It is almost the end of February, and many are still preparing their federal income tax. Perhaps you are also. And while you prepare to render unto Caesar, you have to make some decisions. Do you have an Individual Retirement Account? If so, how much will you pay into it? Do you have a Medical Savings Account? A decision about that also must be made near the beginning of the year.
If you save for retirement in an Individual Retirement Account, your tax bill is deferred on the amount you contribute to the account. But if you need access to some of the money before you reach the age of 59 and a half, you have to not only pay the income tax on the amount you withdraw, you must also pay a penalty to the federal government.
If you have a Medical Savings Account, you can pay for incidental medical expenses, co-pays, and your deductible, with money not subject to income tax. But be careful! If you put more into your account at the beginning of the year than you use in the year, you lose the balance. You cannot roll it over, even though that would help provide money for larger medical bills in the future.
Why is government so punitive? I guess they justify the tax penalty on Individual Retirement Accounts on the premise that if you withdraw money before you retire, the account is not serving its purpose of providing for your retirement. But paying a penalty to the federal government will not help you save for retirement either.
There is no justification for the “use it or lose it” rule for Medical Savings Accounts. Everyone knows that medical costs rise year after year, and saving year after year can be important when a major medical procedure is needed.
The Affordable Care Act also has its punitive side. By now, everyone has heard horror stories about big jumps in the cost of an insurance policy, mitigated somewhat by federal “subsidies.” Of course, the subsidies are really tax credits. The federal government will allow us to keep some of the money we earned, in order to pay the inflated premiums, and they expect us to be grateful for their “generosity.” The purpose of the tax credit “subsidies” is to disguise how much government rules have driven up the cost of medical insurance.
The Affordable Care Act mandates that every policy include a variety of benefits, each of which adds to the cost of the premium. In many cases, individuals are required to pay for benefits that they don’t need; older people who don’t need birth control subsidize the contraceptive benefit for younger people. At the same time, restrictions on raising premium rates for older people result in young people subsidizing older people. Ultimately, the choice is taken from the consumer, who is not allowed to choose the benefits for which he is willing to pay a premium, and all consumers lose.
While the ACA mandates a minimum list of benefits, and prohibits the sale of policies that don’t include the full list, you can also be punished if you buy a policy, or your employer provides a medical policy that includes too many benefits. The Congress imposed a tax on “Cadillac” policies, which provide a rich menu of benefits. This tax was included in order to help provide funding for the “subsidies” that the ACA provides, but it shows a complete contempt for Americans. You are required to buy the policy the government mandates – nothing less, and you are taxed if you buy more.
All these policies illustrate the basic fact that government is based on punishing those who do not find government mandates beneficial. Government does not try to persuade by showing benefits, but by threatening punishment. As George Washington noted long ago: “Government is not reason. It is not eloquence. It is force, and like fire, it is a dangerous servant.”