The Independent Investor: Veterans on Receiving End of Trump Administration
In the 2019 fiscal budget, the Department of Veterans Affairs received more than $200 billion in spending. That's a 6 percent increase over last year and counts as the largest amount ever received by the VA. The money will go a long way in implementing an array of much-needed reforms.
There will be $400 million earmarked for preventing opioid abuse. As you might imagine, veterans are a high-risk group since opioids are used extensively in treating wartime casualties.
An additional $1.1 billion will jump-start the overhaul of the VA's electronic health records, while $1.75 billion will go to implementing the VA Mission Act. That money will revamp and re-write the veteran's community care programs, which allows for an entire array of new health care choices for the veteran. This will boost the vet's ability to access private health care at taxpayers' expenses.
On the education front, the Veterans Benefits and Transition Act will help to right some past wrongs inflicted on Post-9/11 GI bill users. Last year, there was a series of technology glitches at the Department of Veterans Affairs that resulted in delayed and inaccurate payments for many thousands of vets attending college.
In many cases, the government was not paying the tuition costs, or if they were, the payments were delayed. GI students were being hit from all sides. Schools were charging them late fees, preventing them from access to campus facilities, or were not allowing them to register for their next semester.
As vets scrambled to pay the tuition shortfalls, money for mortgage and rents were in short supply causing even more late fees to accrue. Some schools were urging veterans to take out loans to cover future tuition costs. It was a mess. The new act puts an end to these practices and demands that schools cease and desist if they want to continue to enroll students who are using the GI Bill.
As for the late payments the vets incurred, the new Forever GI Bill Housing Payment Fulfillment Act is holding the VA accountable for fixing these past payment snafus. The act creates a team of experts to oversee these reimbursements and report back to Congress on their progress every 90 days.
There are many more initiatives, from helping homeless vets to finding jobs to transitioning returning soldiers into civilian life, but you get the point. As for me personally, until recently, I stayed well clear of the VA. The harrowing stories I read and heard about the bureaucracy, slovenly and overcrowded facilities and atrocious health-care services kept me far away from seeking their help.
However, times are changing and so has my attitude of late. There is some talk of actually turning over the health care of veterans to the private sector if things don't improve within the VA. I decided to experiment and visit my local VA medical center for a physical.
I was blown away by the level of competence and professionalism I encountered. From the doctor who examined me, Dr. John Hickey at the Pittsfield Outpatient Clinic, to the nurse who took my blood pressure, to the receptionist, and everyone in between, the service and care was equivalent to, if not better than anything I have experienced in the private sector.
My appointments were sent via phone and messaging. My health records are securely stored, new information is automatically updated in their electronic systems and my next appointment scheduled and recorded. And it is not just the VA Medical Center. My local VA representative returns phone calls within a day and answers emails within hours. In my opinion, there is a new "can do" attitude from top to bottom in the VA.
So, it is time to give credit where credit is due. Helping the veterans was one of the president's campaign promises. Bravo, Mr. President for a job well done. Keep up the good work.
The Independent Investor: Economic Prosperity in the United States
The stock market is once again approaching historical highs. Unemployment is at multi-year lows. Interest rates and inflation, if not at record lows, are close to it. The president claims we are enjoying the strongest economy in our nation's history. Is that true?
The short answer, according to a recent study by Bloomberg, would be no, not even close. They went back over the course of the last 43 years and measured the nation's economy under three Democratic and four Republican presidents. They found that in all but one case both the economic and financial performance of the U.S. was better than it is now.
Bloomberg used 14 different gauges to measure a wide range of economic activity.
Everything, from manufacturing jobs to the value of the greenback versus other currencies, was included. All the traditional variables such as GDP, unemployment, wages productivity, etc., were also analyzed.
It turns out that the economy under the last seven presidents saw the greatest improvement under President Bill Clinton between 1993 to 2001. Ranking No. 2 was Barack Obama. President Obama, readers may recall, took office in 2009 during the worst recession since the 1930s. By the time he departed in 2017, he handed Donald Trump an economy that saw the second-best performance of all seven presidents.
Ronald Reagan only ranked No. 3, followed by George H.W. Bush, Jimmy Carter then George W. Bush (who presided over the largest financial crisis in 80 years). President Trump settles in at the No. 6 place, not quite as bad as George W., but clearly lagging Jimmy Carter.
Even though it is early days, with a little less than two years left in his presidency, Trump's economy is below average in 12 of the 14 measures. He can claim the lowest unemployment rate since the 1960s, however, and the strongest growth in manufacturing jobs since 1997.
From a politically partisan point of view, Trump's sixth-place score would leave you wondering why he claims he is responsible for "the strongest economy in the history of our nation." But this has happened before. Just about every president claims credit for a good economy. They might as well, since bad economies are always blamed on them as well no matter the facts. And the fact is that presidents have little to do with the state of the economy.
All economies run in cycles. Recessions occur from a variety of factors both here and abroad. Central bank policies have much more to do with how the economy fairs at any given time than the election of a president. Presidents will always be one small piece of the public policy picture. And public policy is only a tiny piece of the forces that buffer, change, and mold today's complex economies.
The internet boom that coincided with the Clinton years had its origins decades before Clinton was ever elected. The Financial Crisis of the Bush era can be partially traced to President Clinton's jettisoning of the Glass-Steagall Act. Oil booms and busts, geopolitical turmoil and so much more are a result of policies by ours and other governments dating back to as early as World War II.
Why should a president get blamed (or take credit) for where the economy is at a certain stage when the seeds of growth or decline were planted long before he took office? Nonetheless, when 2020 rolls around, the same old myths will resurface, and voters will once again vote a president in or out based on what the economy is doing at that moment. That's the world we live in.
The Independent Investor: Trump's War on Drug (Prices)
For the second year in a row, President Donald Trump called on Congress to do something about the escalating drug prices in America. The president is doggedly pursuing this campaign promise in the face of an army of special interest groups and big drug companies. Hurrah for you, Mr. President.
In his State of the Union address he said:
He wants our legislators to "deliver fairness and price transparency for American patients. We should also require drug companies, insurance companies, and hospitals to disclose real prices to foster competition and bring down costs."
Given that drug pricing is a complicated area and there have been various proposals and recommendations proposed, I will focus on just a few at a time. One of the president's proposed actions would reduce drug prices by allowing pharmaceutical companies to offer discounted prices to Medicare and Medicaid directly, bypassing the middlemen, called pharmacy benefit managers (or PBMs). Historically, these PBMs have been useful to insurance companies and large employers. They make their money by negotiating behind-the-scenes deals with Big Pharma acquiring discounts, called "rebates," for their big clients on certain "approved" prescription drugs.
These rebates are targeted to name-brand drugs that are covered by Medicare and Medicaid. Since this is a well-known system of back-scratching, drug companies simply hike prices high enough each year to cover these "rebates." This year, for example, despite the president's call to hold down prices, 60 drug companies increased prices on more than 300 products, and we are only in February of the new year.
Trump wants these discounts, instead, to flow directly to the consumer at the pharmacy counter, rather than the pockets of the PBMs. Since drugs paid through the Medicare system account for 30 percent or more of the country's retail drug spending, this would result in a sea of change to the prescription drug market.
This change would especially benefit those of us with really high prescription drug costs. The rebate system, you see, is usually focused on competitive drugs, such as two opposing blood pressure medicines. The really expensive drugs usually have no competition and therefore fall out of the rebate system.
I have a client, for example, with a fairly rare condition, who pays well over $100,000 a year for one drug. Under the current system, his deductible and co-insurance are sky high, because there are no rebates available to him. He pays the list price for his medication and is required to pay a percentage of the drug's cost himself. He could save as much as 30 percent on his drug costs.
For many of us, however, there would be a downside. Since insurers would no longer be able to apply the rebate money, they receive from PBMs to lower overall insurance premiums, the typical Medicare patient could see premiums go up by as much as $5 or more a month. Some experts think that about one-third of Medicare drug plans will benefit from the change, while two-thirds may not.
Another group to benefit would be those who suffer from the "doughnut hole" In Medicare Part D, which covers drug cost. These expenses can escalate until they reach what is called the "catastrophic phase" where out-of-pocket expenses tops $5,100. At that level, the government steps in and will assist in paying most of the bill. Lowering drug costs will reduce prices and provide some relief to we who suffer from the prescription donut hole on a yearly basis.
Although the Democrats have identified drug pricing as an area they would also like to attack, their solutions differ. In an almost knee-jerk fashion in today's partisan politics, anything one side proposes is immediately shot down by the other side.
"The Trump administration's rebate proposal puts the majority of Medicare beneficiaries at risk of higher premiums and total out-of-pocket costs and puts the American taxpayer on the hook for hundreds of billions of dollars," says Nancy Pelosi, the Democrat's speaker of the House.
It remains to be seen if the Democrats can come up with something better. In the meantime, one proposal I thought made a lot of sense was Trump's proposed change to Medicare B pricing. He wants a much larger set of drugs to be priced no higher than they are in foreign countries like Japan or nations in Europe. He also proposed that the secretary of Housing and Human Services (HHS) be allowed to negotiate prices and permit U.S. residents to purchase medicines directly from other countries.
Despite the partisan rhetoric, there seems to be some willingness to work together. Given the president's lead on drug pricing, I believe it is one area where we could see Congress and the White House come to terms and pass something useful and acceptable for all of us. Wouldn't that be great?
The Independent Investor: Europe, the World's Sick Sibling
The European Community is beset by worries. Brexit, trade threats, a slowing Chinese economy, and internal politics at home have all conspired to slow growth, employment, and positive sentiment.
This year, the EU will be lucky to see 1.5 percent GDP growth. In fact, the International Monetary Fund reduced their overall forecast this week for global growth largely as a result of poor performance out of Europe. Europe's powerhouse, Germany, saw its growth for 2019 cut by 0.6 percent because of anemic consumption and weak industrial production data.
Italy, one of the problem children of the EU, saw its growth forecasts cut by 0.4 percentage points as a result of weak domestic demand and out-of-control government borrowing. France did not escape the knife either. Its GDP was reduced by 0.1 percent, largely because of the continuous, production-stopping street protests.
Trade tensions top the list of obstacles afflicting Europe. While most of the news coverage tends to dwell on the slowing economy of China (because of the ongoing trade war), this issue is impacting businesses throughout the world. Automobile tariffs on EU exports, for example, have impacted growth, especially within Germany.
Brexit has also cast a dark shadow over Europe. Uncertainty has infected every corner of the 18-nation union ever since the UK referendum to leave the EU back in June 2016. The unsuccessful exit negotiations, which recently culminated in the British Parliament's rejection of the terms, brought to naught years of talks between Prime Minister Teresa May and her cabinet and EU negotiators.
Since then, both sides are grappling with the next step forward. Some believe another referendum will need to be called. Others hope new (and better) terms for the UK exit will be required, although the chances of the EU offering better terms is hard to believe. This issue will continue to weigh on investment and growth on both sides of the Channel until it is resolved.
No discussion of Europe would be complete without mention of Italy. This southern nation is already flirting with recession. Fourth quarter growth was already the weakest it has been in four years. Unwilling to adhere to the strict guidelines of EU lenders, the nation's voters insist on upping spending year after year, borrowing more and more, while digging itself deeper and deeper into a financial hole.
The nation has replaced Greece as the "Bad Boy of Europe" with a real risk of witnessing a collapse of their financial sector. The Italians, of course, are watching the exit negotiations of the United Kingdom. There is an implied threat if EU authorities lean on Italy too hard that what the UK can do, so can Italy.
Amid this unsettling backdrop, Mario Draghi and the monetary authorities of the EU's Central Bank (ECB) are walking a tightrope of maintaining some stimulus, while taking some away. Like our own Federal Reserve Bank, the EU has been slowing their purchases of government bonds, which should wind down to zero this year. This may or may not be followed by the ECB's first interest rate hike late in the year — if the data warrant it.
My own bet is that while the ECB is talking a good show, the economic worsening of conditions in Europe will postpone any rate hikes. If, on the other hand, a Brexit agreement can be reached, if a trade agreement with the U.S. can be resolved, and if Italy were to ‘find religion,' conditions may improve. But don't hold your breath.
The Independent Investor: The IRS Has Its Hands Full This Year
The government's partial shutdown has everyone on edge this year. Despite assurances from the powers that be, many taxpayers are concerned that their tax returns won't be processed on time. Should you be worried?
One misconception many have is that the Internal Revenue Service is closed. Not true, the IRS remains open, despite having no budget since Dec. 21, 2018. The agency is running under a contingency plan, which includes operating with only 12 percent of its staff.
Usually, you can e-file your returns in late January, and that remains doable. The IRS announced it will be accepting 2018 tax returns starting January. 28, 2019. They also said they would be issuing refunds. To do so, they will be bringing back a large portion of their laid-off workers. Those workers, like the other 800,000 furloughed federal workers, won't be getting a pay check until the shutdown is over.
The question remains: how many of those workers are willing to return to their jobs without a paycheck? We are already seeing some departments (such as Homeland's TSA workers) balk at working for free any longer. But the government shutdown is not all the IRS needs to worry about.
Thanks to the Tax Cuts and Jobs Act passed in a hurry by Congress last year, the IRS has been working overtime to deal with the mountain of new changes and adaptions necessary to reflect the new tax laws. To add insult to injury, it took months before the new rules were actually delivered to the IRS from the legislative branch. At the time, the Inspector General said that it would take "massive resources" to do what was necessary to fulfill taxpayer expectations, while making sure the IRS is compliant with the new laws.
The new tax reform legislation contained nearly 120 provisions, affecting both domestic and international taxation of American individuals and corporations. As a result, nearly 450 new forms, sets of instructions, and publications would need to be published and disseminated. On the IT side, another 140 information technology systems would need to be modified so that tax returns could be processed, and compliance monitored.
Conservatively, the IRS estimated that 4 million additional phone calls and other contacts would be required to deal with questions taxpayers and their accountants were going to have about how to file individual returns. And here we are beginning tax season and those calls have just begun! Remember, the IRS warned months ago that there might be delays due to the enormity of changes required of them.
"The tax reform is certainly making life difficult for us," says Barry Clairmont, a partner in Lombardi, Clairmont & Keegan, one of the leading accounting firms in the Berkshires. "Tax preparation is taking longer, and, on the corporate side, there is more reporting required due to what we call 'QIB' or qualified business income."
Clairmont's advice is that corporations should begin the filing process now and not wait until the last minute.
On the other side of the country, Terry Milrany, one of the most respected accountants in Fort Worth, Texas, echoes much of what Clairmont says. He, too, sees the general business deductions of the 20 percent "pass-through" change in the tax law as something that is "still evolving" from within the IRS.
"Just in the last two days," he said, "I received another (and hopefully final) update from the IRS on this rule." As for the shut down's impact on tax returns, Milrany, who has been doing tax returns for 50 years, says, "We just don't know how the shutdown or the tax changes are going to impact returns. We are not deep enough into the filing season yet."