American Shareholders Association

HSA Enrollment Spikes Up 33% in One Year

According to the latest industry report, the number of lives covered by an HSA-qualified health insurance plan grew from 4.7 million in 2006 to 6.1 million in 2007 (a 33% increase).

Other highlights:

• This number represents 3.4% of all Americans covered by a private sector health insurance plan
• Employer coverage (both large and small group) represent a growing majority of covered lives--this is no longer an individual-market phenomenon
• The most HSA-saturated state is Minnesota (9.2% market share)
• The most HSA-stingy state is Hawaii (0.1% market share)
• The average HSA balance is $1382.  HSA owners, on average, disbursed $1083

McCain and Health Care Reform

McCain coming out with a few more health care reform details today.  Here's how the plan would work:

• Employers still get to deduct health insurance provided
• Value of health insurance provided added to worker's income (like wages)
• All Americans get tax credit of $2500 ($5000 family) for getting health insurance
• Credit would be refundable (i.e., you get the full credit even if taxes are zeroed out)
• People could buy health insurance across state lines to get a better deal

The big issue here is the refundability.  By definition, giving money to non-taxpayers is not a tax cut, but spending.  You have to be very careful how you pay for that, and it's very easy to stumble into a tax increase without realizing it (by paying for this spending with a tax increase offset).

What President Barack Obama Will Do To Your 401(k) and Roth IRA

It's pretty intuitive that higher capital gains and dividends tax rates will result in a decline in stock prices.  One of the frustrating things, though, is that this effect has not been easily quantified.

Until now.

According to former ASA Executive Director Dan Clifton at Strategas Research Partners,

If the current 15% tax rate on both capital gains and dividends, which has been in force since President Bush pushed them through in 2003, are made permanent beyond the 2010 expiration date, the estimated fair value of the Standard & Poor's 500-stock index would be 1523, nearly 9% higher than Friday's close of 1398, says Strategas. In contrast, if Democrat Barack Obama wins and boosts the capital gains tax rate to 28% and dividends to pre-Bush levels of 39.6%, the fair value dips to 1375, or 1.6% below the market's current level.

Put simply, if you have $100,000 in an Roth IRA, having those higher Obama rates in place would reduce your nest egg by $1600. If, though, current law remains in effect, you'd get another $9000.  That's a $10,600 difference to your retirement.  It doesn't matter that the Roth IRA is tax-free.  Your nest egg goes down nonetheless.

Who says politics doesn't matter?

ASA on Location at Resource Bank

I will be at Resource Bank for the balance of the week.  If there's anything of interest to post, I'll be back.  Otherwise, see you Monday.

ASA Comments on 401(k) Fee Disclosure

ASA sent a letter to the Hill today commenting on fee disclosure.  Here's an excerpt:

No one—not investors, employers, the 401(k) industry, policymakers, nor regulators—have any problem whatsoever with 401(k) fee disclosure.  In fact, the Department of Labor has already proposed and is moving to finalize strong mandates in this regard...Where H.R. 3185 falls short is in effectively discriminating against service providers who choose to bundle their fees.  Seventy-five percent of employers, particularly smaller employers, use these bundled arrangements.  Using a single provider eliminates the need to monitor multiple service providers to a plan.  H.R. 3185 could serve to increase 401(k) fee costs, since the economies of scale small businesses currently enjoy would be endangered.  Fee disclosure that investors aren’t clamoring for isn’t worth imperiling the retirement security of millions of workers.

Dems in White House? Get Ready to Take a Nest Egg Hit

Good article today (not the least of which because I'm quoted) in SmartMoney.com on the capital gains and dividends rate and the 2008 Presidential elections:

Ryan Ellis, executive director of the American Shareholders Association, a political advocacy group pushing for lower investment taxes, says all investors — not just those with taxable accounts — should be aware of the impact of the candidates' policies. "Most Americans own stocks in 401(k)s and IRAs, but even if they're not directly paying these taxes in their retirement accounts raising the cap-gains rate has a high correlative effect on the stock market's performance," says Ellis, who says he only has tax-advantaged accounts.

"If you own a share worth $100 and you're anticipating a higher capital-gains rate, there's going to be a discount because your future profit isn't as high, and therefore the share is worth less because people aren't willing to pay as much," Ellis says. "If shareholders are aware of the difference between the Democratic nominee and McCain, there's not a starker contrast than on the tax issue. Maybe the Iraq war is bigger, but that's about it."

Dividends for the Rich? Tell That to Utility Company Investors

The Edison Electric Institute and the American Gas Association recently released a study entitled, "The Dividend Tax Rate Reduction."  In 2003, the top tax rate on dividends received by individuals was cut from nearly 40% all the way to 15%.  It makes sense to see what the characteristics are of these households.  A few interesting nuggets:

• The utility industry has the highest dividend yield of any sector, at 3.3%.  That would explain why many older Americans hold utilities for current income.  Utilities also pay out almost half of their net income as a dividend every year.  You can't get much more transparent with profits than cold, hard cash
• 60% of Americans reporting "qualified dividends" had income of less than $75,000 per year
• 60% of Americans reporting "qualified dividends" were age 50 or over
• These older taxpayers with dividend income were very likely (90% chance) to own utility stock shares

If nothing is done to change the path of current law, the dividend tax rate will go from 15% to nearly 40% in 2011.  Since dividends are not deductible to the payer, the ideal rate for individuals should actually be 0%--but I digress.

The numbers bear out that if and when that scheduled tax hike occurs, it will fall most heavily on seniors making less than $75,000 per year.  So much for "taxing the rich."

Timeline of a Payoff:Michelle Obama and U. of Chicago Hospital's Earmark

Michelle Obama worked for the University of Chicago for years--even before her husband Barack decided to run for the United States Senate.  Apparently, she did a really good job (source on these wages is Obama tax returns):

2002: $98,826
2003:  $64,287
2004:  $121,910  (89.6% raise)
2005:  $316,962 (159.9% raise)
2006:  $273,618
2007:  $103,663

In 2006, Senator Barack Obama requested a $1 million earmark for the University of Chicago Hospital System.  Click here to read details about it.

When was the last time you got a 160% raise (or a 90% raise, for that matter)?  I guess it helps if your senator-husband gets your boss a $1 million earmark.

Barack Obama Takes, Breaks Tax Pledge...In the Course of Five Minutes!

Clinton and Obama Propose Massive Social Security Tax Increase on Entrepreneurs

At the Philly debate, both Clinton and Obama pledged to not raise taxes on people making less than $250,000 per year.

Hillary kind of kept her word.  She advocated a "donut hole" where Social Security's FICA tax of 12.4% would stop being collected at $100,000 of wage and self-employment income, and would start up again at $250,000 (and presumably be uncapped from there).  That would result in a self-employed tax rate of 54.9%--the highest level since the Carter Administration.

Obama broke his "pledge" almost as soon as he said it:

First, his "pledge":

MR. STEPHANOPOULOS: An absolute commitment, no middle-class tax increases of any kind.

MR. GIBSON: Senator Obama, would you take the same pledge [not to raise taxes on those making less than $250,000]?

SENATOR OBAMA: Well, I not only have pledged not to raise their taxes, I've been the first candidate in this race to specifically say I would cut their taxes...

Then, the flip-flop:

SENATOR OBAMA: What I have proposed is that we raise the cap on the payroll tax, because right now millionaires and billionaires don't have to pay beyond $97,000 a year. That's where it's kept. Now most firefighters, most teachers, you know, they're not making over $100,000 a year. In fact, only 6 percent of the population does. And I've also said that I'd be willing to look at exempting people who are making slightly above that. But understand the alternative is that because we're going to have fewer workers to more retirees, if we don't do anything on Social Security, then those benefits will effectively be cut, because we'll be running out of money.

MR. GIBSON: But Senator, that's a tax. That's a tax on people under $250,000.

SENATOR OBAMA: Well, no, look, let me -- let me finish my point here, Charlie. Senator Clinton just said she certainly wouldn't do this; this was a bad idea. In Iowa she, when she was outside of camera range, said to an individual there she'd certainly consider the idea. And then that was recorded, and she apparently wasn't aware that it was being recorded. So this is an option that I would strongly consider, because the alternatives, like raising the retirement age, or cutting benefits, or raising the payroll tax on everybody, including people who make less than $97,000 a year --

MR. GIBSON: Those are a heck of a lot of people between $97,000 and $200(,000) and $250,000. If you raise the payroll taxes, that's going to raise taxes on them.

Obama Trashes the Laffer Curve on Capital Gains: The Audacity of Bad Math

More unbelievable stuff from the Philly debate.  Who knew Charlie "Jack Kemp" Gibson would be so on?

MR. GIBSON: You have however said you would favor an increase in the capital gains tax. As a matter of fact, you said on CNBC, and I quote, "I certainly would not go above what existed under Bill Clinton, which was 28 percent."   It's now 15 percent. That's almost a doubling if you went to 28 percent. But actually Bill Clinton in 1997 signed legislation that dropped the capital gains tax to 20 percent.

SENATOR OBAMA: Right.

MR. GIBSON: And George Bush has taken it down to 15 percent.

SENATOR OBAMA: Right.

MR. GIBSON: And in each instance, when the rate dropped, revenues from the tax increased. The government took in more money. And in the 1980s, when the tax was increased to 28 percent, the revenues went down. So why raise it at all, especially given the fact that 100 million people in this country own stock and would be affected?

SENATOR OBAMA: Well, Charlie, what I've said is that I would look at raising the capital gains tax for purposes of fairness. We saw an article today which showed that the top 50 hedge fund managers made $29 billion last year -- $29 billion for 50 individuals. And part of what has happened is that those who are able to work the stock market and amass huge fortunes on capital gains are paying a lower tax rate than their secretaries. That's not fair.  And what I want is not oppressive taxation. I want businesses to thrive and I want people to be rewarded for their success. But what I also want to make sure is that our tax system is fair and that we are able to finance health care for Americans who currently don't have it and that we're able to invest in our infrastructure and invest in our schools. And you can't do that for free, and you can't take out a credit card from the Bank of China in the name of our children and our grandchildren and then say that you're cutting taxes, which is essentially what John McCain has been talking about. And that is irresponsible.  You know, I believe in the principle that you pay as you go, and you don't propose tax cuts unless you are closing other tax breaks for individuals. And you don't increase spending unless you're eliminating some spending or you're finding some new revenue. That's how we got an additional $4 trillion worth of debt under George Bush. That is helping to undermine our economy, and it's going to change when I'm president of the United States. 

MR. GIBSON: But history shows that when you drop the capital gains tax, the revenues go up.

SENATOR OBAMA: Well, that might happen or it might not. It depends on what's happening on Wall Street and how business is going. I think the biggest problem that we've got on Wall Street right now is the fact that we've got a housing crisis that this president has not been attentive to and that it took John McCain three tries before he got it right.
And if we can stabilize that market and we can get credit flowing again, then I think we'll see stocks do well, and once again I think we can generate the revenue that we need to run this government and hopefully to pay down some of this debt.

Hillary Clinton Wants to Raise the Capital Gains Tax: Maybe To As High As 28%

From the debate last night in Philly:

MR. GIBSON: I'm going to go to a commercial break. But I just want to come back to one thing you said, and I want to be clear. The question was about capital gains tax. Would you say, "No, I'm not going to raise capital gains taxes"?

SENATOR CLINTON: I wouldn't raise it above the 20 percent if I raised it at all. I would not raise it above what it was during the Clinton administration.  [N.B the capital gains rate was 28% when Clinton entered office.  The GOP Congress forced him to cut it to 20% in 1997.]

MR. GIBSON: "If I raised it at all." Would you propose an increase in the capital gains tax?

SENATOR CLINTON: You know, Charlie, I'm going to have to look and see what the revenue situation is. You know, we now have the largest budget deficit we've ever had, $311 billion. We went from a $5.6 trillion projected surplus to what we have today, which is a $9 trillion debt.

Obama Caves, Joins the Investor Class

We're pretty humble here at the American Shareholders Association (well, not really).  However, it isn't every day you can introduce the most left-wing presidential candidate since George McGovern to the investor class.

I think we just did.

This morning, the Obamas released their 2007 income tax return.  For the first time, they actually indicate that Barack Obama (but not Michelle) contributed to either a SEP-IRA or a self-employed 401(k) plan.  $45,000 was put in (the maximum allowed).  Let's hope he invests in solid companies with growing profits.  That's the American way.

This contribution could have been made as late as Tuesday, April 15th.  The fact that the heat had been turned up on them by ASA and others made no small difference, we can hope.

Now that Obama is a member of the burgeoning new investor class, maybe he will stop his insane crusade to drive down shareholder wealth with a potent brew of protectionism, tax increases, and massive new regulation.

Tax Day Pic (ASA Participated)

McCain Proposes Economic Growth Plan

And it's very pro-investor.  Highlights for shareholders include:

• Keeping in place the 15% capital gains and dividends tax rate.  Hillary and Obama want to raise the capital gains tax to 20% (and higher), and the dividends rate to 39.6% (for starters)
• Cutting the corporate income tax rate from 35% (the second-highest in the developed world) to 25% (the average rate of our European competitors).  This will transform America from a jobs and growth repellant to a capital magnet
• Replace long and complicated depreciation of business assets with full, first year expensing for equipment and machinery purchases

These three items together would boost GDP and shareholder wealth to record levels.  The rest is ok, too.

Flat Tax vs. National Sales Tax

IRS Audits Going Up

Read it and weep.  If you make more than $100,000 or so (and especially if you have non-corporate income), hold onto your wallet.

Pic From "Tax Me More" Press Conference

Congressman
John
Campbell (R-CA)

Cong. John Campbell (R-CA) Introduces "Put Your Money Where Your Mouth Is" Act

Yesterday, Congressman John Campbell (R-CA) introduced the "Put Your Money Where Your Mouth Is" Act.  Oftentimes, rich liberals will complain about how they don't pay enough in taxes thanks to pro-growth conservative tax policies.

Campbell's bill would allow them to "put their money where their mouth is" by creating a new line of Form 1040 to voluntarily pay more in taxes.  If Hillary Clinton believes what she said (that she and Bill didn't need the tax cuts of 2001 and 2003), then she can give back the money.

Congress to Vote Against Cap Gains and Dividend Tax Hike Next Week

ASA has learned that early next week, House Republicans will be forcing a vote on preventing tax increases that Democrats have scheduled for January 1, 2011.  Specifically of interest to shareholders, the capital gains rate will rise from 15% to 20%, and the dividends rate will rise from 15% all the way to 39.6%.

Expect this to be one of the hot issues this Fall.

Pelosi Swats Down Columbia FTA

Earlier this week, President Bush submitted the Columbia free trade agreement (FTA) to Congress.  Under the law, Congress has 90 days to give the FTA an up-or-down vote.

Not surprisingly, Democrats change the law when it doesn't suit their needs.

At the behest of Speaker Pelosi, the U.S. House of Representatives just repealed the provision of the law requiring Congress to vote up-or-down in 90 days.

Profiles in courage.

Ways and Means Passes HSA-Killing Tax Hike

The Ways and Means Committee just passed a tax increase with a killer poison pill for HSAs on a nearly party-line vote.

HSA Under Assault This Week in Congress

Congressman Pete Stark (D-CA) is next in line to be the Chairman of the House Ways and Means Committee.  He's probably also public enemy number one to health savings accounts (HSAs).  This week, he's tucking an earmark into a tax bill which would cripple and undermine HSAs.

First, some background: HSA funds can generally only be used for qualified medical expenses.  Taking money out for non-medical reasons generally results in taxes owed on the withdrawal, plus a 10% penalty.  Taxpayers assert that the withdrawal was for medical expenses (or not) on their tax return, under penalty of perjury.  Like any other deduction, liars and cheats are caught using the IRS's audit process.

But that's not good enough for Stark.  He wants to have HSA holders get independent verification that the withdrawals were qualified.  Not coincidentally, there is only one company (Evolution Benefits) that has the technology to do this, and it's the one lobbying for this provision.

This provision is a win for both Evolution Benefits (who gets to corner the market on third-party substantiation, for which they have a patent), and Pete Stark (since he knows this will scare off banks, businesses, and consumers from offering HSAs).  This is a mortal threat to the investor class.

President Sends Columbia Trade Bill to Congress

One of the biggest differences between the two political parties right now is the relative level of support for free trade.  With the exception of a few nativists, the GOP is largely free-trade.  Most Democrats are in the pocket of Big Labor and oppose even the most common-sense trade pacts.

So, when you have a GOP President, a Democrat Congress, and a good trade bill, sometimes the President just has to force the issue.

The U.S.-Columbia free trade agreement is decidedly in the U.S.' favor.  We already let in, duty-free, most Columbian goods.  All this FTA would do is open up Columbian markets to U.S. goods.  Big Labor (and their Democrat allies in Congress) oppose the measure for no substantive reason--they simply have a knee-jerk reaction against anything involving competition, free trade, etc.

Congress has until September to cast an up-or-down vote.  Shareholders are hoping that freedom wins.

Hillary Clinton's Turn to Release Tax Returns

In a classic "Take Out the Trash Day" move, Hillary Clinton released her old tax returns on Friday night.

The headline number is that the Clintons earned $109 million since 2000.  So much for the Bush years being hard on folks.

The Clintons were also big-time investors, providing a stark contrast to the probably stock-less Obamas.  No self-employed 401(k) plans, though.

The part that tells you what a robotic non-person Ms. Rodham probably is: in one year, she filed an amended return for neglecting to include $81 in interest.  This was in a year that the Clintons earned over $1 million.

Economy Loses 80,000 Jobs, 250k in First Quarter

But still up roughly 8 million since the cap gains and dividends tax cut, and unemployment is still a very low 5.1%, which is lower than the average of the 1970s, 1980s, and 1990s.

Average hourly earnings up 0.3%, which is about in line with inflation.

This has already been priced into stocks, along with weakness in the housing and finance sectors.  The bottom has been hit.

Senate Bipartisan Tax Cut Announced

Late yesterday afternoon, Senate bipartisan leadership announced new tax cut plans as part of a housing package.  Specifically:

1. Businesses will be allowed a four-year NOL carryback for losses incurred in 2008 and 2009, but only if they waive 179 expensing and bonus depreciation
2. Homeowners who don't itemize their deductions will be allowed to deduct up to $500 in property taxes ($1000 MFJ).  Interestingly, this deduction won't be allowed for taxpayers living in jurisdictions that raise property taxes for the rest of this year
3. A new $7000 tax credit (spread over 2008 and 2009) for homes purchased in 2008 which were in foreclosure

22% of 401(k) Plans Have Roth Deferral Option

According to the Profit Sharing/401(k) Council of America, 22% of 401(k) plans now have a Roth deferral option.

This option gives the worker the choice between pre-tax deferrals and "Roth deferrrals."  These Roth deferrals are after-tax, and grow tax-free forever.  They can be rolled into a Roth IRA, and have no AGI limits.

Hillary Clinton to the Poor: Buy Health Care, or Pay Up

Many times, an "individual mandate" to purchase health insurance is advanced as one policy solution.  If people won't buy health insurance, make them do it under pain of the law.  The argument is often advanced that we do it for car insurance, so why not prevent people from "free-riding" the system?

The problem is that health care is not affordable.  If it were, people would already be purchasing insurance because it would be in their best interest to do so.  To force people (especially the poor) to purchase an unaffordable product is not only cruel--it's a form of central planning.

Yet that's exactly what Hillary Clinton, Newt Gingrich, and many people in between are advocating.  Jim Capretta picks it apart in today's NRO.

Senate GOP and Conservatives Lukewarm on Housing Plan

Here's the full article, with a comment I had this morning:

Ryan Ellis, tax policy director of Americans for Tax Reform, a conservative anti-tax group, said: “There are definitely more pro-growth tax cut measures that can be done. “Indexing the basis of capital gains to inflation, cutting the corporate income tax rate, or replacing depreciation with expensing would all do a lot more good than a new housing tax credit,” said Ellis.