Archive for March 2019

Recovering From Financial Mistakes Like the Wealthy

Financial losses are hard to take. This is how the wealthy deal with financial hardships and mistakes.Regardless how experienced or educated you are you will still make financial mistakes, some of them humdingers. Personal finance blogs and media outlets frequently share basic financial mistakes to avoid: spend less than you earn, invest in index funds, avoid debt and so forth. All this is good advice, but it goes a lot deeper than this.

There are financial mistakes that involve much larger sums of money that can cause permanent damage to your financial situation. To top it off we are in a much different economic environment than ever before. 

Side hustles are more common than ever and no matter what kind of activity you consider a side hustle it is still a business. And business can inflict as much, and even more, pain than student loans, credit card debt or job loss. 

Today we will move beyond the basic advice and delve deep into the financial mistakes that are harder to plan for and hence avoid; the financial mistakes that can not only surprise, but destroy a fortune of any size. 

To help you understand the seriousness of these mistakes I will use examples from my past. The good news is I recovered from each disaster much wiser, using the new-found experience and knowledge to push profits to greater heights.

Some of the issues we will touch on are foreign ideas compared to the “spend less” advice. For example, you will see how over-confidence and arrogance caused me plenty of pain throughout my life. What seemed like a great idea was anything but, and I walked into it eyes wide open because of that pair of rose-colored glasses I like to keep handy.

Worse, I should know better. As a tax accountant with a history as a financial adviser, I should have know better. The things that got me were not alien concepts. And if they can get me they can get you no matter how smart you think you are.

My goal is to give you the tools to avoid these errors in thinking that virtually guarantee financial disaster. I will also share how I recovered from each event and grew from it. Hopefully you recognize the patterns of my errors in your behavior and make corrections before you suffer the same results.

 

Young and Dumb

In my younger days I made a lot of solid financial decisions. I also got lucky. 

I avoided the over spending and debt issues that plague so many and I never put any of my education, formal or informal, on the credit card. That means I was able to invest in mutual funds (I used actively managed funds back then) and individual stocks. 

Growing up in the backwoods of Nowhere, Wisconsin had its advantages. I never made a lot of money, but had nowhere to spend it even if I did. I was on a sort or forced frugality diet so don’t think I was somehow smarter than you. I wasn’t! 

Those first years of adulthood were formative years. I grew up on a farm and knew of nothing else. Then the family farm went teats up (we were dairy farmers) just under six months after I graduated from high school. Now what was I going to do with my life?

Growing up rural and poor meant I dreamed of wealth. I wanted to be the richest man alive some day and go to the moon, too. To farm, of course. I was an even mixture of Elon Musk and Warren Buffett.

Things didn’t pan out as planned, but I did better than most, so no complaints. I was also on the cuff of my first of many significant financial mistakes.

The family farm was gone, but the dream lingered on. It must have been about 1984 when I decided I would move my investing horizons to something that could grow wealth faster than the red-hot stock market of the mid 1980s. 

I kept money in individual stocks and mutual funds, but I was ready to tackle commodities. Soybean futures to be exact. 

Well, I had a farming background! I knew (I thought I knew) more than those pinheads sitting in an office about farming and soybeans. So I started trading soybeans and (OMG!) soybean options. 

Turn failure into success! Your response to failure determines your level of success. Recover from financial mistakes like the wealthy.As with most financial disasters, things started out promising. I had the golden touch and don’t think for a moment people weren’t noticing. 

I knew farming and I knew soybeans, though we never grew soybeans on our family farm. 

I turned a small investment of a few thousand dollars into nearly $40,000. And that is when this poor farm boy started to experience an inflated skull.

I had managed to accumulate other investments (mutual funds and stocks) of nearly $100,000. Not bad for a 20 year old that started out with maybe a thousand or so when he turned 18.

Now that I had another $40k to grace my net worth ledger I wanted to get serious about this soybeans thing. I sold only mutual funds at the time to fund my next big push. However, family noticed my talents, too, and dear old dad thought he would hitch a ride to the tune of $9,000.

Well, if I hadn’t made every possible move to hex my parade I don’t know what else I could have done to accomplish it. 

And wouldn’t you know it. Now that I was all in I started to believe in my infallibility. I made a risky (all commodity trades are risky by nature unless you are hedging: buying and selling commodities as a producer or consumer of said commodities) all or none trade. If it worked there would have been a six figure gain. If it failed I would lose most of my account value.

At the time I didn’t realize how much I was putting on the line. I was too arrogant to see it. In three days it was over. Soybeans locked limit (the maximum move a commodity can move in one trading day) and it wasn’t going my way. 

I was actually lucky! When a commodity locks limit against you it is impossible to close your position. The losses can mount fast and the leverage is massive. 

Dad did not get much of his $9,000 back and most of my $40,000 was gone. I will never forget that feeling. It took a long time to recover emotionally. Good thing dad accepted what happened. He doesn’t talk about it all these years later.

 

Lesson 1: Commodities are not an investment!

I know this is a hard concept for people to understand, but commodities, along with land and other such so-called investments, are not real investments. 

Land is not an investment unless you intend to improve said land, creating value, the basis of investing. Gold, corn, pork bellies (bacon) and soybeans are NOT investments; they are speculative tools unless you are hedging your production or consumption of the underlying commodity. And if you are hedging it is a business tool to control costs; still not an investment.

Lesson 2: Don’t get cocky!

Just because you are on a roll doesn’t mean you are right. I thought I was so smart as every trade went my way. Then I lost all those gains and more in one stupid trade thinking I was smarter than everyone else. (Remember those office pinheads this farm boy was smarter than?)

Whether it be in business or any other endeavor in life, always know it might be luck working your way temporarily. Luck is a fickle creature and only a fool relies on such a fickle beast. Caution is warranted at all times when investing and in business.

Lesson 3: Don’t borrow to invest!

While I didn’t borrow from the bank, I did take money from dad (actually an equity investment) to increase the size of my trade. Both choices (bank loans or an equity investment from dad) are incredibly bad.

Lesson 4: You can’t consistently trade profitably!

I know, I know. Everyone thinks they can do it. We hear about money-center banks earning gazzions every quarter trading. Except they are hedging more than speculating. And when they decide to speculate we remember their name as Lehman Brothers: 158 years of conservative investments pissed away in a breath. 

Back when I was young I didn’t have the experience I have today. Now, after all these years as a tax accountant, I can show you an endless list of clients who have traded their way poor. I’m trying to recall even a single client who traded his way to a fortune and coming up blank. I do have several in mind who lost a life of work “playing the market”. 

Lesson 5: You don’t “play” the market!

Enough said.

Lessons Learned

The all or none mindset died for me that day. I never again bet the farm on a flyer. 

The loss also instilled in me a deep desire to research investments before investing or adding to an investment. I have made investing mistakes over the years, but nothing like that fateful day in 1984 when soybeans were going to send Hillbilly Accountant to the promised land. 

When it sounds too good to be true it probably is. I missed plenty of deals due to my caution. I also missed a fair number of blood-lettings, too.

Over-confidence, cockiness and arrogance are hard to avoid when enjoying a temporary visit from Midas. Controlling emotions are more important than almost any other factor when investing. People want to buy a “hot” market and get scared out of a bear market. Buying high and selling low has never been a good strategy. I have trained myself to react emotionally the opposite of normal human nature. When a great company is on sale I buy (after adequate research). I only sell if it makes sense in my personal situation. The “market” has nothing to do with my decision process.

 

Changing the World

Now I will share a business disaster from the archive. 

When it comes to business, including side gigs or side hustles, mistakes will happen and there is always a cost. A well thought out plan has half a chance of creating a profit. Then there are those times when we are introduced to humility.

Sometimes an opportunity that looks incredibly good fails miserably. Usually rose-colored glasses were involved.

You can reach your financial and retirement goals. See what this child does that virtually assures he will be a success in life.In this situation I was going to change the world and challenge the Big Guys.

You might have noticed the 1040.com banners on this blog where you can prepare your own tax return. Well, back when that program was just beginning (it was in beta the first year offered to the public) I saw an opportunity to create a massive platform. 

My professional tax software provider created the 1040 environment. I wanted to capitalize on this as soon as possible as other clients of the software provider had the same chance I did. I had to move quick to lock up market share.

To do this I developed a large advertising campaign: television mostly. My ad schedule was aggressive, especially for such a test idea. But I wanted to get a jump on the competition.

Long story short, I spent $80,000 in advertising before I pulled the plug early in the tax season. The revenue: $3,000. 

Yes, I lost $77,000 is a few weeks. Thank God I didn’t get caught in the sunk-cost fallacy! It was also a good thing my tax practice was established. I still had a profitable year, just $77,000 smaller.

The story is short, but the lessons many. Since the program is still around and much improved (one of the best, if not the best, in my opinion) you might surmise there is a happy ending to the story. There is, kinda.

 

Lesson 6: Don’t trick yourself into rushing a project!

It is tempting to forgo proper testing before a full product launch. The 1040 project had plenty of potential, but the program was still in beta. There were issues that first year of operation. And I had no exclusive. Even a jump-start on the competition didn’t guarantee I’d keep the clients.

The competition never materialized. Yes, the Big Guys were there and still are. But the worry other accountants might want to capitalize on this, squeezing me out of the market, never happened. I rushed for no reason and dropped a cool 77 grand for nothing. Plus all the aggravation!

Lesson 7: Sunk cost!

Good fortune smiled on me. This project was new enough and the capital invested didn’t cause a sunk-cost mindset to manifest itself. If it had the damages would have been multiple times larger. 

Lesson 8: Arrogance again!

I was so cock-fire sure I was right on this I was willing to go all in with a pair of twos. Stupid!

Liking an idea is NOT good enough! I needed to do market research and test the product more fully before unleashing such a large investment. I put the cart before the horse and paid the price.

Never fall in love with an idea or project. it’s business and nothing more.

Lessons Learned

Some mistakes are merely a lesson. In this case I knew I had a good idea on my hands, I just executed wrong. As 1040 improved their product, clients from the first year came back (at least a few did). So I had a quasi annuity on my hands. In 3 or 4 thousand years I might break even.

I continued to love the DIY tax preparation idea. Every year since that fateful first year I continued to promote the program with free promotional ideas. I published articles mostly with links to the platform. Growth was slow, but noticeable.

Then I had this idea to hook up with a popular blogger and sought an audience with Mr. Money Mustache. MMM didn’t care to partner with me on the idea, but gave it a push, which helped tremendously. 

This blog has also provided steady pressure on the growth trend. To date I have recouped nearly $40,000 of the original $80,000. At current rates I will break even in about six years; if it continues to grow, a bit faster.

Lesson 9: Never give up!

If the business plan is solid never give up. But always evaluate before leaping! And always test before spending. There are plenty of free opportunities to share information on your product or service. If I hadn’t sunk $80,000 into this beast I would already be profitable!

Lesson 10: Think before leaping!

As I already said. But it was worth repeating since this is the cause of a great many errors.

 

Coda

Of course I made many, many more than these two financial mistakes in my life. Thankfully most were small and I was a fast learner (maybe that should be Lesson 11). 

The biggest mistake you can ever make is to get gun shy after a financial disaster. Once you are too afraid to take action you are in a death spiral. 

You will make mistakes! Lots of them. Show me someone who never made a mistake and I’ll show you someone who never tried. 

All is not lost if you learn from your mistakes. 

Sometimes you even try something knowing it is a mistake just to gain the knowledge and experience! Keep the investment small so the damage is light, but do try. It is the only way to learn.

 

This post is the result of a question on Facebook. In the Choose FI group the question was asked about what our biggest financial mistake was. I commented tongue-in-cheek that I would need a few million words and plenty of time to explain the errors of my ways. A reader of this blog commented to me this would be a good blog post idea. I agreed and here we are.

(Tax season is getting long and fatigue is setting in. I didn’t want to research another tax issue to publish while swamped with tax issues at the office.)

We learn far more from our failures than our successes. Success convinces us we are right, like my original soybean trades. Of course we sometimes discover we were not as right as we thought we were. 

Failure on the other hand leaves its mark. We remember pain a lot longer than the pleasure. 

You will make mistakes, lots of them. I’ll make many more as well as my tax practice evolves along with this blog and the courses I plan on publishing soon. If any of these things fail they will only cause minor pain. 

I learned my lessons.

 

 

More Wealth Building Resources

Credit Cards can be a powerful money management tool when used correctly. Use this link to find a listing of the best credit card offers. You can expand your search to maximize cash and travel rewards.

Personal Capital is an incredible tool to manage all your investments in one place. You can watch your net worth grow as you reach toward financial independence and beyond. Did I mention Personal Capital is free?

Side Hustle Selling tradelines yields a high return compared to time invested, as much as $1,000 per hour. The tradeline company I use is Tradeline Supply Company. Let Darren know you are from The Wealthy Accountant. Call 888-844-8910, email Darren@TradelineSupply.com or read my review.

Medi-Share is a low cost way to manage health care costs. As health insurance premiums continue to sky rocket, there is an alternative preserving the wealth of families all over America. Here is my review of Medi-Share and additional resources to bring health care under control in your household.

QuickBooks is a daily part of life in my office. Managing a business requires accurate books without wasting time. QuickBooks is an excellent tool for managing your business, rental properties, side hustle and personal finances.

cost segregation study can reduce taxes $100,000 for income property owners. Here is my review of how cost segregation studies work and how to get one yourself.

Amazon is a good way to control costs by comparison shopping. The cost of a product includes travel to the store. When you start a shopping trip to Amazon here it also supports this blog. Thank you very much!

One Insane Way to Eliminate Your Debt Fast

The one insane way to eliminate debt fast! Cut your insurance premiums, rent and interest rates with one simple step.Debt can destroy any dreams you have of a financially independent future. That is why it is so important to reduce debt and maintain a relatively high credit score.

Debt is and of itself isn’t the entire problem. Excessive debt is a drag on wealth creation, but what debt does to the household budget is even more damaging than the original debt itself.

And debt can sneak up on anyone. Student loans, medical bills, job loss or a failed business venture can turn a bad situation into a nightmare even bankruptcy can’t deliver you from.

Once calamity strikes it is near impossible to shake the effects in every financial aspect of your life. A medical issue or mounting student loans can lower your FICO score which leads to higher costs in almost every other area of your life. Auto and homeowners insurance rates are higher for those with lower FICO scores. Many landlords refuse to rent to people with a FICO score below a certain level or charge a higher rent. And the interest rate you pay is higher.

Financing a home or car is an obvious way a poor credit rating affects you. But the damage doesn’t end there. Once a financial rough patch arises it is harder than ever to shake the damages and move forward. The scoring system doesn’t care about you; it is an algorithm developed to determine risk and it is a far from perfect system.

The worst part of a low FICO score involves the digging out process. Costs for everything are higher and many employers avoid potential employees with low scores. With costs higher and job prospects lower the downward spiral is hard to step off of.

The sobering fact is most people have at least one rough spot financially in their life. An economic downturn with accompanying job loss can set the spiral in motion. A medical emergency is all too common in our modern world. Physical and mental healing are only the beginning. Even before health is regained the financial pain starts to set in.

 

Rebuilding Your Financial Life

We will start by discussing the most powerful way to reduce your debt burden and increase your chances for a better job, lower rent and lower auto and homeowners insurance before we move to rebuilding your nest egg.

The largest component of debt is interest. A $165,000 30-year mortgage at 6% will create over $190,000 of interest if no prepayments are made. Credit card and other higher interest debt is even more damaging. 

Increase your credit score and lower your interest rate with this insiders secret. And generate a monthly income, too.Earning more money to pay down debt faster is a double-edged sword. The more you earn, the more income taxes you pay which begins to make you feel like Don Quixote chasing windmills.

Frugality plays an important role in reducing debt. Spending less than you earn is a requirement for reducing your debt burden. But some things are hard to apply frugality to. Those higher insurance bills and rent are hard to change until you are better off financially and your FICO score climbs. And excessive frugality is hard for many people to maintain. If you can’t stick to the plan you are lost.

It’s the old dilemma: you can be more frugal when you have more money!

It all boils down to your credit score. A lower score increases costs when you can least afford them.  

It is possible, however, to improve your credit score before your financial situation is completely fixed. The weight of medical bills takes time to work through and higher bills for everything else doesn’t help! If you can improve your risk appearance with a higher FICO score you can reclaim your life quicker.

 

It Helps to Have Friends

There is a simple (and legal) way to improve your FICO score with the help of friends or family. I discussed this at length a few years back, but will provide a short review for our discussion here.

On your own, only your reported financial information is used to calculate your credit score. Of course, a hardship may have destroyed that score that served you so well in the past.

You can rebuild your credit score before you turn the financial corner with some help. This is where tradelines come into play. 

A tradeline, in short, is a line of credit. If you are trying to dig out of debt then more tradelines seems like a crazy idea, but bear with me because this is a powerful tool to reclaim your life and then a potent source of easy income afterwards.

Improve your credit score and pay less interest with this insane insider's secret! End debt worries today with the financial secret the wealthy use.Your credit score is low because you have too much debt compared to how much credit limit you have and/or bad marks on your credit report. 

You can’t wipe bad marks away regardless what you’ve been told or read. Avoid the scams! The only cure for late payments and bankruptcy is time. The more time that passes since the bad marks on your report the less affect they have on your overall score.

However, you can increase the number of good marks on your credit report with tradelines. A tradeline can also increase the amount of credit you have compared to the outstanding balance (the utilization rate). The second point is one of the most powerful tools you have to increase your credit score in as short as a few months.

Having a friend or family member share a tradeline is the cheapest way to solve your problem. You add a tradeline to your credit report by having a tradeline from someone else included in your credit score. It works like this:

Say you are recovering from a job loss and finally are back working or recovering from medical bills. (For any of this to work the bleeding has to stop. If you are still digging the financial hole tradelines will do you no good.) You probably have some late payments and hold account balances close to the credit limit on your credit cards. This crushes your credit score.

The bank is unwilling to extend more credit with a higher credit line and the interest rate is killing you. A really good friend (or family member) could add you as an authorized user of their account. They will not actually give you access to the account! (They want to keep their good credit score.) 

When you are added as an authorized user of a personal account, their payment record (they should have no late payments nor a high utilization rate!!!) is added to yours. This means their clean payment record and credit limit with low utilization rate is used to calculate your credit score. 

Let me reiterate. You will have no access to their credit card or information! You are merely added as an authorized user. 

For this to work best you want the account your friend is using to help you with to have a few characteristics: an account open for at least several years (the longer the better), a high credit limit and only a small amount of usage.

Ideally the account you are added to should have at least one usage a month (so it reports to the credit bureaus) and is paid in full each month.

 

Real Life Example

I used my knowledge of tradelines to help an employee recently. She does good work and I wanted to keep her working for me. However, she was struggling with financial sins of the past. 

Student loans she acquired to start a new career were an anchor around her neck. This lead to high interest credit card debt and a high interest auto loan. She used her head to stop the bleeding and get her life back in order. (This also makes her a better employee.)

Her credit score was scraping the basement. She didn’t have many late payments (maybe two or three a few years back, but she always found a way to pay her bills no matter what).

Her credit card and auto loan interest rates were killing her. To rub salt in the wound she also paid higher insurance rates. 

Once I was comfortable she would stay the course I added her as an authorized user to one of my personal credit cards. (She has zero access to this card so there is no risk to me.) I had a small ($69.50) bill on auto-pay going on the card monthly and the credit card was also on auto-pay so I was never late paying the credit card bill. The utilization rate was low, the credit limit high, the account open for years and the payment record pristine. 

In less than two month my employee enjoyed a credit score approaching 100 points higher. She immediately shopped her auto insurance and cut her premiums nearly in half. Her other credit cards also lowered her interest rate when she asked.

The lower interest and insurance premiums allowed her to pay off her debt faster. She now also owns a home with a locked-in low interest rate mortgage and a bright future. She is paying off the debt she has faster and she is getting married in two months so she is a very happy young lady knowing she is going into her marriage with her finances under control.

Talk about a tax-free fringe benefit!

 

Looking for a Friend

Unfortunately, many people with financial/credit problems don’t have a friend or family member (or employer) who can help. There is a growing industry helping people with such a need.

You can actually buy tradelines to get the same benefits we talked about above and enjoy the experience my employee had. 

I researched a large segment of the industry a few years back and when I was satisfied with the policies and procedures of one company I decided to promote their work. As with anything, not all businesses are reputable. I ran across plenty of those, too.

The goal is to buy clean tradelines to turn your financial situation around. (I’ll share the name of the company in a bit.) The goal is to derive more benefit than the cost.

 

Example: Let’s assume you are paying an extra $400 per year in auto insurance, $50 more for rent and your interest rate on credit cards or auto loans hover at 10%. The extra interest you pay per year due to a poor credit score we will assume is $1,000. This totals $2,000 in extra expenses per year and you get nothing extra for the pain.

You could always dig your way out slowly. That could take years. Or, you could buy a few tradelines for a heck of a lot less than $2,000 and see your credit score improve in a month or two. Realistically you can see enough credit score improvement in a few months where you can get your insurance premiums reduced and interest rates lowered.

You can apply the same strategy when planning a purchase. If you are looking to buy a car or home you can increase your credit rating a few months in advance to qualify for a lower interest rate loan. The money saved with a lower interest rate will pay back the tradeline costs many times. Tradelines can make a very profitable investment!

 

The company I use to sell tradelines (you might actually get one of my tradelines if you use the company I recommend since I sell my tradelines there) is Tradeline Supply Company. They have great articles to help you decide which tradeline will work best for you. (Be sure to say “Hi” to the guys over there. I was part of their growing process a few years back and when I run across them at conferences we catch up. It’s good to hear success stories.)

 

Final Notes

Tradelines are a legal tool to regain your financial life. This is not credit repair! Prior sins are still prior sins. What you are showing is that you have turned the corner with your financial problems. You can’t keep digging the hole and expect tradelines to bail you out. Tradelines are a tool to improve your life when things go horribly wrong. Use your second chance wisely!

 

Turn Tradelines Into a Massive Income Stream

Now that you turned the corner with your finances you can pay it forward by selling tradelines with Tradeline Supply Company. You might pay a few dollars to jump-start your finances, but now that you are making progress you can sell tradelines even if your credit isn’t perfect yet.

The extra money you earn selling tradelines can help you pay off debt even faster and help you build a sizable nest egg. I published on selling tradelines for profit here. Many readers of this blog have tradelines paying their entire mortgage and more. Now you know how you can join them. Call Darren at Tradeline Supply Company at 888-844-8910 to get started earning up to $1,000 per month and more.

You can thank me later.

 

 

More Wealth Building Resources

Credit Cards can be a powerful money management tool when used correctly. Use this link to find a listing of the best credit card offers. You can expand your search to maximize cash and travel rewards.

Personal Capital is an incredible tool to manage all your investments in one place. You can watch your net worth grow as you reach toward financial independence and beyond. Did I mention Personal Capital is free?

Side Hustle Selling tradelines yields a high return compared to time invested, as much as $1,000 per hour. The tradeline company I use is Tradeline Supply Company. Let Darren know you are from The Wealthy Accountant. Call 888-844-8910, email Darren@TradelineSupply.com or read my review.

Medi-Share is a low cost way to manage health care costs. As health insurance premiums continue to sky rocket, there is an alternative preserving the wealth of families all over America. Here is my review of Medi-Share and additional resources to bring health care under control in your household.

QuickBooks is a daily part of life in my office. Managing a business requires accurate books without wasting time. QuickBooks is an excellent tool for managing your business, rental properties, side hustle and personal finances.

cost segregation study can reduce taxes $100,000 for income property owners. Here is my review of how cost segregation studies work and how to get one yourself.

Amazon is a good way to control costs by comparison shopping. The cost of a product includes travel to the store. When you start a shopping trip to Amazon here it also supports this blog. Thank you very much!

Medicare for All and a Tax Cut Too

This is how we can get Medicare for all. We can solve the healthcare crisis in America and save money and cut taxes at the same time.Healthcare is taking center stage once again as the political arena heats up. This will not be a political treatise, however. Instead, we will focus on the long-term problems in the U.S. healthcare system and potential solution to be found using the tax code.

Medicare for all is something that always appealed to me. When the politics are stripped away there is a lot to like in the idea of expanding Medicare coverage to everyone. 

Currently about half the people get some form of Medicare benefit. The old, very young and poor qualify for the Medicare or Medicaid programs. Unfortunately, the Medicare system is set up backwards. The people who pay for it are not the people receiving benefits and the people receiving benefits don’t pay for it (with the exception of people age 65 and older).

Even the elderly who pay a Medicare premium for some parts of the program are still subsidized by those earning a wage or salary, the very people who don’t qualify for benefits. 

The inefficiency of the U.S medical system has created the most expensive healthcare system in the world by far with sub-par results. For most illnesses it is better to travel to another country for treatment if you want better odds at living. 

Solutions have been hard to come by and the Affordable Care Act hasn’t delivered on it’s promise while costing taxpayers plenty. Medicare for all is a solution more people are clinging to with good reason. But it must be done right to work! 

Medicare for all will fail if simply enacted as another government entitlement to add to the budget. I propose there is a solution that increases American business’s competitiveness, covers all Americans with Medicare coverage and reduces taxes even more on all businesses.

 

Identifying the Problems

Small businesses struggle to afford healthcare for employees if they offer it at all and large employers are at a competitive disadvantage when competing against foreign firms that don’t spend major resources providing healthcare to their employees.

More and more small businesses have either stopped offering medical insurance as a fringe benefit or have seriously curtailed the benefit. Large businesses constantly deal with the large cost of medical insurance. If wages are the biggest expense for most corporations, then employee benefits—of which medical insurance is almost always the largest—are certainly the second largest expense or close to it.

We can solve the healthcare crisis in America with Medicare for all. And enjoy lower taxes and higher wages, too. Medicine should not be painful.Small businesses and large corporations alike get a tax deduction for providing medical insurance to employees. However, a deduction is worth less when there are fewer profits due to the added burden. (Corporations pay 100% of the benefit expense only to receive a faction of the expense back in tax savings.)

There is also a worry about turning over the vast majority of medical insurance over to the government. People say they don’t want the government involved with their medical decisions. They want their medical care choices to be between them and the doctor.

Except it doesn’t work that way! When you reach 65 you are on Medicare. If it is so bad we should maybe eliminate Medicare completely. (For the record, I am NOT recommending this and neither are the naysayers!)

The argument also falls flat when you realize your employer now makes those decisions for you! If your employer needs to downsize you are on your own medically. And God forbid you have a preexisting condition.

It isn’t often that we can have our cake and eat it to, but this could be one time when it could happen. If we got your employer out of the medical business (unless they are a doctor or medical facility) and let them do what they’re best at (providing the goods and services they are in business for in the first place) and could cover everyone with basic medical care at a cheaper cost we might be on to something.

 

Left and Right

The left generally pushes the idea of Medicare for all, but the right likes the idea too; President George W. Bush signed into law the largest expansion of Medicare since its inception with Part D.

The left is currently pushing the Medicare for all agenda. They love the idea since it covers everyone, eliminates waste (hopefully) and helps the uninsured, unemployed and those with preexisting conditions. It is easier to change jobs if medical insurance isn’t an issue. Early retirement is easier, too.

The right hates the idea because it promises massive new levels of government spending. There is something to be said about these concerns.

But nothing happens in a vacuum. Just tossing out Medicare for all would be a disaster! Yes, it would cover everyone with a minimal level of health care, but it could easily bankrupt the government or force taxes seriously higher. This is a major problem that must be resolved before we can grant every American basic healthcare and remain solvent.

 

 Facts and Circumstances

Medicare for all can be coupled with massive tax cuts for businesses, increasing American competitiveness around the world and keeping the government solvent. Tariffs and other strong arm measures might force a temporary trade imbalance reduction, but until U.S. businesses increase their competitiveness the problem will not go away.

To see how this intractable problem can be resolved we need to review some facts.

The median American household income is just north of $60,000. In 2019 U.S. employers will fork over nearly $15,000 for medical insurance benefits per employee.

This means about 20% of the cost of an employee is in the form of just one benefit: medical insurance. (I know I took some license here. Household income doesn’t equal what each employee makes, but it does skew the data against my thesis so no one can accuse me of fudging the numbers to prove a point.) Yes, American businesses cough up around $1.2 trillion per year providing healthcare benefits to their employees and their families, about the same amount Medicare and Medicaid spends combined each year. 

Call it what you want, but this is nothing more than a huge hidden tax! 

Let’s put this into perspective. Corporation paid $341.7 billion in income taxes in 2015. The cost of healthcare is nearly four times what corporations pay in taxes!

When you consider how American businesses need to compete in a global environment it is easy to see why foreign corporations have competitive advantages. Not only do American corporations pay $341.7 billion in income taxes, they also pay $1.2 trillion in healthcare expenses. 

You see, we already have nationalized healthcare! It is costly and inefficient with everyone trying their hand at dealing with the issues. In the U.S. we have corporations do what the national government does in most other nations.

We can fix this.

 

Tax Code to the Rescue

We have identified most of the major issues surrounding healthcare in America. It is a huge tax on businesses and is inefficient. 

If all we do is add Medicare for all we still have a massive mess. Employers would still fork over for benefits above and beyond Medicare benefits.

The solution requires a tax bill as draconian as the Tax Cuts and Jobs Act of 2017. Only the focus would be on a single issue: solving the American healthcare crisis.

First, we have to stop draining corporate coffers of $1.2 trillion every year, a cost that is growing at a rate many times the rate of inflation. 

For Medicare to offer universal coverage at current rates we would need to change the tax code. Medical insurance and all employee benefits related to medical can no longer be deductible. In fact, we would need to make medical coverage by an employer illegal so corporations could not shift the deductible expense to a nondeductible expense. 

This would save businesses $1.2 trillion this year alone which equates to a massive tax cut. Corporations would have a real cost reduction, opening the door to real wage growth going forward.

To pay for Medicare for all is straight forward. If businesses have $1.2 trillion less in expenses they will pay more in tax because they are more profitable. Even Wall Street would love such a plan as the stock market would climb smartly on such earnings growth.

Corporations would not be allowed to keep all of the $1.2 trillion tax cut, however. A 2% or so additional Medicare payroll tax would need to be instituted, paid by the employer only. (The current Medicare payroll tax is 2.9%, half paid by the employer and half by the employee. I propose the additional payroll tax be levied against the employer only since the employer just saved $1.2 trillion by getting out of the healthcare business.)

 

Winners and Losers

There would be lots of winners under my plan with only one real loser: insurance companies. 

Medicare returns around 98% of premiums in benefits while medical insurance companies return somewhere in the low 80s. The increased efficiency of a centrally managed healthcare system would be tremendous, saving the American economy (that is you and me, kind readers) massive resources better utilized elsewhere. The savings alone could dwarf the trade deficit!

Affordable healthcare shouldn't make you sick. Learn how Medicare for all is a solution that works.Businesses and employees are easy winners under my plan. A recession doesn’t bring the added risk of lost medical coverage for employees either.

Medical treatment centers would not have to deal with untold numbers of payment providers. 

Business owners would not squander valuable resources anymore trying to make medical decisions when they are not in the medical business. The added focus alone would increase American business effectiveness which should add to economic growth and competitiveness.

Insurance companies are not complete losers either. Medicare is basic medical coverage. Insurance companies can still play a crucial role in benefit administration. They can also provide supplemental insurance as they do now to the elderly.

I also propose, under my plan, that Medicare benefits be handled as they are now for those 65 and older. Certain benefits are free to all American while some benefits have a small premium (Part B, C and D, for example) based on income level. Insurance companies would still play a role in this arena also as they do now for older Americans.

 

Putting it Together

Here are the simultaneous steps to institute my program to provide all Americans with basic medical coverage:

  1. Medical insurance benefits no longer deductible for employers.
  2. It would be illegal for employers to provide medical insurance, even if nondeductible, unless they are a medical facility.
  3. Businesses would save over $1 trillion in costs this year alone. Part of these saving would be paid into Medicare to pay for Medicare for all.
  4. Medicare Part A would cover all Americans while a small premium would be required for Part B, C and D based on income. 

 

How You Can Fix Healthcare in America

This is my back-of-the-envelope plan to fix the healthcare crisis in America. It isn’t a perfect plan and I’m certainly open to adjustments, improvements and suggestions. 

Do you like my plan? How would you modify what I offered above?  

And most of all, send this to your Congressman or Congresswoman and Senator. They need to know it is time to fix the healthcare mess once and for all while we still have our health.

I think this is something we can all agree would make America great in a global economy.

And nobody has to get sick over it.

 

 

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