States Win Interesting Powers in ACA

The highly anticipated Supreme Court decision regarding the Affordable Care Act has come down as a split decision. The individual mandate is upheld not under the Commerce Clause but as a tax. By 2016, the tax will be 2.5% of gross income. So, for a household income of $150,000, you can expect to pay $3,750 if you go without health insurance. This figure is less than the cost of today's health insurance for a family of four. However, what about a single person working in Silicon Valley? If they are young, single, and make $150,000 a year, plus do not feel the need for health insurance, then they will be required to pay a tax of $3,750. The question becomes whether this $3,750 can be levied or not, because the tax cannot be more than the cost of insurance in the zip code where this person resides. For example, if the average health insurance cost in this person's zip code is $2,400, then the tax is limited to this $2,400 amount. I have a question. Who is going to figure this out for every person in America? I presume the IRS.

The second part of the decision that was struck down was that the States risk losing 100% of their Federal funds for Medicaid. The Supreme Court held that this clause was unconstitutional and termed it was like "holding a gun to the head" of the states to comply. This brings up a very interesting predicament. What if a state says that they do not want to expand Medicaid to allow those under 133% of the poverty level to obtain Medicaid coverage? What is the potential effect of this? It would seem that it would keep the status quo as it is now. These people would continue to go to the Emergency Room for their minor illnesses and continue to clog up the system.

Also, how would "everyone" obtain health insurance coverage if these people, those under 133% of the poverty level were in a state that refused to expand Medicaid to cover them? This certainly presents an interesting dilemma.

Other factors of this Affordable Care Act are some taxes that go into effect, because of it. There is a 3.8% tax on capital gains. If the current tax rates are allowed to expire at the end of this year, then the capital gains rate will climb at the highest level to 43.4%. It is 20% today.

An interesting quote from the opinion was this one. "But the Court does not express any opinion on the wisdom of the Affordable Care Act. Under the Constitution, that judgment is reserved to the people."

Perhaps the most telling quote in the decision is this one, however. "It is not our job to protect the people from the consequences of their political choices."

The voters voted for their elected officials and the ACA is the result of those voters decisions. Look on the bright side. Voters can choose a new direction this November.

The Supreme Court Turns Out the Lights

My oh my! I truly did not think it would happen. The United States Supreme Court chose not to intervene in the Chrysler bankruptcy situation involving the Indiana bond holders. This is bad, bad news for the high yield corporate bond market. Slowly but surely, we will see bond yields increase. For bond investors holding these high yield corporate bonds, they we will see their principal values decline for these cash strapped corporations.

High yield bond issuers will feel the pinch the most. Bond investors will be very, very hesitant to put money into corporations with weaker balance sheets. This is especially true now that they know that their place in line in a bankruptcy is any where the government tells them.

You cannot go any higher than the Supreme Court and they turned out the lights.

A Glimmer of Hope for American Capitalism

Well well well. I was wondering when a group of bond holders would have the courage to hire an attorney and go to court over their rightful position in line as creditors. Looks like the U.S. Supreme Court will take a peek at some Indiana bond holders and their case in the Chrysler bankruptcy proceedings. See this Reuters article for details:

http://www.reuters.com/article/newsOne/idUSTRE55608Q20090608

I am truly amazed at how well thought out the founding fathers of our great country were when they drafted our Constitution. They put in a system of checks and balances to make sure that no one branch of the federal government runs a muck with their power.

The classic chess match is at hand my friends. This is our system of checks and balances at work. The rule of law says that these creditors are first in line in the Chrysler bankruptcy. The executive branch of government takes a totally different opinion. They mistakenly believe that they can decide who gets what percentage of the New Chrysler. We shall see who is right. I believe that American Capitalism is at stake with the outcome.

The stakes are very high. If major corporations cannot go to the bond marketplace to raise capital, then we have a serious problem. What type of bond investor would put their hard earned dollars in a corporation, if the executive branch of government can come in and move you down the food chain?

Bond investors are not stupid. You do not have to tell them twice. If the Supreme Court rules against the Indiana bond holders, then Houston, we have a problem. If you think we have a financial credit problem now, then wait to see what could happen if the executive branch wins this argument. Credit for major corporations will dry up. Major corporations would have to raise their yields to attract investors which would in turn increase their borrowing costs. The end result is a huge drag on corporate earnings. More bankruptcies are sure to follow.

Keep the faith. I do believe that the Supreme Court will do the right thing for the Indiana bond holders while at the same time, provide a glimmer of hope for American Capitalism. They should rule in favor of the Indiana bond holders and stop this runaway freight train of cronyism. Let us all pray that they do.