Thursday, September 22, 2016

The Make-Work Economy?

Is 99% of our economy just make-work?


I got to thinking the other day, which is always dangerous.   Economics has always been considered a "dark art" and not long ago many thought that the foundation of any economy was in farming and food production.   In a way it makes sense if you think about it.   Meeting our basic needs of food, clothing and shelter are really all that is essential to staying alive.   And quite frankly, we probably could shiver naked in the rain so long as we were well-fed.

But of course, very early in our human history (and animal history before that, if there is such a thing) - or more precisely, pre-history - some clever caveman figured out that farming and hunting was fine and all, but it would be a lot simpler to simply kill your neighbor and then take all the things he has worked so hard to acquire.

So self-defense (and the need to form tribes, villages, governments, and armies) quickly became a "necessity" of life.   So I suppose that you could say that food, clothing, and shelter - along with defense - are the core of any economy as these activities help preserve human life and civilization.

But what about all the other stuff?   Sure we need trucks and tractors and ships and whatnot to transport our food and so forth.  Communications equipment is needed to manage it all.   But how do things like movies and television - or twitter or casinos fit in?    Are these things that are little more than make-work in our economy?

In response to a previous posting about casinos and lottery tickets I received an e-mail from an economist who posited that there is "entertainment value" in lottery tickets as the purchaser finds some amusement in them worth a dollar.   And I suppose this is so, although the amusement level is worth about what you pay for it.  In other words, even gambling has a "value" in an economy as entertainment, even if it really doesn't create anything of real value.

We once again visited a Casino where a friend of a friend is a "high roller" and having to use up his "points" he invited us to a free buffet supper.  I could write for days about it.  For all the flashing lights and glitz and glamour, though, it was an unglamourous place - most of the patrons were decidedly middle and lower-middle-class people who were living on borrowed money and could ill-afford to gamble.   When I saw a 500+ pound man at the buffet (in a three-wheeled scooter) I lost my appetite.  It is really kind of a depressing place.

And by the way, these casinos have computerized the entire "comp" thing.  You use a credit card or special card for all your gambling and then acquire frequent gambler (gamer) points just like the airlines.  And just like the airlines, it is a game you literally can't win.   My friend even admits that he loses a lot of money at the casino, but today he goes less and less and he now realizes he really can't afford to just piss money away.

But again, one could argue there is an 'entertainment' value in all of this, but again, is this really accomplishing anything or just frittering away money for no apparent purpose?   A company that makes televisions takes parts and labor and manufactures a product worth more than the sum of its components.  It creates wealth through manufacturing - even if the end result (a television) really isn't very useful for food, clothing, shelter, or defense.   A casino, like twitter, just pisses money away on nothing whatsoever.

But this got me thinking (dangerous again) that maybe a lot of our human endeavors are merely make-work designed to keep us busy.  Or put more succinctly, once we have more and more free time, humans find more ways to fritter away their hours on pursuits which have little or no real value to the economy.

Much of this falls into the categories or "entertainment" or "hobbies" or whatever.   Enormous sums are spent on cars that serve no real purpose, motorcycles which are useful only for "recreational" driving, and boats that never are used to catch a fish, except perhaps as a hobby.   Are we just all running around keeping busy?

Despite the good financial news, some folks are still harping on "income inequality" - failing to realize our incomes in the US are the envy of most of the rest of the world.   It is "unfair" that a Billionaire is buying a new mega-yacht while the rest of us have to ride around in rowboats.   And after visiting a number of boatyards in New England lately, I've seen more than a few of these yachts which are beautiful but are far beyond my means (realistically).

On the other hand, each hand-made Hinckley represents a lot of jobs for the people who build and sell them, as well as jobs for those who maintain and repair them, not to mention those who run marinas and storage facilities, as well as shippers and boat-movers.   And let's not forget the crews who are often hired to run such boats or move them from one vacation resort to another.  You could make the argument that the rich person ordering this boat is using wealth to create jobs (here in the US), even if the end result is not really of much use to the economy.

And before you get all up-in-arms about how "unfair" it is that these rich people get to drive around in yachts, bear in mind that the guy who washes the boat spends more time on it than the owner, in most cases.   If you want to ride around in a yacht all day long, become a crew member or work in a marina.

So the income inequality argument doesn't come down to people starving while others eat caviar (at least in this country) but whether some have a Sears Jon-boat while others have a Grand Banks.   It is the argument about "the other guy has nicer shit than I do."

If incomes were more equal, well, maybe we'd all have 16-foot runabouts and the rich guy would have to settle for a Sea Ray.  Either way, people are put to work making things out of fiberglass that serve no real useful function in our society.

I am not sure what the point of all this is, other than it seems that we tend to find things to do with our lives and things to make and sell and buy, once we are beyond the subsistence living level.   And this is a good thing, as in countries where getting an adequate caloric intake every day is a challenge are usually shitty places to live.   We like having our entertainments, our movies and sports and twitters and whatnot, even if they serve no other function than to amuse.  And oddly enough (or not so oddly) these often are the most expensive things in our economy.   You can go broke as a farmer - providing the bedrock foundation of any civilization.   But as a sports star or Hollywood actor, you can make millions of dollars.  And in terms of export, it seems that our entertainment products are eclipsing food, even though the world has more of an appetite for the latter.

I guess it gets down to who decides what make-work most of us do.   Do we have a centralized government telling people what to make and how to make it, as they did in Communist countries?   Workers there coined the phrase, "They pretend to pay us, and we pretend to work."  Or do we let our more anarchistic system determine what make-work jobs most of us will end up doing, based on the relative popularity of  various entertainments?

I guess that gets down to the real question.


P.S. - the problem with casinos is like any other commodity - supply and demand.   Trump went bankrupt in Atlantic City when his casinos (highly leveraged) were eclipsed by newer casinos located more closely to New York and Philadelphia.    Today, more and more casinos are being built, including some in the Catskills (which is bad news for Mohegan and Foxwood) and up to six or seven in Maryland.   Even my small "home town" in Central New York has a sad little casino in an old shopping mall.   Eventually, the market for gambling - like anything else - will be saturated and many will go out of business, after being hyped and often subsidized by local governments.

Also, they let you drink while you gamble, and boy-howdy do they provide the drinks (and no, I did not gamble.  I couldn't even figure out how to work the machines).   I wonder about the buffet, though.  Is there a connection between over-eating and gambling?   Does being stuffed full of prime rib and shrimp make you want to gamble?   I am sure the casino owners know for sure.

Also interesting, as on the cruise ships there are a lot of Chinese folks in the casinos, both as gamblers and employees.   Supposedly gambling is a cultural value in China where much weight is given to luck.  Or is that racist?   All I can say is, Sheldon Adelson seems to know where his market lies.

Monday, September 19, 2016

Are Russians trolling our election? Well, duh.

Are Russians trolling our election?   Well, duh.

I wrote before about Russian Troll Farms.   Russians, along with everyone else in the world, troll the Internet for fun and profit.  You will see videos on YouTube extolling how to cut bottles with string and lighter fluid.   A friend of mine tried this and it really doesn't work, and you have to ask yourself why you are cutting bottles in the first place.   The goal of these "how to" videos is to get clicks and ad revenue and also, as in one video, sell a commercial bottle cutter to the inevitably frustrated viewers.   What is funny is that there are a number of "copycat" videos out there as well - all vying for that tasty bit of click money.

But governments also troll the Internet trying to alter public opinion.  This is merely an extension of what governments did before the Internet.   We did it.  The Russians did it.  The Chinese, and so forth.   Read Normal Mailer's Harlot's Ghost sometime for an in-depth description of how the CIA and other agencies tried (and succeeded) to steer public opinion in many third-world countries, alter the outcomes of elections, or even install leaders of our choosing.   This is no State secret, either.

In the 1960's, kids rejected American consumerism and of course protested the war.  They did drugs, and of course our soldiers were often also high.   Was this just a spontaneous movement, or one guided by our opponents in the world?  Or was it a spontaneous movement that was aided, abetted and guided by outside forces?   You decide.   But it is no big State Secret again, that the North Vietnamese made sure our G.I.'s had ready access to recreational drugs all the time they were in Vietnam.   There is more than one way to win a war.

The Russians are at it again.  As I noted in my previous postings, we are seeing weird videos and comments and discussions online where people are touting the "superiority" of Russian technology over that of the West.  They are literally re-writing history.  Never mind that their space shuttle flew only once (and was empty of any cosmonauts at the time) while ours flew hundreds of missions.  Never mind that their naval fleet consists of one aircraft carrier and a host of unsafe rusty and abandoned submarines.   Russian tech is supreme!

Oh, and all those nasty accidents they have that kill their sailors?  Had to be interference by America - not merely incompetence by drunken sailors.  The Kursk was rammed by a US sub!

Putin is smart about this.  He realizes that at least for a while, if you win the propaganda war, you win the war.   It doesn't matter what reality is, only what people's perceptions of it are.  And for at least a while - often decades - you can skew people's perceptions until reality finally plays its ugly hand.   And that in short is how the Soviet Union stayed afloat as long as it did and why it eventually failed.  And taking a page from the CCCP handbook, Putin (who has been in office, in one form or another, for decades) is trying to "Make Russia Great Again!"

And helping him are Donald Trump and his allies.   Already his campaign manager had to quit when it was revealed his previous client was a Putin lackey from the Ukraine.   The Donald makes no secret of his admiration of Putin, who is a brutal dictator who murders his own people.   Oh, but of course, this is no different that what Obama does - or at least in the funhouse mirror world of Trump.   I am not sure, but I don't think Obama has poisoned anyone with Polonium lately.

Of course, you probably don't buy any of this crap and see through it as the propaganda it is.  That doesn't matter.  It isn't aimed at you.   It is aimed at an audience willing to believe such things - people who believe that America is "in peril" at a time when its economy is the strongest in the world and growing daily.  Our unemployment is at record lows.  Inflation is low as are interest rates.  Gas prices are shockingly low.  And the latest news from the Census bureau is that median income is rising and the poverty rate is going down.    Even the Sanders people have to admit things are doing pretty well.   Oh, and Obama just shut down one of the worst "for-profit" colleges in the country.

So, how do you win an election with stats like this?  The status quo looks pretty good to most Americans.   The answer is, of course, to convince people that reality isn't real and that an alternative reality is.   So we have this constant barrage of propaganda, with the baseline assumption being that our country is in trouble and we are in dire straits.

But where do the Russians come in?   Well, from their perspective, they got a raw deal with the Berlin wall fell.   Communism was overthrown, but in its place they got... well, more of the same unequal distribution of power and wealth.   The worst part, for their country, was that they no longer had influence in the world, and one by one their former satellite countries were being lured into NATO or the EU, surrounding Russia.   You can't blame them for being paranoid.  We are the 6000-lb gorilla now, and all they have as leverage is oil and gas reserves.

So from their perspective, any action which weakens America helps them.  A weaker America, a divided country, a divided Europe (hello Brexit? - the fellow behind that nightmare is also on the Trump team!) is helpful to the Russians - and the Chinese.   

We spend more on our military than the next 8-10 countries combined.  They can't catch up in terms of spending or in terms of technology (at least technology that works).   So they play the propaganda game instead.  That's why you'll see stories in the paper about how such-and-such defense project is over budget and doesn't work right.  You never hear stories about how effective our technology is, most of the time.   The perception they want to spread is that we are weak and misguided.   And it is a message that many folks believe.

So Trump praises Putin, because Putin wants him in the White House, knowing it would lead to an economic collapse, just as the Brexit vote did in the UK.    Similarly, they want to hype divisions among European countries (which isn't hard to do, as everyone hates France, right?).   Or fund separatist movements in Northern Ireland or in the Basque - and now Catalan - regions of Spain.  Divide and conquer, the oldest game in the book.

And perhaps that is one reason why we are so divisive today in America.   Again, you have to wonder whether this is one of those things that occurred organically that they are taking advantage of, or whether they "primed the pump" so to speak.  But candidates like Trump don't seemed too much interested in "bringing America together" but instead playing to our divisiveness and fears.

A divided America is a weak America.   And this cannot go unnoticed in Moscow or Beijing.  Our adversaries and competitors in the world see these things and do their best to cause them to fester and erupt.   It has always gone on - since the dawn of human civilization.  People playing others emotionally and psychologically in order to gain advantage.   It is just today, it is much easier to do, thanks to the Internet.

Friday, September 9, 2016

Starker-type deferred exchanges and Real Estate buying no-nos.

Buying a house is a big decision.  Deciding what house to buy based on the paint color is idiotic.

A reader noted in response to my previous posting that I could do a Starker-type deferred exchange on my condo and thus defer taxes.  This may be true, but I want to spend the money at this point in my life and get out of the Real Estate business for good.  So I will have to pay capital gains taxes.  I could structure the sale in installments or take back a mortgage and thus profit two ways (and take advantage of the installment provisions of the tax laws) but since it is slated to be bulldozed, those options may be limited.

I wrote about Starker-type exchanges before and how they work.  It is one of those "loopholes" you hear politicians railing about, but of course, no one wants to close it.    If you buy an investment property in Chicago and then decide to move to New York, you might want to sell the Chicago property and buy a similar property in New York.   Is this a "realization event" (see my posting on that) or merely transferring funds from point A to point B?   Mr. Starker seemed to think not, and thanks to his court case, the law has been changed to allow such transfers.

Your equity in the original property is transferred to the new one, tax-free.   There are rules and limits to this, of course - consult a tax adviser for details.   We did this back in the 2000's, selling a duplex and buying two condos in Florida.   The duplex had doubled in value during the crazy days of the 2000's and we bought the condos with the proceeds, transferring our basis in the property to those condos.

We then decided to sell one condo, after it doubled in value from its purchase price.  We had to pay tax on that.  The other we made our principal residence for three years and then sold it, tax-free, as you don't pay taxes on the sale of your principal residence.   Neat trick if you can swing it.

Others "roll over" gains to larger and larger properties and then leave them to their children, who get a "stepped-up basis" in the property (meaning their basis is the market value at the time of death of the parent) and thus get the property tax-free and once again the tax man is cheated.

Well, not cheated per se as it is the law - just a law that favors real estate investors.   Ah, the neat stuff you learn in law school - like how the rich get richer.

But why is a personal residence not taxed?  Again, we covered this before - you don't really make money on the house you live in, it generally appreciates at a rate equal to inflation.  And when you factor in how much you spent on the house to maintain it, well, it is a zero-sum game at best.   You might get a big paycheck at the end, but it is equal to all the money you spent over the years on the house - in most cases.  Again, see my posting on that subject.   So the law recognizes this and doesn't tax personal residences.

But you can convert a rental property you own into your personal residence and then (if you live there for three years or so) not pay taxes on the sale.   Pretty odd law.   But it illustrates how laws - like Obamacare - can be oddly crafted to produce unintended results.

Three recent events in my life occurred which made me think about home buying.  First was an article the Chicago Tribune (I think) saying that mini-mansions are hard to sell these days.   Some guy bought one in 2005 for 2.5 million and had to take a $600,000 loss on it (which is NOT deductible!) in order to sell it.  The styles of the 2000's and colors are not as salable today and new home can be bought for less.

The second thing was I found the first season of Glee! at a garage sale for $1 and was watching it.  The part about "Sheets and Things" (where Mark worked briefly) was spot-on, as was the scene where the young couple is looking to buy a house - more concerned about features and appearances than real value of the home.

The third thing was my Brother-in-Law telling me about showing houses to a millenial couple.   They turned down solid houses at decent prices because they didn't like the color of the interior paint which of course is idiotic.

It got me to thinking though, that a lot of people make huge mistakes in home buying based on appearances and other superficial things and end up broke as a result.  A former secretary of mine turned away free-standing houses that were a good value to buy a "brand new" townhome that ended up being a PEX plumbing nightmare (as well as roofing problem) that resulted in a lawsuit against the builder.   Like the lady in Glee! she said she didn't want to buy a "used home" - as if houses were the same as cars.

Paint can be changed.  So can appliances and cabinets - once they wear out after 10-15 years.   But many people choose a home based on the color of the walls, the type of cabinets and flooring, and the appliances.   It is pretty stupid.   When we bought our last house (in every sense of the word) it came with white appliances and Corian countertops.   Maybe not my first choice, but it was all brand-new.   Rather than ripping it out for granite and stainless steel, we decided to live with it, and frankly, it works very well.

In our former vacation home (see my posting about the kitchen "remodel") we were faced with the same problem - black appliances and drab walls.   New hammered knobs on the cabinets, hardwood flooring, and a color change made the place look like a new kitchen for very little money.

What is really important about a house is not the color of the walls or the types of appliances or other superficial things but its cost, location, and structural soundness, pretty much in that order.

Real estate agents like to tout "location, location, location!" and that is a very important factor to be sure.  But the cost of the home, in terms of its affordability to your budget and whether it is overpriced for the market is far more important.   Cost is the one term never mentioned by agents or by other types of "review" sites.  But it is the factor we all consider in every purchase we make, first.   For example, a car site may say that a Toyota is a better car than a Nissan, and that may be true.  But the Toyota is more expensive and the Nissan dealer is offering discounts.   Price is a huge factor.  I bought the Nissan.

People who want the "perfect" house with the sun nook and the colors and cabinets and appliances they like may end up paying far too much and end up "house poor" or upside-down on a house and unable to sell it later on, without taking a huge loss or declaring bankruptcy and walking away from the mortgage.  It happened in 2009 and it will happen again.   In fact, the episode of Glee! mentions this, with Will arguing that so many houses on their street are in foreclosure and are good bargains.   Again, his wife responds with "I don't want a used house for our children".   An idiotic statement, but people make it in real life.

Location is a close second and closely related to pricing.   If you buy a house in an inconvenient location or a bad neighborhood, you will end up unhappy and perhaps broke.    Buying a cheap house in a crime-ridden neighborhood with poor schools, so you can have money left over to buy consumer products is an idiotic choice - but a choice millions of people make - installing alarms and fences and getting dogs to protect their "stuff".

A good location holds its value, and a location with good schools appreciates in value.   A location that is personally inconvenient (long commutes in rush hour) will end up being costly and make you unhappy.   If it is in an area that is a long commute for everybody then it will not appreciate but in fact, depreciate in value.  We saw this in the DC area where people moved further and further out to the cornfields, only to realize that no one wanted to buy a 2-hour one-way commute every day.

Structure is the third factor in the equation and one that can be costly to repair.   Shaky foundations, leaky roofs, rotting sill plates and backed-up plumbing can be expensive to fix and make a property hard to sell.  Young buyers are wow'ed by modern color choices and trendy kitchens and baths, but may overlook a serious structural issue that will make the house impossible to sell once trends change and the house is "dated" looking.   A good home inspection is key here - and you should pay more attention to that than to color choices or carpet types.

Sadly, most people are awed by superficial things and not by substantial things.   We like the flash and sizzle which is promoted on the television shows.   So many of these "improvement" and "buy and flip" shows concentrate on that and not on the real meat-and-potatoes issues.  I saw one recently while in a Hotel room, and the guy was "flipping" a house next to a junkyard by putting in trendy countertops and appliances, and a big fence between the house and the junkyard.   Granite countertops or not, a house next to a junkyard is not a good investment.  I felt bad for the buyers.

Rooms can be painted.  It isn't hard to do and needs to be done every few years or so (our house is about ready for every room to be repainted).    Appliances and cabinets last maybe 15 years.  If you are more concerned about impressing your friends and neighbors with your "designer kitchen" than with having a positive bank balance, you are headed for trouble.   And let me be clear about this - your friends and neighbors aren't going to give a shit about your designer kitchen for the simple reason that they won't spend much time there, if ever.   I've seen people blow tons of money on "look at me!" kitchens and baths, only to live lonely, impoverished lives, without even the satisfaction of intimidating their friends.

It is interesting about so-called Millennials, though.  Raised in the mini-mansion era, they probably expect that a "normal" house should have all sorts of look-at-me features.  Indeed, one of the largest growth areas in construction is in luxury student housing which makes no sense at all to me.   When I was a student, the term "student housing" meant run-down and roach-infested tenements which were overpriced but close to campus.  We sacrificed because we were getting an education.   A generation raised in McMansions perhaps has different standards.

But perhaps there is hope.  There are signs that the average size of new homes is shrinking somewhat or at least staying static.   The reasons are multiple - no one can afford huge houses anymore for starters.   No one wants to pay the property taxes on a monster house (which can exceed $10,000 a year in some jurisdictions).  No one wants to pay the utilities on a monster house or have to clean it or pay to have it cleaned.   Less is more, as I have learned.  And being a slave to a possession, including a house, makes no sense at all.

Wednesday, September 7, 2016

The Strange Mathematics of Early Retirement and Obamacare

How does Obamacare work for those who are forced into early retirement?


I wrote about early retirement and Obamacare and how it might make early retirement easier for some retirees.   This assumes, however, the retiree qualifies for Obamacare, of course, and that their income won't take them outside of the tax credit subsidy limits.

I met a fellow the other day and had an interesting conversation about early retirement.  Like most people, he had early retirement thrust upon him rather than planned out.  He worked for years at the mill at a Union job, but saw the writing on the wall.  When the layoffs came, he had paid off his house and cars and had no debt.   Good for him.  Smart move.   Others at the mill weren't so smart and found themselves on the street with a mountain of debt and no way to make money.

He made sure his kids learned skills rather than relying on union jobs at the mill.  One is an electrician and the other a journeyman plumber.   Good for them.  Smart move.  They both have jobs and careers and skills that are in demand.   Dad, however, is scraping by on part-time jobs, as no one wants to hire a 50-something former union employee these days.   It is tough.

His largest expense is health insurance - about $850 a month on his wife's policy at her place of work (the local school).   It is a pretty staggering amount and sure to go up before he reaches age 65 and can qualify for medicare.  He claims that he can't qualify for Obamacare as he is covered by his wife's policy.  I am not sure if that is true or not.  If so, it is grossly unfair as we shall see below.   He is paying a lot of money for insurance and not getting the subsidy.

Speaking of which, why is health insurance so expensive and who is making all the money?  Many folks think (wrongly) that the insurance companies are raking it in.   If so, they are doing a good job of hiding it.  My stock in Anthem (Blue Cross) has dropped by over 20% since I bought it and the stock pays a paltry 2% dividend.   Other insurers don't seem to be doing much better - my agent who is on the board of Humana claims they will ask for a 20% rate increase just to remain solvent.   Other companies are withdrawing from the market as it is unprofitable.

Where is all the money going?   Well, with no checks and balances on pricing, I think a lot goes to drug companies.   One reason you read these articles about "obscene" pricing on drugs like the Epipen is that since insurance is paying for it, no one in the loop "cares" about the pricing.   A "generic" pen is offered to the few people who actually have to pay out of pocket.

The other aspect of health insurance is supply and demand and the market.   Think about it for a minute - how much would you pay to live for another decade, or even a year, a month, a week, or even a minute.   Odds are, you'd say, "whatever money I have" because once you are dead you won't need money, and the will to live is strong.   Medicine - when it works as advertised - is the ultimate "must have" product when it comes to the supply/demand curve.   And even in countries with socialized medicine we see this, as the supply of medical care often dries up in response to demand and the lack of incentive to provide supply.

And medical care can be costly and the results amazing.  Today there are routine procedures that can extend your life by decades - procedures that were "hail Mary" experimental treatments with little prospect for success, only a few years back.  Multi-bypass and other heart operations are quite routine now, as are things like bone marrow transplants.   Routine, but staggeringly expensive.

And then there are things that make the quality of life much better in the declining years.  Hip and knee replacements can change your life completely and add another decade or two of active living.  They aren't cheap, however.   And when they go wrong, well, they can be a nightmare.   Modern medicine can do so many marvelous things, but at a staggering cost - a cost we are all willing to pay if it makes us live longer or live happier.   We'd prefer, however, that someone else pick up the tab.

But regardless of who is making all the money, the bottom line is, health care is freaking expensive.   My friend has to pay out of pocket and can deduct the cost from his taxes.   I can take a tax credit for Obamacare so long as I don't make more than $60,000 a year or so (actually closer to $62,999).   In fact, the staggering cost ($1098 per month) pretty much wipes out my entire Federal tax burden for the year.  So instead of paying Uncle Sam, I now pay Blue Cross.  No word yet on how Uncle Sam intends to fund his budget without my contribution.

My friend who is on his wife's plan can only deduct his premiums, which means if he is in the 25% bracket, he might save 25% of the cost of the premiums off his taxes, while I get a huge tax credit (equal to about 75% of premiums) instead.

This incentivizes me not to make more than $60,000 a year and this raises some interesting issues.   

For example, if I can stay under $60,000 per year, I can get this great tax credit and early retirement is no big deal.  But if my income drops below about $21,000 a year (the so-called poverty line) I would no longer qualify for Obamacare, but would instead have to go on Medicaid - medical care for the poor.

Now this may seem like an unlikely scenario, but it is quite likely.   Since I cannot tap into the IRA/401(k) money until age 59.5 (without a 10% tax penalty) then I must rely on after-tax savings I have accumulated over the years.   Since this money was already taxed, I pay no taxes on it, other than capital gains.   If I have no capital gains, or not much in the way of capital gains, I might end up with an effective income of under $21,000 a year, even if I am spending $50,000 a year or more.

So this means I either have to invent some income to declare to qualify for Obamacare, or take money from my IRA and pay the tax penalty to qualify.  Either way, it gets kind of awkward.

My friend hopes to get a job at the school so he can get on their policy, which would cost only $50 a month as an employee (as opposed to a spouse).  In the meantime, he is handy with tools and can fix his own cars, so he can get by on occasional odd jobs and not have to worry about making a lot of money.   It is just that $850 a month hole in his budget that is really killing him.  Fortunately, he was smart enough to make sure he was debt-free by age 55 so at least he has no mortgage or car payments to deal with.   Others are not so lucky or smart.

Another scenario that troubles me is if we sell our Condo, which is slated to be demolished.   We would be paid about $160,000 for the unit, which would be all capital gains, since the unit is completely depreciated.   As a result, not only would this cause me to pay capital gains tax on the entire amount, but also it would knock me out of the Obamacare subsidy limit, meaning that the entire cost per year for insurance ($13,000 or so) would be borne by me, with no tax credit (although I suppose I could claim a tax deduction?  I need to call an accountant!).    It would be nice if they could pay me in nice $55,000 installments over three years or something.  That would keep me under the Obamacare subsidy limit.

All of of this is new territory as the law is fairly new.   People have been trained over the years how to deal with taxation of social security and how to qualify for medicaid in nursing home care.   Over time, people figure out how to work around the law to minimize their tax burdens.  But the Obamacare system needs some adjustments as it does create some unintended consequences.   The first problem is the staggering cost and figuring out why it is so staggering.  Where is all the money going?  The second problem is to adjust the tax credit system so it doesn't cut off at $62,999 or force you into medicaid at under $21,000.  There are plenty of people who have low declared incomes but can "afford" the premiums of health care, since they are living off of savings.

None of the politicians talk about this of course.  And few citizens understand any of it.  Most folks don't understand the difference between a tax credit and a tax deduction.  Many think even today that you can make money on tax deductions, in fact.  So when you start talking about marginal rates and stuff, well, you lose them pretty quickly.

Of course, one alternative is to go back to work.  The problem is, for many of us this isn't an option.  No on is hiring old people, or at least not hiring them full-time with health insurance benefits.   In fact, few people are hiring anyone with these sorts of "gold plated" benefits anymore.   That is an other unintended consequence of the new health insurance law - if you hire someone full-time, you have to provide health insurance.  So it incentivizes companies to hire part-time labor instead.

I am not saying the system is wrecked or anything, only that the math is, well, somewhat odd.  My friend is doing OK in life - he has a paid-for house and cars, and his wife makes enough such that with his part-time work they can put food on the table.  Their kids are doing well and have good paying jobs.  It is just that they never envisioned that health insurance would be their largest expense in life.

Similarly for me, it is the queer math that is troubling - a system that incentivizes me to make not too much and not too little money, and penalizes folks who strive to rise above a median income.   It also makes figuring out early retirement nearly damn impossible.