THE TAX ATTIC with Jerry Coon

Affordable Care Act, Social Security

Jerry Coon

In a 5-4 split decision, the Supreme Court ruled that the Patient Protection and Affordable Care Act was constitutional. The Court ruled that Congress has the power and authority to create and pass a law that taxes people for not complying with the law. In this case, if a person doesn’t sign up for health insurance, there will be a penalty in the form of a tax to be paid as part of the person’s tax return for failing to comply.

Interesting concept: tax for noncompliance. That concept all by itself might keep Action Tax Service going well into the foreseeable future.

Now that even the Supreme Court agrees that Congress can use the tax return to get us to do something, the possibilities are absolutely endless. Of course, if Congress gets too carried away with this tax for noncompliance, they will still have to answer to us, their ultimate bosses.

For example, it might be hard to vote for an incumbent who votes to pass a law that would tax anyone who doesn’t take their one-a-day vitamin or who doesn’t walk 500 steps per day or who drives a car more than 100 miles a day unless 80 of those miles are driven in a hybrid. Like I said, the possibilities are endless.

I was hoping to retire sometime in the next 20 or 30 years, but now, with this development, I’m not sure I will make it. Just think of all of those people who will need help on their tax returns to calculate those noncompliance taxes.

Americans are an independent lot and a certain number of people will go right just because most everyone else is going left and especially so if someone at the head of the line is demanding that everyone go left.

The defenders of the law, the administration, had hoped that the law would be upheld as a manner of regulating commerce under the Commerce Clause. The tax argument was more or less an add-on argument. I believe the theory is to throw as many things at the wall as possible and perhaps one of them will stick. It worked.

The Supreme Court ruled against the Commerce Clause argument and said that Congress doesn’t have the right, under the Commerce Clause, to force a person to buy insurance, i.e. to force commerce. However, in upholding the law, the Court ruled that Congress clearly does have the right, under the Constitution, to pass laws that tax people for noncompliance.

Chief Justice Roberts has walked a tightrope similar to the one Nik Walenda walked when he crossed over the Niagara Falls last month. Even though it was small and slippery, both of them successfully made it over to the other side. The normally conservative Roberts sided with the four liberal members of the Court in upholding the tax argument, but also sided with the four conservative members in ruling that the Commerce Clause doesn’t apply in this case.

I know a Chief Justice isn’t technically a politician, but it looks like to me Roberts did something that the professional politicians in Congress itself have been unable to do for quite a while now:  strike a deal and make a negotiated settlement.

Much of the law doesn’t really take effect until 2014. Now that we seem to have national health care for certain, I will write an article or two on some of the long-term consequences of the law as I see them.

I would like to discuss in this next round of articles the proposed solutions for fixing the Social Security system. To quote Social Security Administration (SSA) Commissioner Michael J. Astrue, “Without changes, in 2033 the Social Security Trust Fund will be able to pay only about 75 cents for each dollar of scheduled benefits. We need to resolve these issues soon to make sure Social Security continues to provide a foundation of protection for future generations.”

This is well-put by the Commissioner.

In 2033, I will be 81 and reaching the end of my time here or perhaps will already be gone. If nothing is changed, I will have received my full benefit with constant cost of living adjustments (COLA) all of the years until 2033. Who can say positively but most likely a reduction at that time will not be a deal breaker to me. If the COLA averages around 3%, taking a decrease of 25% would reduce my benefit to what it was about eight years earlier when I was 73. Deb and I should be able to deal with that.

However, our daughters, Kimberly and Stephanie, and Stephanie’s husband Devon wouldn’t be eligible to draw for many more years. By then the 75% might be cut to 55% or 35%. Stephanie, Devon and Kimberly are the “future generations” to whom the Commissioner is alluding. That’s putting a face and a name to the “future generations” label. According to the statistics, it appears that the youngsters will pay in much more to the Social Security system than they will receive out.

That’s a far cry from the program set up by President Roosevelt in which each person had an account. That account earned interest and when you filed for benefits, you received the value of your account spread out over your lifetime. That sounds somewhat similar to the program George Bush was suggesting during his presidency that was soundly rejected.

Stephanie and Kimberly are going to receive less than they paid in predominantly because we, the baby boomer generation, are going to receive a whole lot more than we paid in.

Let’s put a name on the baby boomers: Deb and Jerry. In looking at my personal annual statement, using the SSA’s figures, I would pay in an estimated $92,287 in tax during my working term with my employers paying in an additional $89,610 for a total of $171,897. If my monthly benefit would be $2,000, it would take me 86 months to be totally in the black. If I counted just the money I put in, I would be in the black within 47 months. Factor in COLA increases and it might be only 45 months. Before I turned 70, I would be drawing totally on Stephanie, Devon and Kimberly’s dime.

Since my life expectancy currently is about 81 years, I would take a whole lot more money out of the system than I put in. Since Deb’s life expectancy is 83 years, she is also going to take out much more money that she invested. Now multiply Deb and Jerry by millions of baby boomers and you can see where Stephanie, Devon and Kimberly will be lucky to get anything back.

As I have said in the past, the two words “fair and taxes” are not often used in the same sentence, but this is really not fair to the younger generation because of the taxes they will be paying. Next week, we will look at the various solutions to this problem. This is Jerry Coon signing off.


Jerry Coon is an Enrolled Agent. He owns Action Tax Service on Northland Drive in Rockford. Contact Jerry through his website:

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