"The Idler Wheel Is Wiser
Than the Driver of the Screw
And Whipping Cords Will Serve You More
Than Ropes Will Ever Do."
Fiona Apple
Newsflash: More on the Health Care Reform Law
For those who, like me, focus only on the foremost aspects of the federal government's new legislative moves and don't pore over every single detail, on the premise that we cannot do anything about it anyway, here is a follow-up to my last week's post on the subject. A few "minor" details that may directly affect many of my readers and the rest of the fast-disappearing middle class (maybe we should start studying the minutia more carefully after all):
1. Effective January 1, 2013 (never mind that the main conditions of this reform are intended for 2014), employee's Medicare tax goes up from 1.45% to 2.35% for all wages over $200,000 a year ($250,000 for joint filers). The employers' portion remains to be 1.45%.
2. The 3.8% levy, imposed on all passive income, including interest, dividends, annuities, royalties, rents, and capital gains of individuals with adjusted gross income over $200,000 ($250,000 for joint filers) in order to subsidize health benefits for unemployed and low-income population, goes into effect as of January 1, 2013 as well. Some of my readers may be interested to know that under this ruling even the private equity moguls with over $50 million in annual income will end up dropping $2 million into the subsidy purse.
[Side note: I could never understand why royalties and license fees one receives for the book or song she wrote, or a video game she programmed, or the invention she patented are classified as a passive income. Trust me, creating intellectual property is hard work. I always believed that these earnings should not be categorized as passive as long as the property is still in the hands of the original creator. If it's sold away (like the rights to The Beatles' songs), that's a different story.]
3. 2012 will be the last year when the limits of employees' contributions into Health Flexible Spending Accounts (FSA) will be determined by employers. Starting with January 1, 2013, the federal government will limit these pre-tax wage deferrals for out-of-pocket medical, dental, and vision expenses. While employers historically used the percentage-of-salary method, the government established the ceiling of $2,500 per year, regardless of the person's earnings and/or medical needs.
So, if your estimated annual expenses, not covered by the insurance policy (including all co-payments, glasses, root canals and crowns), are $6,000, you will pay the $3,500 with the after-tax net earnings. And, unless your total household income is less than $46K, you will not be able to deduct a penny of it on your tax return (due to the 7.5% medical deduction floor).
What can I say to you, my dear well-educated and hard-working middle class? Good luck surviving!
The Second Quarter Financial Results, or They Always Kill the Messengers
© Copyright 2011 E and D CC, Inc.
Believe it or not, but we've already passed the mid-point of 2012. While the foretold Armageddon is not upon us just yet (most likely due to the inaccuracy of our calendar), the immediate future of many CFOs can be predicted with a confident certainty: the second quarter financial results will be due in a couple of weeks.
Let's face it, this was not an easy fiscal period. Whether large or small, businesses were affected by the volatility of the international markets, the slowdown of commercial demand, plunges in both commodities' prices and consumer confidence. Even the bigwigs at Goldman Sachs and JP Morgan, the conjurors of "facts" that prevent trading markets from falling apart, had to admit today that "the recovery slowed in the second quarter" and downgrade their projections.
What recovery, you clowns? Anyway, those of us running actual businesses know: the quarter was mostly downsloping, choppy, and unhealthy. This will translate into smaller revenues, narrower profit margins, and, for many, losses.
The Frustrated CFO always feels doubly agitated about subpar performance results (obviously, antsy enough to talk about herself in the third person). On a big-scale, as a small-business crusader, I am worried that with every difficult fiscal quarter the possibility of our economy getting back on the right track, with entrepreneurship reclaiming its rightful status as a backbone of capitalism, becomes less and less real.
And then there is an apprehension of inevitable consequences for all financial chiefs of privately-held companies (myself including), who cannot avoid playing the part of the bad-news heralds.
Regardless of the nature and the size of a company, the main recipients of its performance results are owners/investors. For public companies these are millions of faceless institutional and individual stock-market gamblers. The publication of financial information by these companies is mandated by law and governed by SEC.
When the picture is bleak, the Boards of Directors, terrified by the possibility of a sell-off and devalue of the stock (first and foremost, their own holdings), frequently spring into action to show the world that they are "doing something about it." This usually amounts to moving the pawns on the corporate chessboard: we regularly hear about dismissals of CEOs and COOs perceived to be responsible for the failures. At the same time, unless they are caught together with their auditors cooking the books, the big-time CFOs are rarely publicly flogged.
Private businesses operate in an entirely different universe. Here, people responsible for financial reporting, CFOs and Controllers, daily face their owners/investors. The entire chain of delivering the message is reduced to a single step. Here you are with your perfectly accurate, yet unpleasant, reports and there, on the other side of the table, or on the other end of an email link, are the owners/executives.
And, even though everyone in the room understands that you cannot possibly be singly responsible for the business's poor performance; that it is a result of many contributing factors; that the CEO herself disregarded your loud warnings and fucked up several crucial deals – the bosses invariably follow their first impulse to lash out against somebody. At that initial moment of disappointment, there is no better a scapegoat than you, the news-bearer. As if on cue, the bosses turn into cranky babies and throw pointless tantrums. The funniest thing that ever happened to me was when the President wanted to see the general ledger details and "check the numbers."
Eventually, of course, they come down, and become reasonable. If you've earned their respect and got their ear, they would listen to your analysis and accept your improvements proposals. The thing is, though, we are human too and no matter how well we hold it together, the hurt of that initial heraldic punishments stays with us.
The Queen's Herald
Quote of the Week: Scully’s Wisdom
Download 05 X-Files Theme (Dado Paranormal Activity Mix)
"Mulder, the truth is out there… but so are lies."
Agent Scully, The X-Files
Created by Chris Carter
The Supreme Court Alert: New Wage Reductions Are Coming Soon!
Last week the Supreme Court of the United States worked really hard to reconfirm that they would defend our constitutional rights and freedoms… as long as the proposed laws are not heavily lobbied by the special interest groups.
First, they struck down the petition to make it a crime to lie about receiving military honors. The justices decided that this law would be a violation of the free speech. If people want to make up stories about their heroism in Iraq, it is their constitutional right to do so. It's been done since Beowulf and let's not disturb the ancient traditions of "military" folklore.
Thank God! If you start criminalizing any form of lying, you don't know where the hell it's going to get us. Give it a precedent and before you know it, people will not be able to lie on their resumes, brokers will not be able to bullshit about the prospective investments, people will stop stealing each other's ideas, and (oh, no!!!) the politicians will be forced to tell the truth.
On the very same day, the Supreme Court upheld the law that has been heavily pushed by HMO-financed insurance lobbyists (AHIP): the individual mandate for health care, probably the most debatable part of Obama's healthcare "overhaul." Even if you don't care about the news you cannot escape this one – it's been discussed by everyone and their mothers.
But, I would like the readers, for a brief moment, to let go of the politics surrounding this law and concentrate on the semantics. The government will issue a MANDATE – an authoritative order, an ultimatum to the people to obtain a health insurance, or else… A very personal choice of whether you want to buy an expensive policy with a lousy coverage is taken away from you. I am sure this is a kind of freedom the Founding Fathers dreamed about when they were writing our Constitution.
Back to politics. The gist of the mandatory health insurance can be simplified as follows. If you earn more than 2.5 times of the federal poverty level (FPL) you are required to obtain either employer-provided or individual policy to cover yourself and your dependents, or you will be fined. If you are under the FPL threshold, your coverage will be subsidized. The exempt categories are: illegal immigrants, jailbirds, and religious objectors.
Even the debate about the nature of the fine is all about the semantics. Let's get this straight first: it's the hard-working people, already paying payroll taxes, who will be subjected to this new levy, with IRS playing the role of the collector. The proponents of the law call this a "new tax" and that gave the Supreme Court the grounds for upholding it – the government has the right to impose taxes. The opponents called it a "penalty," making it an unconstitutional move.
Of course, Mitt Romney got all confused and instead of following his campaign handlers' suit of insisting that it's a penalty, he went on record to call it a "tax." Wall Street Journal couldn't pass on the opportunity to publish an op-ed calling the Republican candidate a dumbass, or something of the sort.
My dear breadwinners, let us now put our concerns about freedoms and politics aside and talk about MONEY. How much will it cost you to forgo the medical insurance?
Starting with 2014, the penalty per individual will be $95, or 1% of income, whichever is greater. So, if you are a New Yorker with a $45K salary (an average my junior accountants make), barely covering your living expenses and considering yourself too young and healthy for medical insurance expense, your will end up paying $450 fine to the government. For families, it'll be $285, or 1% of income, whichever is greater.
The penalty will subsequently rise in 2016, reaching $695 per individual and $2,085 per family, or 2 percent of income, whichever is greater. From 2017, the minimums will rise each year with inflation.
Now, this is for my fellow executive peers, who do cover themselves and their loved ones with medical benefits. Are we off the hook, here? Nope. To offset the cost of providing insurance to low income households and unemployed, individuals making more than $200,000 a year and couples earning above $250,000 will pay additional "health care payroll taxes", thus subsidizing somebody else's benefits.
And who benefits from this supposedly "socially-minded" law designed to keep people healthier and make sure that everyone stays on this poor planet longer? Let's see. You either buy the insurance (HMOs collect the premium), or you pay the fine (HMOs get the money collected by IRS), or you pay the subsidy for others (guess who gets the money).
The Frustrated CFO 