HELTHКAЯE ЯEFORM (Part 4)

"You Aren’t Going to Pay"

You, my fellow Americans, aren’t going to pay a dime out-of-pocket for this healthcare reform. The pharmaceutical and medical industries are fronting much of the money. The rest will come from tax increases on the wealthiest Americans, who paid a lower percentage of income tax during the Bush administration than they did 30 years ago. Isn’t it high time that corporate America (profitable under the Bush administration and controlled by rich people) starts covering its fair share of the insurance expenses of their employees? For far too long corporate America has acted irresponsibility when it comes to the welfare of the American working man, and now we are going to see to it that Wall Street steps to the plate to make sure all the children in this country have insurance coverage. You don’t want your children to be without medical care, do you? Washington is going to protect your children from the Bush Administration!!!... uh, I mean, Corporate America!

And there you have it… the reason you will ultimately go along with Healthcare Reform. I realize that you may know better, but for those who don’t: You means you.

While in the past Healthcare Reform has been slung around only during election cycles in order to split votes, now it is being pressed with but one objection: financial. This assures the passage of healthcare reform because any reason without a philosophical base can be overcome with lies and promises, and who is better at those than Washington? The politicians shall overcome your objections by assuring you that healthcare reform won’t cost you a dime. After all, don’t corporations owe their employees that much? They can afford it!

Of course they can… it’s all there on your paycheck. Go ahead and pull one out. You will see some "withholdings" from the money you earned. (That’s such a nice word: withholdings. So much better than "money you earned but are not allowed to lay your hands on… even for a second.") Amongst them are such entries as Federal Income Tax, FICA [which stands for the Federal Insurance Contributions Act (Social Security and Medicare)], and state income tax. You may see something like an occupational tax, if your county commission is completely out of control, and there may be a wage garnishment or two, depending upon the nature of your extracurricular activities. Somewhere on your paystub you likely will see an entry for health, dental, and possibly vision insurance. If you do not have some sort of insurance available through your employer you are probably in a very low paying, low skilled position. I don’t mean to offend; I am merely making an observation that you are refusing to make on your own.

You were probably ticked off the first time you saw deductions for FICA on your paycheck, and with good reason. After all, the federal government takes 6.2% of your wages to cover Social Security and 1.45% of the money you earn to help pay for Medicare, right? Wrong. What you don’t see on your paycheck is that your employer has to match those amounts. That’s right. The company you work for sends a check in every quarter for the same amount as those deductions in your paycheck. But that’s not all. He also has to pay state and federal unemployment taxes on the first bit of your salary, and he’s paying for part of that insurance you elected to get. He may even be matching your 401K contributions to some extent. That’s pretty nice of him, isn’t it? No, it’s just smart business, which is neither good nor bad. In order to attract the best employees a company has to offer the best package of salary and benefits. Matching funds and insurance policies are investments in personnel. And don’t feel sorry for The Company because of all those taxes it pays, either. Those taxes aren’t meant to punish the company, because a corporation cannot be taxed. Let me explain why.

A corporation, at its root, is merely a pool of resources provided by a number of different sources, all of whom would like to limit their personal exposure. Catch that? Read it again. Let’s look at an example:

You rebuild Volkswagen Beetle steering racks for a small company. You are good at it and could charge quite a bit of money for each one you refurbish. The company you work for makes money every time one sells. So why don’t you just rebuild them on your own? Any number of reasons: you may not be in a position to afford the equipment, the inventory, the proper tools, the facility, the liability insurance, advertising, or any of the rest of the financial investment required to start up a business. And then there’s the time. As it is you come in at 8:00 AM and do at least what is minimally required of you and leave at 5:00 PM. You don’t have to think about work at night, over the weekends, or during your vacations and time off. You don’t have to go through the hassles of finding customers and promoting the business. You don’t have to possess the drive to make the company successful. You have added value to the company (through the work you perform), have profited from it (through the salary and benefits you earn), and limited your exposure to just your performance reviews as they relate to the vitality of the company. Your investment: your skill and 40 hours per week.

The owner of that company you work for is the one who made all of those investments you were able to skirt. He likely started out on his own, working as a one-man shop, finding customers, doing piecemeal work, saving his profits to buy equipment, rent or buy a facility, struggling to buy insurance to protect his investments. You may say, "Well, his grandfather gave him that garage… if I’d had a place given to me I’d have-"

No! There are plenty of empty garages sitting around this country with nothing going on in them. The garage, or even the gift of a garage, does not pay for the energy, time, and drive put into the company by the man who started it. He shows up at 6:00 AM and leaves at 7:00 PM, thinks about the company all night long, can’t wait to get to work the next morning, and feels he’s betraying it when he’s away on vacation or taking a day off. His investment to the company, in addition to its creation, is his time, his skills, and his experience – which he uses to mentor his employees, passing down his knowledge for their advancement. His return is that he gets paid… after his employees. The small, start-up business owner often makes less money than many of his employees, and even the heads of larger companies can find themselves in this position due to performance-based bonuses. But by incorporating he limits his personal exposure (his retirement, his house, his cars, his children’s college funds) in the event that "it" all hits the proverbial fan and his business collapses.

Of course, he could keep more of his money if he just incorporated and didn’t hire you, but that’s not how his mind works. He built his reputation up to the point where he couldn’t keep up with orders. Rather than raising his prices a little and staying in that first garage, he started expanding. There was more work out there and he relished the challenge of taking it on, but recognized he would need help, so he hired his first employee. His profits didn’t double, but his headaches did. There were taxes of all kinds and at all levels, insurance (covering that employee in the delivery van, that employee’s work product, workers comp, etc), and other benefits, such as health insurance. Now, it’s true he may not be forced to provide insurance by federal law, but the market will at some point demand it if he wants to employ the best rack rebuilders.

That is the basic outline of a corporation. There are other folks involved, from investors to banks, but each is limiting his exposure through the nature of the corporate form. The only element missing are the customers. While all of these other parts are important, the customers are critical; the customers are the only source of income. That’s another one you need to read again. Sure there is the initial investment, there may be loans, and a public offering, but each of these is earmarked for start-up, expansion, or the purchase of the company from the original owner. The customers represent the only source of income for a true corporation. (Semi-private companies such as the United States Postal Service and nationalized companies like General Motors do not count here because they are so poorly run they depend upon income from the Federal Government in order to exist. They are, instead, excellent examples of how the government is incapable of running a business well or making sound market investments.) This concept of income is important: The Customers Represent the only Source of Income for a Corporation. Income is what pays for all of the expenses a corporation faces. Don’t worry, we’re not going to get into heavy accounting principles here, so we’ll simplify the definition of corporate expenses.

There are expenses for things like inventory, supplies, tooling, facilities, advertising, etc. Every accountant out there will cringe at this but for our purposes we’ll label all these as operating expenses. The corporation also has expenses related to you: your salary, taxes, and benefits, including health insurance. We’ll call these personnel expenses. Then there are insurance expenses for the company itself. And finally the ubiquitous tax expenses, which include corporate profits, property and business taxes, and the portion of your income and other taxes charged directly to the company.

Without getting too complex with our accounting we know that income is what pays for expenses. The money that comes in from customers has to cover all of those expenses: operations, personnel, insurance, and taxes. No money comes in from any of the expenses. Remember: income comes in only from customers. Of the expenses, taxes are not flexible; the government demands a certain amount or percentage, and the company has no choice but to pay what the government demands… in full, no room for negotiation. Insurance is almost as inflexible: you either pay for it and have it, or you don’t. The company can opt for different levels of insurance, but not opt out of it. Again, even when the company is not required to provide employee insurance, market conditions will usually demand it. The operating expenses are flexible to an extent, but the costs for parts, materials, facilities, etc., are set by entities outside the corporation. That leaves employee salaries, which are the most flexible of all of the expenses because they are the most negotiable, especially in a rough business cycle as more applicants are vying for fewer jobs.

Did you know that the underwire in a woman’s bra can produce enough static electricity to power a laptop computer for 3 minutes?

I felt you slipping away with the accounting talk; I hope that woke you up. It’s not important that you study any of that particularly closely as long as you generally follow what I said. In the event that any of the expenses rise with no corresponding increase in income (sales to customers), the corporation has no choice but to balance its budget by cutting other expenses. Make no mistake about it: a corporation has to balance its budget or it ceases to exist. (It is the drive for profits that keeps the corporation going and from being just a wash.) There is no savings account from which it can pull money for new benefits expenses. There’s no rich uncle’s will that’ll cover tax increases. There’s no Social Security column it can “borrow” figures from. And cutting operating expenses will threaten to reduce the company’s capacity to make sales. Where does that leave us? Your salary.

Now, XYZ Rack Restorers is making sales, covering operating expenses, paying taxes, buying insurance, and wants to hire you. The boss knows there will be expenses associated with hiring you, so he will determine what he can afford to pay you (what he pays you versus the amount of sales increase you represent), then reduce it by X (X being the sum of the income tax, other taxes, and benefits he will have to provide):

What You Are Worth – X = What You Are Paid

In the event any expense increases the company will have to raise prices and/or turn to the most flexible expense it faces: your salary. Picture an old fashioned set of scales: on the left is the income from sales; on the right, all of the expenses. When any of the expenses become a heavier burden on the company it must either increases sales (left), or eliminate some of the most flexible portion of the expense (right). There are limits to both of those, and when a company is forced past the limits of both it ceases to exist.

I have written all of this just to state this:

When the expenses on a business increase, only two parties pay: the clients through higher prices and/or the employees through lower wages.

If the federal government raises corporate taxes to pay for healthcare reform, you will pay for it. Even if it doesn’t come directly out of your paycheck because your employer is able to raise prices, you will pay for it through higher prices charged by the businesses from which you buy products. If companies are forced to purchase health insurance provided by the federal government (see: the United States Postal Service and General Motors), you will ultimately pay for the increase in expense and decrease in efficiency. Corporations cannot be taxed, fined, or forced; the customers and employees will pay… every time.

None of this, of course, should worry you or deter you from allowing – nay – demanding your government pursue healthcare reform. After all, who knows more about healthcare than Barak Obama? If there is to be a universal, comprehensive, all-inclusive, omni-present, all caring, all knowing, all loving healthcare system in this country, we are all going to have to be willing to make a sacrifice. Go ahead and say that phrase out loud. "We’re all going to have to be willing to make a sacrifice." After all, we’re all in this together. Go ahead, say it again. "We’re all going to have to make a sacrifice." There is no 'I' in team. One more time. "I’m going to have to make a sacrifice." There, now… wasn’t that easy? Now, go lie down and let your congressmen take care of the rest.