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What If Obamacare Implodes?

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By Keith Speights, The Motley Fool

Obama Big Government SC What Will Happen When the Government Collapses?

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Obamacare could implode. I’m not saying that it will implode, and in fact this isn’t likely to happen. However, the possibility does exist. Here’s how it could happen — and what the aftermath would be if it did.

Source: Wikimedia Commons. 

How it could happen
While there are multiple ways that the ACA could fall apart, three stand out in my view as the most plausible paths. And each ties in with a different branch of government. 

Time magazine’s Joel Klein wrote about one way that Obamacare could fail in his story from April 2 titled “Obamacare Incompetence.” Klein noted the problems in implementing the health insurance exchanges that are a critical component for small businesses. His argument was that Obamacare will fail if more attention isn’t paid to the “details of implementation” by the administration.

The legislative branch of government could still cause the ACA to crumble, even without an outright repeal of the law. The Department of Health and Human Services is scrambling to cover the costs of implementing exchanges for 26 states that decided not to setup their own exchange. HHS asked for nearly $1 billion from Congress for this purpose, but that request didn’t meet with much sympathy.

HHS Secretary Kathleen Sebelius has enough discretionary options at her disposal to keep things rolling for now. However, at any point in the future, Congress could effectively dismantle the exchanges by not funding them. If the exchanges go by the wayside, Obamacare unravels.

The Supreme Court‘s role in deciding the fate of the ACA probably isn’t over despite last year’s ruling. Multiple cases are winding their way through lower-level courts. One, in particular, stands out as a quite serious challenge for the ACA, in large part because it hinges on the initial Supreme Court determination that the individual mandate is a tax.

Section 1311 of the ACA states that a health insurance exchange must be “established by a State.” Anyone who doesn’t receive insurance from an employer must obtain insurance through an exchange or pay a penalty (i.e., a tax.) However, section 1401 of the ACA gives a tax credit for applicable taxpayers buying insurance through “an exchange established by the State under [section] 1311.”

While section 1321 allows the federal government to create an exchange for states that choose not to do so on their own, the language of the ACA only allows tax credits to be given to people who buy insurance through an exchange established by their state. That’s where the Supreme Court might have to step in yet again.

Article I, Section 8 of the U.S. Constitution requires that taxes “be uniform throughout the United States.” If the ACA imposes a tax on citizens of all states but only provides a tax credit for those in states that setup their own exchanges, an argument could be made (and is being made) that the Uniformity Clause of the Constitution has been violated. Without the tax levies and

Source: FULL ARTICLE at DailyFinance

Business, Finance, Occupation & Industry

How These 6 Social Security Fixes Will Affect You

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By Dan Caplinger, The Motley Fool

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Social Security is the focal point for the debate on U.S. entitlement spending, and the threats to its future are well-known. Without reform, the Social Security Trust Fund will run out of revenue in 2033, and that point, revenue from Social Security payroll taxes will pay only three-quarters of scheduled benefits.

To fill that potential shortfall, various policymakers and interest groups have proposed several solutions. Each has its pros and cons and would have different effects on various people. Let’s take a closer look at some of the most popular proposed fixes and how they’ll affect you and your retirement, based on projections from Social Security’s chief actuary.

Source: Wikimedia Commons.

Fix 1: Raise the retirement age.
Raising the retirement age will reduce the number of people eligible for full benefits and cut the amount that those taking Social Security early will receive. Many people don’t realize that the retirement age has already been raised, with the normal retirement age to reach 67 for those born in 1960 or later. Further proposals include further raises to between 68 and 70, or indexing the retirement age to match rising life expectancies.

Raising the retirement age would have a big long-term impact on Social Security‘s viability. But most of the proposals affect only retirees who are currently 10 or more years away from being eligible even for early Social Security benefits, so they do little to slow the immediate decline in Social Security‘s Trust Fund balance and by themselves wouldn’t eliminate the funding gap until decades into the future. These proposals put the burden of supporting current retirees and near-retirees on younger workers who’ll have to defer getting benefits.

Fix 2: Raise the amount of payroll taxes collected.
Proposals to raise tax collection focus either on the rate of tax or the amount of wages subject to tax. Right now, employees pay 6.2% of their wages on Social Security taxes, with employers adding 6.2% of their own. According to Social Security, raising those tax rates to 7.65% would close the funding gap and keep the trust fund solvent. Alternatively, eliminating the current maximum of $113,700 on which taxes are collected would keep Social Security solvent until 2078.

Clearly, these proposals have much different effects. Eliminating the wage-base maximum puts the entire burden of higher taxes on high-income individuals, while raising tax rates would solely hit those with incomes under the wage-base maximum. It’d take a combination of these proposals to spread the burden across those of all income levels.

Fix 3: Use means-testing for benefits.
Means-testing involves reducing benefits for those with substantial income from other sources. According to one estimate, phasing out benefits for those with other income of more than $55,000 and cutting them entirely for above $110,000 would eliminate a fifth of the funding gap.

The challenge is figuring out where to draw the income line. Draw it too high, and the provision does little good because

From: http://www.dailyfinance.com/2013/04/13/how-these-social-security-fixes-will-affect-you/

Business, Finance, Occupation & Industry

The Big Business of the Boston Marathon

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By Nicole Seghetti, The Motley Fool

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The world’s oldest annual marathon gets under way this weekend. It’s a big event for the runners, but it’s also a huge one for the city of Boston and numerous companies. How much does the marathon really cost and, more important, how can investors get a piece of the action?

Physically (and fiscally) fit
A half-million spectators will witness more than 20,000 Boston Marathon runners strut their stuff on the famed course through Beantown on Monday.

Source: Wikimedia Commons.

Most Boston Marathoners gain eligibility to run the race by having completed a qualifying marathon in a certain amount of time. For example, a female runner between the ages of 45 and 49 would need a sub-four-hour qualifying time to run at Boston. But runners who don’t qualify under the time limit can still participate through a charity, by raising about $3,000 for their cause. That just gets your tired feet in the door.

In addition to the $150 entry fee for U.S. residents ($200 for international residents), runners must spend money on travel, lodging, and dining. Of course, runners can’t forget to pack essential running shoes and apparel. In all, a U.S.-based marathoner can anticipate spending $1,000 to nearly $3,000 to participate in the Boston Marathon. An internationally based runner will spend more. Assuming a $2,500 average tab per runner means $50 million will change hands as a result of this year’s race!

Even though we mere mortals will instead fill this weekend with activities of the couch-potato persuasion, we can still profit by investing in products used in the marathon.

On your mark
For starters, even the best runners often need medical attention during the race. The shoes that Flash swore he broke in weeks ago may rub him the wrong way at mile 13. And as runners gloriously cross the finish line, despite the endorphin rush, they’ll still feel pain.

Patching up runners’ annoying blisters, sore joints, and aching muscles will probably come from Johnson & Johnson and Pfizer products. For more than 125 years, J&J has brought relief to millions of consumers with its Band-Aids, Tylenol, and Bengay. Pfizer’s Advil is the No. 1-selling branded over-the-counter pain reliever, and its ThermaCare Heatwraps make heat therapy portable and long-lasting. And these two Dow Jones Industrial Average bellwether stocks both pay greater than a 3% dividend yield.

Running-apparel and shoe makers Nike and Under Armour are also likely beneficiaries of the race. Nike not only holds an enviable spot as the global market leader, but it also boasts the right strategy and investments to sustain its top position. Meanwhile, newer kid on the block Under Armour has evolved into a major player in the global athletic footwear and apparel market.

Not to be outdone, lululemon athletica , originally known for its pricey yoga pants, now flaunts lines of running gear targeted toward both sexes. Enjoying $1,900 in sales per square foot, its stores make Lululemon one of the United

From: http://www.dailyfinance.com/2013/04/13/the-big-business-of-the-boston-marathon-2/

Business, Finance, Occupation & Industry

Coca-Cola: A Great Stock for Kids and Adults

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By Asit Sharma, The Motley Fool

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Some investing trends are so entrenched and powerful that it’s easy to see only the past, while discounting future potential. Because of Coca-Cola‘s longevity, and due to its widespread market presence in over 200 countries, you might assume that the company has tapped out its total potential market share. But Coke will not stop growing anytime soon, as it will continue to prosper from one of the most visible trends on the planet: world population growth.

One of the ways Coke measures itself is by its share of daily worldwide beverage consumption. According to the company, in the year 2000, the human population consumed a total of approximately 48 billion beverages each day. Coke’s share of this daily consumption (counted as beverages bearing trademarks owned by or licensed to the company) was roughly 1 billion beverages, or 2.1%. By the end of 2012, Coke estimated that global daily beverage consumption had grown to approximately 57 billion beverages each day, and its share of that consumption was pegged at 1.8 billion beverages daily, or 3.2% of the total.  

Potential investors should be impressed by the recent rate of Coke’s daily beverage share growth. In 13 years, world daily consumption of beverages grew by almost 19%. Coke grew its servings, however, by 80%, and grew its share of the daily market by 50%. You can tie Coke’s revenue growth to these two drivers just as Coke does: the population of the world, and Coke’s growing share of each beverage consumed daily worldwide.

This market is only getting bigger. Below is a chart of world population growth. The future growth lines in red, orange, and green are taken from United Nations 2010 projections:

Source: Wikimedia Commons.

Under the “medium” scenario, the world’s population is expected to grow from 7 billion people today to 9 billion people by just after 2040. Consider a teenager who is 13 this year. By the time she is 40, if Coke can grow daily share at its current rate of 1 percentage point every 12 years, 3.4 billion beverages per day will bear trademarks owned by or licensed to the company. This will equal 1.2 trillion servings per year. Assuming the price of Coke’s average beverage at least doubles during those 27 years, the company’s annual revenue when our teen turns 40 will be close to $180 billion, and if Coke can preserve its present profit margin, the revenue will generate in the neighborhood of $32 billion of net income each year. This slow, almost inexorable growth will pay off handsomely for anyone who can buy shares today and reinvest dividends for the next three-plus decades.

Before you laugh away the ludicrousness of trying to project results 27 years into the future, bear in mind that 27 years ago, the world population was just under 5 billion people, and Coke stock was selling, on a split-adjusted basis, at just under a dollar on Jan. 2,

Source: FULL ARTICLE at DailyFinance

Business, Finance, Occupation & Industry

The Shocking Truth About This Hated Obamacare Tax

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By Dan Caplinger, The Motley Fool

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Obamacare has brought on intense debate from impassioned advocates both for and against the historical health care legislation. Yet one rare place where bipartisan support has emerged is in condemnation of a controversial tax on medical-device manufacturers that has threatened a highly innovative industry and put thousands of high-paying jobs at risk.

Last month, the U.S. Senate voted on a nonbinding resolution to call for the repeal of the 2.3% tax on sales of medical devices. Although the vote was 79-20 in favor of the resolution, with 33 Democrats supporting it alongside 46 Republicans, the procedural vagaries of the Senate mean that the tax will remain in effect, and with the opposition of key Senate leaders, even the supermajority favoring the tax’s repeal may be powerless to take further action. That’s bad news for the companies that have been saddled with paying the tax.

U.S. Senate. Source: Wikimedia Commons.

Understanding the medical-device tax
At first glance, the 2.3% tax on medical devices seems like a drop in the bucket that many highly profitable device-makers should be able to shoulder easily. Yet what many people don’t understand is that the tax is on each company’s gross sales of medical devices, rather than the profits that those sales generate.

The impact of the tax, therefore, is much larger. Look at medical-device giant Medtronic , for instance. It doesn’t get all of its sales from medical devices, but they make up a substantial portion of its overall business. With a reported profit margin of about 21% and assuming that its profits are evenly distributed across its product lines, imposing a tax of 2.3% would be equivalent to a roughly 11% surtax on Medtronic’s income.

The lower a company’s profit margin, the greater the impact of the medical-device tax as a proportion of net income. For the highly profitable robotic surgical giant Intuitive Surgical , a medical-device tax of 2.3% equates to less than an 8% additional levy on net income from its da Vinci surgical systems using the same assumptions as above, thanks to the company’s 30% profit margin. But for Stryker , which has a profit margin of about 15%, the medical-device tax is equivalent to a greater than 15% surtax on income from medical devices.

The companies that are hit hardest by the tax are those that are already unprofitable even before paying the new levy. For up-and-coming robotics-maker MAKO Surgical , which has already lost $32.5 million on revenue of slightly more than $100 million over the past 12 months, imposing what could be up to $2.3 million in additional medical-device taxes not only adds insult to injury but threatens MAKO‘s ability to keep growing.

How the industry is responding
Even before the tax took effect, companies took steps to reduce its potential impact. Stryker said last November that it would lay off 5% of its workforce in order to save $100 million in …read more

Source: FULL ARTICLE at DailyFinance

Business, Finance, Occupation & Industry

Why Social Security Taxes Are Sky-High, and How You Can Avoid Them

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By Dan Caplinger, The Motley Fool

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Retirees have become increasingly dependent on Social Security for the bulk of their retirement income. Yet even though most retirees have few other sources of income and rely on their retirement savings to supplement Social Security, current tax laws are designed to punish even Social Security recipients with modest incomes, with effective marginal tax rates of as much as 46%, topping what the highest-income taxpayers in the nation pay.

The strange taxation of Social Security
You won’t find a 46% rate explicitly written down anywhere in the tax code. But as a recent post from financial planner Michael Kitces explains, buried in the law are provisions that phase in taxes on Social Security benefits for those earning certain amounts of other income.

Here’s how it works. The IRS looks at your total taxable income and then adds in half of your Social Security benefits. For every $1 by which that figure exceeds $25,000 for single filers or $32,000 for joint filers, another $0.50 of your benefits get added to your taxable income. Once the figure exceeds $34,000 for singles or $44,000 for joint filers, the amount added to your income jumps to $0.85 per $1.

The net impact of those provisions can dramatically increase the tax rates that Social Security recipients pay. In some cases, those in the 15% tax bracket pay an effective marginal rate of almost 28%, while those in the 25% bracket pay more than 46%.

Social Security Administration Building, Washington, D.C. Source: Wikimedia Commons.

Are Social Security taxes fair?
Proponents of the tax argue that if you have enough other income, it’s only fair to add a tax on Social Security. But the big problem is that in determining the tax, taxable withdrawals from retirement accounts like traditional IRAs and 401(k)s are included in income. Essentially, those who’ve saved all their lives for their retirement get penalized for their smart financial planning.

Fortunately, there are steps you can take to minimize the impact:

  • Use Roth IRAs. Roth IRAs are different from regular retirement accounts in that their distributions are tax-free. They also aren’t included in the income figure the IRS comes up with for deciding whether Social Security benefits are taxable, so using Roth assets can cut your tax bill even further.
  • Invest in tax-smart funds and ETFs. Investors who use actively managed mutual funds often get hit with big distributions of income and capital gains that are taxable and thereby make them more susceptible to paying tax on their Social Security. But low-cost stock index funds Vanguard Total Stock , iShares Russell 2000 , and SPDR S&P 500 usually pay out only their annual income, generally avoiding capital gains and keeping your other-income figure lower.
  • Time your IRA withdrawals. Keeping taxable income below the limit is smart if you can afford it, but many people need their IRA withdrawals to pay living expenses. For them, it may actually make sense to take …read more

    Source: FULL ARTICLE at DailyFinance

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Retirees Must Stand Up and Fight the Federal Reserve

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By Dan Caplinger, The Motley Fool

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For years, the Federal Reserve‘s policy of keeping interest rates near 0% has crushed retirees trying to draw income from their life savings. Yet as if the challenge of having to squeeze blood from the Fed’s stone weren’t enough, now many financial experts are telling cash-strapped senior citizens that they should stop complaining for the good of the country.

In an article in The New Yorker, columnist James Surowiecki argues that the Fed doesn’t hate savers. Rather, he points to the millions of working Americans who lack substantial savings and instead have massive amounts of debt outstanding, implicitly arguing that more people benefit from low rates than are hurt by them. Citing figures that senior citizens get only 10% of their income from interest payments, he concludes that the Fed’s actions are not only justified but also too conservative for the current economic situation.

Federal Reserve Board Building, Washington, D.C. Source: Wikimedia Commons.

It’s easy to argue that for the good of the entire country, retirees should bear the brunt of the burden. After all, they do tend to have more savings than younger Americans, having had a whole career to create their retirement nest eggs.

But retirees are far less wealthy than younger Americans in one key asset: the value of their human capital. Younger Americans can look forward to years or even decades of future earnings from wages and salaries — earnings that will add up to hundreds of thousands or even millions of dollars of income. Even those needy seniors who are fortunate enough to find work largely have to accept low-paying jobs with few future prospects.

Moreover, low rates have also held back growth of other income sources for retirees. Social Security recipients have gotten minimal cost-of-living adjustments in recent years, and although low rates would usually spur inflation that would lead to higher COLAs for seniors, official inflation figures have remained subdued for years — even as many of the actual costs that seniors pay have risen sharply.

All for what?
Moreover, the benefits of low rates haven’t been as clear as many believe. Rates on home mortgages have indeed fallen to extremely low levels, helping to spur housing activity that brought once-struggling homebuilders Hovnanian and PulteGroup back to life, with higher orders and sales figures recently.

But many borrowing rates haven’t followed the Fed’s policy lower. Citigroup , JPMorgan Chase , and Bank of America have largely kept credit card interest rates high to bolster their massive profits, with double-digit rates looking especially egregious in light of the less than 1% rates those banks pay most of their savers.

Stop blaming savers
Blaming retirees for their current problems simply adds insult to the injury of having part of their incomes taken away from them. The solution isn’t to artificially raise rates, but letting the free market have more of a say in where rates should go would at …read more

Source: FULL ARTICLE at DailyFinance