a retailer goes out and buys 100 new shirts for $1.00 each.  This retailer plans on selling the shirts for $20 which will generate a healthy profit.  In reality, however, when all the associated expenses are factored in (labor, the space to display the shirts, taxes, insurance, etc), let’s say the actual cost for each sale runs approximately $5.00 per item (this is for illustrative purposes so don’t quote me as actual costs). So the store sells 25 of the shirts during the first month at full price generating $500 ($20 X 25).  The store has the total costs of all 100 shirts paid for by the sale of those first 25 shirts so every following sale will be completely profit.  But the store has an ongoing space and time problem.  Every three months, fashions change and new inventory will be coming into the store and will require display space.  The price on the remaining 75 shirts is lowered to $15.00 (which is all profit at this point), then after a couple weeks, the price lowers to $12.00 (still all profit), then $8.00, then $5.00 and on it goes till all the shirts are sold and the new inventory the floor space vacated by the sold shirts.

There’s no secret here.  Everyone should know this is how it works.  So how would a business work if a buyer could go into the store before those original shirts arrive and announce they will only spend $4.00 per shirt once the shirts arrive.  The logic is simple; eventually the price will come down to $4.00 and $4.00 will be all the buyer would be willing to spend so if the store wants this buyer’s business, the store will set aside the shirts for this buyer.  In return, the buyer agrees to tell all their friends to shop at this store.

Welcome to the health insurance industry. The insurance company makes contractual rate agreements based on the size of their insured group with a hospital or doctor for services provided for specific procedures before those procedures are ordered. The hospital or doctor who rejects the company’s rate structure runs the risk of losing potential patients and potential income sources. The larger the insurance company’s group of participants, the lower the rates the insurance company can impose. At set times, sometimes yearly, the rate structure is reviewed, revised and renewed by both the insurance company and the hospital or doctor. Again, nothing new here.

Enter Medicare, the single largest group insurer.  Most American citizens over the age of 65 have their medical needs insured by Medicare.  This group of senior citizens has more health related concerns than any other group. So Medicare dictates rates hospitals and many doctors accept simply because of the size and ongoing health care needs of the group. I’m unaware of any hospital not associated with Medicare although some may exist.

Alright.  Why go through all this health care 101 explanation.  I lost my dad in December of 2009.  Someday, I’ll write about him someday but today his health issues are relevant to this discussion.  He had numerous health issues including heart problems, kidney transplants, dialysis, COPD, diabetes just to name a few.  He used to watch his medical costs and was impressed with the insurance coverage that blessed his life.  So as an example, I went through his records, with my mom’s permission, to review his monthly statements that summarized each month’s medical care.  The following numbers are from the last 4 months of his life:

Here’s the interesting part:

The total billed cost of medical services and medications provided for September through December 2009 totaled $739,540.55.  Ouch!

The amount my dad had to pay out of pocket during that same time period totaled $18,556.21.  Another ouch but much better than having to pay nearly three quarters of a million dollars

The amount the insurance company actually paid to hospitals, doctors and pharmacists totaled $140,770.38.  Hmmm.  This isn’t adding up, is it.

The amount the providers wrote off totaled $ 580,213.96.  What???? That’s the amount stated on the summary statements

Again, $580,213.96 was completely written off by hospitals, doctors, and pharmacists over a 4 month period.  That’s a discount of 78.45%.  I hope I’m not the only one who’s a bit surprised. There were no tax dollars used to pay this ½ million dollars plus.  It was simply “erased” from the total bill.

I shouldn’t be surprised, however.  I know several folks who received medical treatment for various ailments and didn’t have any insurance.  After receiving their bill, they went to the doctor or hospital and explained their financial situation showing they were unable to pay the total amount so the hospital or doctor reduced the balance by taking a write-off at nearly the same discounted rate.

So the question haunts me.  Why would any business inflate their rates by a factor of 5?  I don’t know.  .  I can speculate the health provider raised their rates by a factor of 5 knowing the insurance company would demand an 80% reduction which would bring the cost of service down to the actual rate a hospital would normally charge without an insurance company’s contractual restraints.  And once that inflated price structure is presented to an insurance company as a bargaining tool, the health provider can’t return to sanity by lowering their rates for cash-paying patients.  I choose to speculate Pandora’s box has been opened

There is a silver lining to that speculation, however.  The insurance company can now calculate how much money they’re losing through their “write offs” and garner national concern about health care costs.  Hmmm.  I’ll admit that’s a lot of speculation on my part. In any event, I’m hesitant to blindly accept the numbers politicized to show the lost revenues within the health care industry.

There’s been a series of television advertisements on local television by a company selling suits.  Buy one suit at regular price and get a second suit, two dress shirts and two silk ties free.  No one seems to question how a company is able to make a profit with this kind of “deal”.  It’s actually pretty simple.  Raise the price of the first suit to cover the costs of all the free stuff.  The hospital, doctor or pharmacy does in essence the same thing. In my opinion, of course.

I do believe there are some legitimate financial concerns within the health care industry.  The litigious nature of our culture can have devastating effects on the health care industry. Here in St Petersburg, a world-class brain surgeon recently gave up his $750,000.00 per year practice because after his $400.000.00 per year malpractice premium was paid, the remaining $350.000.00 covered his office expenses and nursing staff leaving him with an actual income of just over $60.000.00.  He can deal blackjack at a casino and make nearly that much without the weird work-hour expectation or risk.  Law suits, especially unwarranted legal claims, are significantly impacting the medical profession.

But back to the obesity issue. When the weight loss gurus and those concerned citizen and politicians get on the weight loss soap box and scare the public about the rising costs of health care due to obesity, there may be a few holes in the argument.  There’s an elephant in the room no one wants to talk about. Or maybe they’re not allowed to talk about it.

And in the end, the whole obesity issue comes down to personal responsibility.   Personal responsibility for what I choose to eat, drink, or breathe.  Personal responsibility for what exercises I choose to participate.  Personality responsibility to pay my bills.  Personal responsibility to be aware of my physical, mental and spiritual well-being.  Personal responsibility to take care of myself on so many levels. And personal responsibility to support other’s  personal responsibility regardless of their actions or choices and the consequences that follow whether I might agree with their choices or not.  Because once limits are placed on other’s personal responsibility, the snowball starts to pick up momentum.  I might just come back to that personal responsibility issue at some point in the future.

How do you argue with statistics like these?

http://www.globalone.tv/profiles/blogs/bread-kills

1. More than 98 percent of convicted felons are bread users.

2. Fully HALF of all children who grow up in bread-consuming households score below average on standardized tests.

3. In the 18th century, when virtually all bread was baked in the home, the average life expectancy was less than 50 years; infant mortality rates were unacceptably high; many women died in childbirth; and diseases such as typhoid, yellow fever, and influenza ravaged whole nations.

4. Every piece of bread you eat brings you nearer to death.

5. Bread is associated with all the major diseases of the body. For example, nearly all sick people have eaten bread. The effects are obviously cumulative:

* 99.9% of all people who die from cancer have eaten bread.
* 100% of all soldiers have eaten bread.
* 96.9% of all Communist sympathizers have eaten bread.
* 99.7% of the people involved in air and auto accidents ate bread within 6 months preceding the accident.
* 93.1% of juvenile delinquents came from homes where bread is served frequently.

6. Evidence points to the long-term effects of bread eating: Of all people born before 1839 who later dined on bread, there has been a 100% mortality rate.

7. Bread is made from a substance called “dough.” It has been proven that as little as a teaspoon of dough can be used to suffocate a lab rat. The average American eats more bread than that in one day!

8. Primitive tribal societies that have no bread exhibit a low incidence of cancer, Alzheimer’s, Parkinson’s disease, and osteoporosis.

9. Bread has been proven to be addictive. Subjects deprived of bread and being fed only water begged for bread after as little as two days.

10. Bread is often a “gateway” food item, leading the user to “harder” items such as butter, jelly, peanut butter, and even cold cuts.

11. Bread has been proven to absorb water. Since the human body is more than 90 percent water, it follows that eating bread could lead to your body being taken over by this absorptive food product, turning you into a soggy, gooey bread-pudding person.

12. Newborn babies can choke on bread.

13. Bread is baked at temperatures as high as 400 degrees Fahrenheit! That kind of heat can kill an adult in less than one minute.

14. Most bread eaters are utterly unable to distinguish between significant scientific fact and meaningless statistical babbling.

In light of these frightening statistics, we propose the following bread restrictions:

1. No sale of bread to minors.
2. A nationwide “Just Say No To Toast” campaign, complete celebrity TV spots and bumper stickers.
3. A 300 percent federal tax on all bread to pay for all the societal ills we might associate with bread.
4. No animal or human images, nor any primary colors (which may appeal to children) may be used to promote bread usage.
5. The establishment of “Bread-free” zones around schools.

Small snippet from the website on the dangers of Di-hydrogen Monoxide

http://www.dhmo.org/facts.html

What are some of the dangers associated with DHMO? Each year, Dihydrogen Monoxide is a known causative component in many thousands of deaths and is a major contributor to millions upon millions of dollars in damage to property and the environment. Some of the known perils of Dihydrogen Monoxide are:

* Death due to accidental inhalation of DHMO, even in small quantities.
* Prolonged exposure to solid DHMO causes severe tissue damage.
* Excessive ingestion produces a number of unpleasant though not typically life-threatening side-effects.
* DHMO is a major component of acid rain.
* Gaseous DHMO can cause severe burns.
* Contributes to soil erosion.
* Leads to corrosion and oxidation of many metals.
* Contamination of electrical systems often causes short-circuits.
* Exposure decreases effectiveness of automobile brakes.
* Found in biopsies of pre-cancerous tumors and lesions.
* Given to vicious dogs involved in recent deadly attacks.
* Often associated with killer cyclones in the U.S. Midwest and elsewhere, and in hurricanes including deadly storms in Florida, New Orleans and other areas of the southeastern U.S.
* Thermal variations in DHMO are a suspected contributor to the El Nino weather effect.

What are some uses of Dihydrogen Monoxide? Despite the known dangers of DHMO, it continues to be used daily by industry, government, and even in private homes across the U.S. and worldwide. Some of the well-known uses of Dihydrogen Monoxide are:

* as an industrial solvent and coolant,
* in nuclear power plants,
* by the U.S. Navy in the propulsion systems of some older vessels,
* by elite athletes to improve performance,
* in the production of Styrofoam,
* in biological and chemical weapons manufacture,
* in the development of genetically engineering crops and animals,
* as a spray-on fire suppressant and retardant,
* in so-called “family planning” or “reproductive health” clinics,
* as a major ingredient in many home-brewed bombs,
* as a byproduct of hydrocarbon combustion in furnaces and air conditioning compressor operation,
* in cult rituals,
* by the Church of Scientology on their members and their members’ families (although surprisingly, many members recently have contacted DHMO.org to vehemently deny such use),
* by both the KKK and the NAACP during rallies and marches,
* by members of Congress who are under investigation for financial corruption and inappropriate IM behavior,
* by the clientele at a number of bath houses in New York City and San Francisco,
* historically, in Hitler’s death camps in Nazi Germany, and in prisons in Turkey, Serbia, Croatia, Libya, Iraq and Iran,
* in World War II prison camps in Japan, and in prisons in China, for various forms of torture,
* during many recent religious and ethnic wars in the Middle East,
* by many terrorist organizations including al Quaeda,
* in community swimming pools to maintain chemical balance,
* in day care centers, purportedly for sanitary purposes,
* by software engineers, including those producing DICOM programmer APIs and other DICOM software tools,
* by popular computer science professors,
* by the semi-divine King Bhumibol of Thailand and his many devoted young working girls in Bangkok,
* by the British Chiropractic Association and the purveyors of the bogus treatments that the BCA promotes,
* by commodities giant Trafigura in their well-publicized and widely-known toxic-waste dumping activities in Ivory Coast,
* in animal research laboratories, and
* in pesticide production and distribution.

What you may find surprising are some of the products and places where DHMO is used, but which for one reason or another, are not normally made part of public presentations on the dangers to the lives of our family members and friends. Among these startling uses are:

* as an additive to food products, including jarred baby food and baby formula, and even in many soups, carbonated beverages and supposedly “all-natural” fruit juices
* in cough medicines and other liquid pharmaceuticals,
* in spray-on oven cleaners,
* in shampoos, shaving creams, deodorants and numerous other bathroom products,
* in bathtub bubble products marketed to children,
* as a preservative in grocery store fresh produce sections,
* in the production of beer by all the major beer distributors,
* in the coffee available at major coffee houses in the US and abroad,
* in Formula One race cars, although its use is regulated by the Formula One Racing Commission, and
* as a target of ongoing NASA planetary and stellar research.

One of the most surprising facts recently revealed about Dihydrogen Monoxide contamination is in its use as a food and produce “decontaminant.” Studies have shown that even after careful washing, food and produce that has been contaminated by DHMO remains tainted by DHMO.