The Weight of the Nation

“The Weight of the Nation” is a four-part documentary on the national obesity epidemic that starts May 14, 2012 on HBO. In a May 10, 2012 video editorial, “The Tax Code Diet: The Institute for Medicine gets political on obesity,” Dan Henninger and Joe Rago, of the The Wall Street Journal, mock the documentary and the Institute of Medicine report on which it is based. http://online.wsj.com/article/SB10001424052702304070304577394051312808264.html
Their neo-Con “all government is evil” attitude should be seen as an unqualified endorsement of companies that push unhealthy eating habits to maximize profits with no regard for the health of their consumers.

Henninger and Rago, neither of whom are obese, do not deny that the nation has a problem. However, they ridicule the idea that the government might have a role in encouraging healthy eating. They claim that what one eats is a matter of individual choice and that the government should not attempt to regulate food packaging and advertising. They further argue that unhealthy products like carbonated soft drinks loaded with high-fructose corn syrup and caffeine should not be taxed to subsidize anti-obesity and healthy diet programs and other health costs attributable to those products.

Do the neo-Cons oppose food-safety inspections and regulation to protect us from pathogens like salmonella or mad-cow disease? Some social Darwinists would place all responsibility for food safety on processors and vendors. They would say, “Let the market sort out which manufacturers poison us and should go out of business, but even most neo-Cons would agree that we rely on the government to enforce food safety rules. When we buy beef or carrots at Piggly Wiggly we have confidence that the products are not drenched in E. coli because of government oversight.

Our food supply may be free of disease-causing pathogens, but what about high-fructose corn syrup, salt, and aspartame? What about the absurd mounds of fat, sugar, cheap meat, carbohydrates, and salt that Applebees, Burger King, Cheesecake Factory and other restaurants call “meals.” People tend to be gullible and when the restaurant calls something a “meal,” many customers will assume that what they will be served is a reasonable portion for one person to eat at one sitting. The restaurant is playing on customer’s credulity when it serves an “appetizer” with 1,500 calories or delivers a mass of food that exceeds 2,300 calories and calls it a meal. At the very least, calorie counts should be displayed on the menu or bill of fare.

In the supermarket, trusting consumers are fooled by advertising and packaging into thinking that candy is a healthy breakfast and cookies are nutritious snacks. The frozen-food aisle is crammed with pre-prepared entrees labeled “heart-healthy” or “lean” that barely qualify as “food.” Judging by the ingredient lists, which are often barely legible, a product might be lasagna or animal shampoo. Few shoppers have the time or the ability to really decipher what they are buying. They do not realize that “organic” and “natural” and “fresh” and “heart-healthy” are just advertising gimmicks that have no meaning. Shoppers assume that the government keeps food processors, distributors and retailers honest. That is far from the case, with some reasonable reforms shoppers could have the protection they deserve.

Watch “The Weight of the Nation” with an open mind. There is a crisis of obesity in the United States and we must curb our eating – particularly with regard to children. By allowing our children to overeat we are condemning them to a lifetime of obesity and all of the health problems caused by excess weight. We as a nation must address the problem and the government has an important role to play.

John Payne, Attorney
1800 Grindley Park Street 6
Dearborn, Michigan 48124
Come visit me at: http://www.law-business.com
313.563.4900/fax 313.583.3100

Pittsburgh Office:
9853 Old Perry Highway
Wexford, Pennsylvania 15090
800.220.7200/fax 412.548.0022

Bank Piggies

According to the New York Times, bank stocks and profits took a beating in 2011; but not their chief executives. Susanne Craig, “Bad Year for Wall St. Not Reflected in Chiefs’ Pay, New York Times, B-7 (January 20, 2012). Three big banks disclosed on Friday, January 20, 2012, that their top executives will receive massive awards of deferred stock for occupying their offices in 2011. You can talk about “Occupy” movements, but these pigs are not moving anywhere as long as they can wallow in their trough of money.

Banks are ramping up deferred stock awards to the top porkers while those further down th snorting order – those who really do the work – are finding their pickings are slimmer than a year ago. That does not mean that those excluded from the more succulent feeding bins are getting along on stems and seeds, but the banks’ boards could spread the loot more fairly.

Top executives’ pay packages are largely unrelated to stock performance. Corporate boards seem to think that the CEO should get the credit for a bank’s high profitability in good times, but “It’s the economy, Stupid” when a bank has a bad year. Boards of directors, unlike opposition politicians, are willing to assume that the bank would have been worse off if the CEO hadn’t done such a good job. Here are three hogs who can neither spell nor define “enough.”

Citigroup’s CEO, Vikram S. Pandit, sucked up $3.7 million in deferred stock in addition to his base salary of $1.75 million. As if $5.45 million is not enough for a piggie banker to live on, Mr. Pandit received a $16.7 million retention bonus, plus another $6.5 million in stock options. It is hard to justify such monstrous generosity to Mr. Pandit. Citigroup’s stock fell 44 percent in 2011, and bonuses for real employees amounted to chump change, if they received anything.

JPMorgan Chase, also had a rough year, with a 22% decline in share price. That did not restrain Chase’s board from slopping the chief executive, Jamie Dimon. He received $17 million in equity-linked stock for his work in 2010 and a similar amount for 2011.

Poor James P. Gorman of Morgan Stanley will take a 25% cut in his pay. Still, he will receive $9.7 in deferred compensation on top of his $800,000 base salary. He probably earned $8,000 of it.

Why are we ignoring the 1,200 lb. Yorksire boar in the room? It is bigger than the couch! The Yorkie being ignored is the fact that the upper echelons of corporate governance are not achieved through merit. Corporate CEOs and directors are appointed based on family and personal connections. It is nepotism and cronyism. See “Not All Pirates are in Somalia.”

We let these bank piggies loot their corporations and then give them favored tax treatment. While their paychecks are taxed as ordinary income, their immense awards of deferred stock end up as appreciation, not compensation and are taxed at the low, low capital gains tax rate.

It is an unfortunate fact that shareholders are sheep. As long as share prices stay reasonable and there are some dividends being paid, shareholders approve whatever corporate management puts on the proxy form. However, our economy would be healthier and those who do the work to keep the wheels of commerce turning would be better compensated if we no longer tolerated the current system of corporate governance based on banditry.

John Payne, Attorney
1800 Grindley Park Street 6
Dearborn, Michigan 48124
Come visit me at: http://www.law-business.com
313.563.4900/fax 313.583.3100

Pittsburgh Office:
9853 Old Perry Highway
Wexford, Pennsylvania 15090
800.220.7200/fax 412.548.0022

“Get Your Boot off My Neck” is Class Warfare?

Over the last half century, those who are wealthy by most definitions have doubled their income and net worth over and over, while the rest of us – we ninety-nine percenters – have seen our income and net worth decline. As the fiscal gap between rich and poor has increased, the difference in tax brackets has shrunk. Any talk about increasing the tax rate on the wealthy has been met with porcine squeals about “class warfare.” If there is any class warfare in the United States, it has been going on for 50 years and the poor are losing it. There is a tipping point at which wealth begets greater wealth and poverty begets greater poverty. Conservative talk about “equality of opportunity” is code for the Darwinian model of government – the spoils system. Those with power get what ever they can grab and money is power.

There are many self-made wealthy people in the United States, but stacked against the millions who live and die in poverty, they are very lucky or talented exceptions. The wealthy have an almost insurmountable advantage over the rest of us. When you compare two equally talented children – one from Brentwood and one from Watts – it is easy to see why legal equality of opportunity has little meaning for most of us. Chip, from Brentwood, was raised on the healthiest food, received a superlative education from Montessori at age three through graduate school at an Ivy League university, lacked no dental or medical service that could improve his appearance or health, and left college with a contact list of Fortune 500 CEOs and board members. Jamal, from Watts, lacked no challenge to his very existence. His minimum-wage single parent had a difficult time providing sufficient calories for the family and providing shelter. His education in inner-city schools prepared him for neither an occupation nor college. Barring an exceptional opportunity Jamal has no prospects beyond minimum-wage employment.

This oppression by the wealthy and powerful plays out every day in the corporate sector. Rank-and-file employees, who build the wealth of the company by their work, are either down-sized into the ranks of the unemployed or grossly overworked, performing the tasks of those who are no in the ranks of the unemployed in addition to their own. Meanwhile, those in the upper echelons of management never miss a compensation increase or a bonus.

According to Fortune, the CEOs of the top 500 corporations average $9 million in compensation, bonuses and stock gains. http://www.forbes.com/lists/2011/12/ceo-pay-20-year-historical-chart.html While this is a big drop from the $16 million the CEOs made in 2007, it is much more than they earned. As was explained in “Not All Pirates Are in Somalia,” http://topomyhead.wordpress.com/2011/04/15/not-all-pirates-are-in-somalia/, these CEOs reap such ridiculous compensation through rampant cronyism, but that is not the worst aspect of corporate executive overpayment. It is all deductible to the corporation, so 35% of the $9 million is tax savings. It comes out of the pockets of the very workers who are being so roughly treated.

Federal minimum wage in the United States is approximately $15,000 per year for a full-time worker. If deductible CEO compensation were limited to 100 times minimum wage, or $1.5 million, the Fortune 500 corporations would each pay approximately $2.6 million more in taxes just on their CEO’s compensation. That would be $1.3 billion more in taxes for schools, Veteran programs, road and bridge repair, national parks, student subsidies, and all the other important government functions that are being cut back due to the Bush-era tax cuts. That is $1.3 billion in tax revenues for cutting back the deductibility of the compensation of the CEOs, only. In every corporation there is a whole rat pack of over-compensated vice presidents and directors who contribute nothing to profitability or production. A tax increase would not be necessary; all that would be required is cutting back deductions to what is reasonable.

The compensation deduction for corporate income taxes should be limited to reasonable compensation. It is absurd to suggest that these corporations could not find a competent – even a brilliant – CEO for $1.5 million a year. Corporate boards pretend that they need to give their CEOs and other executives huge compensation packages because they are so valuable, but that is not the case. Corporate CEOs pack their boards with fellow CEOs, who pay them whatever they ask. The fact is that CEO pay is often not in proportion to talent or success.

The Corporate Library’s 2006 report, “Pay for Failure: The Compensation Committees Responsible,” described 11 public corporations that paid their CEOs more than $15 million per year despite five-year track records of shareholder losses. For example, Ivan G. Seidenberg, chief executive of Verizon Communications, received $19.4 million in salary, bonus, restricted stock and other compensation in 2005, half again as much as in 2004. As his compensation increased, the stock fell 26%, bondholders lost value as the company’s debt was downgraded by credit agencies, and 50,000 managers saw their pensions frozen.

Instead of paying additional tax due to the loss of the deductibility of CEO compensation over $1.5 million, the corporations could raise the pay of the employees who actually do the work, or hire more employees. Instead of cutting the workforce to the bone and eliminating fringe benefits, these corporations could reintroduce the type of corporate culture that made it worthwhile to get out of bed and got to work.

A culture of greed and megalomania has taken root among the wealthy and powerful in the United States. Conservative activists and politicians are catering to those who have it all. Anyone who says the “haves” should help the “have-nots” by paying a little more in taxes is accused of class warfare.

This country is being run for the benefit of the plutocrats who comprise the 1%. It is not class warfare for the rest of us to want them to take their boots off our necks. It is time for the 99% to stand up for our rights.

John Payne, Attorney
1800 Grindley Park Street 6
Dearborn, Michigan 48124
Come visit me at: http://www.law-business.com
313.563.4900/fax 313.583.3100

Pittsburgh Office:
9853 Old Perry Highway
Wexford, Pennsylvania 15090
800.220.7200/fax 412.548.0022

The Peter Principle: A Lesson for Today

As the stock market picks itself up, staggers to a lamppost where it holds on for a couple of sessions, then collapses again into the gutter, there is no shortage of experts to explain why the DJIA is stuck around 11,000. Hedge fund managers, analysts, market strategists, portfolio managers, economists, and college professors have all kinds of theories about why the market goes up, down, around, or retrograde oblique. Their inane, contradictory or downright nonsensical analyses and recommendations raise the question of how much they really know. Furthermore, the incompetence of hedge fund and portfolio managers who have made news lately by losing millions or billions for their employers call into question the ability of the firms themselves to hire and supervise able staff. The Peter Principle can help explain the chaos in our financial and equities markets.

According to the Peter Principle, “in a hierarchy every employee tends to rise to his level of incompetence.” The 1969 book, “The Peter Principle,” by Dr. Laurence J. Peter and Raymond Hull, explains how employees get promoted until they are in job they cannot perform competently. For a civil servant or a cog in a bureaucratic machine of any type, the Peter Principle is a transcendent revelation. It provides a rationale for all the frustrations of working in an organization that seems like a mental hospital where the patients are in control. It also explains many of the systemic breakdowns we see every day – the Kitchen Aid coffee maker that has to be replaced due to defective warmer pad coating, the $80,000 Lexus recalled for steering problems, the FEMA post-Katrina modular housing debacle, the regional blackout caused by overloaded electrical transmission equipment, or the house fire caused by failure to ground a broad-band cable coming into the attic.

The Principle holds that in a hierarchy, workers get promotions as long as they work competently. When they reach a position that is above their competence, they remain there, being unable to earn further promotions. Peter’s Corollary states that “in time, every post tends to be occupied by an employee who is incompetent to carry out their duties” and adds that “work is accomplished by those employees who have not yet reached their level of incompetence.”

The book is an eye-opener for employees who find themselves stuck in a position where they are surrounded by incompetents. It is also a wake-up call for those who are frustrated in their positions and do not know why. They may have reached their level of incompetence. Knowing this, they can relax and stop striving for a promotion that will never come, or look for an opportunity to move to a different occupation.

Hedge fund managers are assumed to be financial geniuses, when they may be as error-prone and unsophisticated as anyone else hired on the spur of the moment to fill a position. Dana Dealdo may be in charge of a hedge fund as a result of favoritism, nepotism, sexism, cronyism, racism, anti-racism, or blackmailism. Stock brokerages, hedge funds, arbitrage firms, and other market movers and shakers are just as susceptible to the Peter Principle as car companies, fast-food outlets, public utilities, and municipalities. The awe and reverence accorded them by the media may be misplaced.

This is not just a plug for a book, although “The Peter Principle” was one of the most insightful books I have read. It is to urge a recognition that we cannot expect that things will always go right and we cannot rely on the recognized “experts” talking heads on television turn to for commentary. It is necessary to think analytically about every aspect of our lives. Without becoming survivalists, it is important to recognize and prepare for the possibility of a widespread failure of our power grid, communications network, or water supply. The Fukushima nuclear accident shows that there are incompetent executives at the highest levels of government and industry. Without turning our backs on nuclear power, it is necessary to develop idiot-proof policies for the siting of reactors and development of safety protocols. Above all, we need to be realistic about the level of competency we expect, whether it is a cashier in a dollar store or a legislator in Congress.

John Payne, Attorney
1800 Grindley Park Street 6
Dearborn, Michigan 48124
Come visit me at: http://www.law-business.com
313.563.4900/fax 313.583.3100

Pittsburgh Office:
9853 Old Perry Highway
Wexford, Pennsylvania 15090
800.220.7200/fax 412.548.0022

Not Taxed Enough

Standard & Poor’s downgrade of the United State’s credit rating, if not the economy in general, should clue in TEA Partiers and disciples of Grover Norquist that the deficit cannot be brought down through spending cuts alone. The government needs more revenue and more economic stimulus through government spending. However, it is time to stop whining about all the taxes we pay and start bragging about our investment in our country.

Congress has to forget about extending the Bush-Era tax cuts for the wealthy and consider the additional revenue an infrastructure investment. Those funds can be directed at improving the nation’s roads, railroads and airports, energy and communication systems, water and resource conservation programs, and border security.

How often do you hear the wealthy mewl about high taxes, anyway? Never! It’s the TEA Partiers and conservative elected officials doing the kvetching. They are generally lower-middle- to middle-class schmucks like the rest of us. They just think that they will get more butter on their toast from the rich if they oppose taxing them. The Fox News Gang are just reading out of Rupert Murdoch’s right-wing script.

Smart homeowners know that they cannot keep putting off repairs. It is common for homeowners to keep putting off upgrades and improvement. A couple who raised their family in a home they bought in the ’60s may have 30-year old avocado appliances, gold-colored shag carpet and an analog-digital converter so they would not have to replace their 13-inch Zenith TV. That’s fine if they feel more comfortable surrounded by outdated furnishings. However, they need to take action if the roof is leaking or termites are making lunch out of their studs and joists. We are beyond fashion considerations in our infrastructure.

We have bridges that are on the verge of collapse and civic buildings that are unsafe due to asbestos and formaldehyde. Our power grid is outdated and dangerous and lack of inspection of cargo and cargo vessels leaves us vulnerable to terrorist attacks, inadvertent importation of invasive species and food-born illnesses.

We have dire needs that could be addressed by a Congress that is not afraid to ask us to pay for what we need. They do not even have to call it a tax increase. Call it an investment in our nation’s future.

John Payne, Attorney
Garrison LawHouse, PC
1800 Grindley Park Street, Suite 6
Dearborn, Michigan 48124
Come visit me at: http://www.law-business.com
313.563.4900/fax 313.583.3100

Pennsylvania Office:
9853 Old Perry Highway.
Wexford, Pennsylvania 15090
800.220.7200/fax 412.548.0022

Money (That’s What I Want) II

This morning, Renee Montagne of NPR’s Morning Edition interviewed economics editor David Wessel at The Wall Street Journal, who said of yesterday’s market plunge, “Look at it this way, over the last week the Standard & Poor’s 500 index and the stock market has lost about 10%; that means about two trillion dollars in wealth has evaporated.” Mr. Wessel should read my blog more often. On October 10, 2008, after another big drop, I explained in “Money (That’s What I Want)” that wealth does not evaporate when the market goes down.

The wealth in the stock market is real, not virtual or hypothetical. In October of 2008, 2,000 shares of Bank of America stock would have bought a new, fully-loaded Lincoln Navigator. Now, those shares wouldn’t buy a fully-loaded Ford Focus. For Mr. Wessel’s benefit, I will repeat, with a few changes, what I said then:

For an investor who buys and holds stock for a period of time, it seems that appreciation and depreciation come out of nowhere. Let’s say that Rosco buys a share of Youngstown Universal Cotter Keys, Inc. for one dollar. He holds the share of YUCK for a year and he gets $10 when he sells it. As far as Rosco is concerned, he just received nine dollars for nothing. Conversely, if Rudy bought that share from Rosco for $10 and it dropped to one, Rudy’s nine dollars just vanished like civil servants at quitting time. What if Rosco had not sold his share of YUCK and it went from one to ten and back down again? Were these virtual dollars with no more substance than my idle musings?

The money is real and even if Rosco bought and sold his share of stock for the same price, the fact that it rose and then fell nine dollars means that there were real money flows that enriched some investors and impoverished others. The money that the rise and fall of Rosco’s share of YUCK represents was real money that flowed into and out of the market, but was not gained or lost in the broader economy.

The first step to understanding how the money comes into and goes out of the stock market, is to consider that the rise and fall of the value of Rosco’s single share of stock is not an isolated event. If shares of YUCK go $1.00 to $2.00, it is because tens or hundreds of thousands of shares were traded and the final sales were for $2.00 at the end of the trading period. However, for the sake of simplicity, consider the situation where YUCK is being sold one share at a time.

Everyone who bought for a dollar and sold for two took a dollar in profit out of the market. If Rosco receives $2.00 from Rosie for a share of YUCK that he purchased for $1.00, Rosie puts two dollars into the market and Rosco takes two dollars out–his initial investment and a dollar of profit. If Rosie then sells to Reginald for $3.00, he puts that much in and Rosie gets back her investment plus a dollar in profit. Tracing a series of transactions up to the $10.00 price, then back to $1.00, it becomes obvious that the rise and fall of YUCK reflects the change in what investors are willing to pay for YUCK shares, but no money disappeared. In this hyper -simplified economic picture, every dollar that went into the market came from an investor’s cash account and every dollar that came out went back into a cash account. Therefore, all of the money that pours out of the stock market stays in the economy!

Expansion and contraction of the stock markets makes some poor investors rich and some rich investors poor, but the wealth of the country does not rise and fall with the stock markets. It just gets relocated within the economy.

A portion of the change in share prices reflects real growth or lack of profitability of individual companies. Investors scurriie away from U.S. auto manufacturers like dexedrine-dosed lemmings in 2008 because the car companies did not foresee rising gas prices–like, Who would have thought that the price of a limited resource would go up as supplies diminish?–and produce fuel-efficient vehicles. However, the shares were high a few years ago because Ford, GM and Chrysler had a big line-up of popular gas-guzzlers that yielded high profits. Some of the drop in U.S. auto stocks is therefore related to the companies’ market strength, but not all of it.

The price of YUCK shares may go up or down, based on YUCK’s profitability and financial health, but it may also go up or down based on investors’ perceptions of the cotter key industry specifically or the U.S. economy in general. Although some change in the market indices will be reflective of the health of the corporate sector, wild swings, such as yesterday’s dramatic drop, are not due to rapid variations in corporate financial viability. If the Dow drops 6% today, is the U.S. business climate 6% colder today than it was yesterday? As the Dow declined from 12,700 to 11,500, the country did not lose 9.5% of its value, or even 9.5% of the value of its businesses. The Dow fell due to a dramatic mood swing in the investing public away from stocks. That deflated stock values, but all that money is still out there in the U.S. economy.

Don’t panic! Although there will be cutbacks and business failures, the money that left the stock market is still out there. Sooner or later, investors will realize that they cannot make money on their money unless they put it where profits are being generated. That’s the stock market; and when money starts flowing back into stock, the markets shall rise again.

John B. Payne, Attorney

Dearborn, Michigan & Pittsburgh, Pennsylvania

(800) 220 7200

FAX (313) 583 3100

©2011 John B. Payne, Attorney

www.law-business.com

It’s Summer: Where are the Summer Jobs?

Here we are, a week away from the solstice. Most of the high schools are out for the summer and where are our young people to find jobs? The parents and grandparents have grabbed the jobs that usually keep high school juniors and seniors off the streets in the summer. The jobs are not there for our teenagers. We have been trying to jumpstart the economy since Bush XLIII, but every time we start to really pump some job juice into the economy, we back off. What we need to do is raise the debt limit, stop worrying about the deficit, and put people to work on infrastructure.

If people started buying new cars and refrigerators and hot tubs and houses, we could turn this recession around. Unfortunately, consumer confidence is not that strong. I would wager that the average age of the cars in people’s garages and the refrigerators in their kitchens is two or three years higher than it was in 1999. When the marketplace falls flat, the government needs to step in. The problem here is that consumers are not consuming so the government must do so.

This solution is intensely disagreeable to fiscal Conservatives. They will decry a “tax-and-spend” mentality and oppose government handouts (unless they are to corporations). However, expanding the welfare system or hiring more regulators or paying unemployment compensation over an extended period is not what I have in mind.

Our roads and bridges are in deplorable shape. Public transportation is unreliable and unsafe. Many of our municipal buildings are rundown and ugly. Spending money on infrastruction is not wasted. When the government fixes a road or builds a levee, the country goes up in value.

When your roof is leaking, you do not ask whether you can afford to fix it. You take out a loan and put a new roof on the house. This protects and improves the value of your house. It is the same with a country. You don’t wait until a Minnsota freeway bridge falls down, you inspect all the essential bridges and fix them as necessary. If a new bridge over the Detroit River is needed, build it now, when the unemployment rate in Detroit is terrible. However, be absolutely certain that the projects are need. Tossing pork around is the last thing you want to do when deficit spending is necessary.

A bi-partisan committee could apportion new stimulus funds where they are most needed and where the investment value would be highest. The only problem is finding senators and representatives who would be willing to put the country’s interests ahead of their party’s.

John Payne, Attorney
Garrison LawHouse, PC
1800 Grindley Park Street, Suite 6
Dearborn, Michigan 48124
Come visit me at: http://www.law-business.com
313.563.4900/fax 313.583.3100

Pennsylvania Office:
9853 Old Perry Highway.
Wexford, Pennsylvania 15090
800.220.7200/fax 412.548.0022

Can the Kahn Plan

Medicaid is again being staked out, like the goat in “Jurassic Park,” for the Michigan legislature to prey on. However, unlike the T-rex that spurned easy meat, our legislators will chow down on anything that is not protected by special interests. This time it is estate recovery. Families of limited means and communities where they live have no mighty lobbyists, so they lack defenses against the slavering maws of senate budget raptors. Contact your representative and senator to let them know you oppose Senate Bills 404, 405, and 406.

Medicaid pays nearly half of Michigan’s nursing home costs of approximately $2.5 billion. The federal government covers approximately 60% of the $2.5 billion, so the cost to the state is around $1 billion. This is a tempting target for budget hawks, TEA Partiers, and other conservatives who want to cut back social programs. Estate recovery is a well-loved weapon to aim at the Medicaid long-term care program.

The federal Medicaid program requires states to pursue reimbursement from the estates of persons who die receiving Medicaid for long-term care. However, estate recovery only applies to the estates of single persons; and countable assets are limited to $2,000 in the absence of a spouse who is not in a nursing home. This generally limits the reach of estate recovery to the person’s exempt homestead, so what we are talking about is a program to grab the houses of deceased single Medicaid recipients from their families. A 2004 national survey by the ABA Commission on Law and Aging found that the average recovery per estate was only $8,116 and the median $5,081, so a program that concentrates on seizing the homes of nursing home patients when they die will not produce a huge windfall for Medicaid.

Tara Velting, writing for the right-wing Mackinac Center, asserted that the state could recover 5% of $1.7 billion in Medicaid long-term care costs, or $85 million. TaraLynn T. Velting, “Michigan Dithers on Medicaid Estate Recovery,” August 7, 2006, accessed June 12, 2011 at http://www.mackinac.org/7856. This assumes that Michigan will approach Oregon’s 5.8% effectiveness in estate recovery. There are several fallacies in Tara’s calculation.

First of all, Oregon is an anomaly. The estate recovery programs in the other 44 states and four commonwealths recover less than 2%, on average.

Secondly, she is not factoring in program costs. State Medicaid programs are very tightlipped about program costs and every state or commonwealth operates differently, so these costs are hard guage. Some estate recovery programs are entirely operated by state employees, while other programs rely on private collectors who receive a portion of what they bring in, but based on typical bureaucratic inefficiency and the likelihood that private collectors will get to keep at least 20% of what they recoup it is likely that one third of the gross amounts recovered will be consumed by program and collection costs.

Finally, the state would not get to keep all of the funds collected. A pro rata portion of the recouped Medicaid costs would go to the federal government.

A more realistic assessment of the Michigan’s annual net estate recovery receipts would be 1% of $1 billion, or $10 million, beginning in 2014. In the meanwhile, the state would spend upwards of $5 million to put the program in place. Despite this dismal prognosis, the Snyder Administration decided to pursue estate recovery.

Michigan Department of Community Health is in the process of implementing estate recovery, although the program will exempt homes “of modest value” and the policy provisions include several exemptions for “undue hardship.” Republican Senator Roger Kahn, of Saginaw is not satisfied with DCH’s plan. He has introduced a set of bills that would eliminate all exemptions and exceptions and expand estate recovery to go after the decedent’s dentures and spare nightie. The Kahn plan would certainly not exempt homes of modest value, or real estate owned jointly with other family members.

If the upside of estate recovery is $10 million a year against a $2.5 billion program, what is the downside? What is wrong with estate recovery, and if the DCH plan is misguided, why is the Kahn plan a catastrophe?

1) First and foremost, it will be a disaster in older neighborhoods. Most Medicaid estates will be limited to a modest home in an older neighborhood. If the state will be seizing the home on the Medicaid recipient’s death, families will decide not to maintain it. By the time the nursing-home resident dies, the home will already have deteriorated. Once the state gets the property it will probably be sold at auction to a purchaser who is, or aspires to be, a slum landlord.

2) It may deter some older persons from seeking needed long term care. The realization that the state will take their home after their death may deter some older persons from seeking necessary care, which could aggravate their health problems. It is an estate tax on modest estates while multimillion dollar estates are passed on tax-free under federal Estate Tax. Estate recovery will take 100% of a Medicaid recipient’s estate.

3) It will result in the loss of family homes and farms. Unless the heirs are able to reimburse the state for the recipient’s Medicaid costs, the home or farm would have to be sold. This is not too disturbing when the decedent had been living alone and the home or farm was only that person’s property, but that is not always the case.

Families of modest means frequently own property together and family members may have been living with, and caring for, the nursing home resident before long-term care became inevitable. A disabled son or daughter may have nowhere to go if the home is sold. A farm may have been inherited by several sons and daughters, who have all been working the farm and investing in it. There is no exception in the Kahn plan to accommodate such common situations.

4) Estate recovery complicates Medicaid and makes it more arbitrary. Good estate planning advice will allow people to maximize what they can protect, while those with the least to protect will have their estates cleaned out.

5) Estate recovery is used to scare seniors and their families into nefarious estate-planning and investment schemes. Trust mills and unscrupulous insurance agents use seminars to sell overpriced and unnecessary annuities, trust kits, and life insurance. Estate recovery gives them added ammunition to bag their unsuspecting prey.

Senator Kahn’s plan is grossly unfair to seniors and their families. Furthermore, it is unnecessary and premature. DCH already has a plan in place. The legislature should wait to see how effective it is. Please contact your legislator to oppose the Kahn plan, today.

John Payne, Attorney
Garrison LawHouse, PC
1800 Grindley Park Street, Suite 6
Dearborn, Michigan 48124
Come visit me at: http://www.law-business.com
313.563.4900/fax 313.583.3100

Pennsylvania Office:
9853 Old Perry Highway.
Wexford, Pennsylvania 15090
800.220.7200/fax 412.548.0022

Stop Digging, California

California is now being forced to reduce its state prison population. This is an opportunity to drastically reduce the number of prisoners and save a ton of money, but it appears that the state will shun the opportunity to improve the situation. Instead of releasing the prisoners to rehabilitation programs or putting them on tether, the state will dump the state prisoners into county jails that are not in much better shape than the state prisons.

The Supreme Court, in Brown v. Plata, File 09-1233, ruled that the lower courts properly ordered California to reduce its prison population The decision describes horrific conditions in California prisons due to massive overcrowding. The decision is available at the following URL:

http://www.supremecourt.gov/opinions/10pdf/09-1233.pdf

In Eighteenth Century England, sentencing conformed to no rule but retribution. As Robert Hughes related:

The idea that prisons could not reform criminals but were incubators of crime was the merest commonplace in the 1780s; every one, magistrates included, took it for granted. There was no attempt to classify or segregate prisoners by age, sex, or gravity of crime. Women were thrown in the same common ward as men, first offenders with hardened recidivists, inoffensive civil debtors with homosexual rapists. All prisoners, authority thought, were united by the common fact of their malignant otherness….There was no need for fine distinctions in the black hole.

The common simile for the prison was a monastery or seminary, a closed order of people who studied vice, not holiness — an appealing figure in its perfect inversion. To Henry Fielding in 1751, prisons were ‘no other than…seminaries of idleness, and common sewers of nastiness and disease.’ [Fielding, Enquiry at 214.]….The line continued to Australia in the 1820s, where one finds Governor Thomas Brisbane complaining that ‘The Convict-Barracks of New South Wales remind me of the Monasteries of Spain. They contain a population of consumers who produce nothing.’ [Brisbane to Bathhurst, November 29, 1823, xi Historical Records of Australia 181.]“

Hughes, The Fatal Shore, The Epic of Australia’s Founding 38 (Knopf 1987).

Compare Hughes’s remarks with this passage from Plata v. Brown:

A medical expert described livingquarters in converted gymnasiums or dayrooms, where large numbers of prisoners may share just a few toiletsand showers, as “‘breeding grounds for disease.’”7 Juris. App. 102a. Cramped conditions promote unrest and vio-lence, making it difficult for prison officials to monitor andcontrol the prison population. On any given day, prisoners in the general prison population may become ill, thus entering the plaintiff class; and overcrowding may preventimmediate medical attention necessary to avoid suffering,death, or spread of disease. After one prisoner was as-saulted in a crowded gymnasium, prison staff did not even learn of the injury until the prisoner had been dead for several hours. Slip. Op. at 22.

Justice Kennedy continued, describing two suicides by hanging. He observed that the prison authorities did not remove attachment points in cells because there was no place to put the prisoners held in those cells while the repairs were made. One might argue that it would be more humane to install attachment points to facilitate suicides so that prisoners could take action to end their misery.

To support the argument that California’s prisons are so bad that only a court-ordered reduction in head count would alleviate the suffering, Justice Kennedy quoted the former head of correctional systems in Washington, Maine, and Pennsylvania, as describing California’s prisons as “crimino-genic.” The Justice observed that California’s present recidivism rate is among the highest in the Nation and that each year “California communities are burdenedwith absorbing 123,000 offenders returning from prison, often more dangerous than when they left.”

Last year, Michigan saved $105,000,000 by reducing its state prison population by 7,000. This did not compromise public safety. Michigan is not experiencing a tsunami of violent crime this year. Yes, some released prisoners will commit new crimes. That is to be expected. However, some citizens who have never been in trouble before will be prosecuted and sent to prison. The “law-&-order” lobby will never be satisfied unless every crime carries a long mandatory prison sentence and the Parole Board automatically denies consideration for parole for every prisoner. We must resist the knee-jerk tendency to push criminal sentences up every time the legislature comes together. Most prison inmates are excellent parole candidates, provided that they have some rehabilitative structure after release.

Most drug offenders in prison were low-level dealers who were trying to make enough money to get by; they were not drug kingpins. Sex offenders, believe it or not, have a very low rate of recidivism. Furthermore, the great majority of sex offenders in prison and on the sex-offender registry are not serial rapists. They were inebriated or careless in choosing their partners or they were caught having sex in a parked car or behind bushes in a park. Some sex offenders were prosecuted for something as innocuous as peeing off the side of a boat or into a bush.

Our incarceration rate is still too high, but at least Michigan is moving in the right direction. California seems determined to train generation after generation of repeat offenders. By brutalizing its prison population, California is guaranteeing that those who “max” out of prison will be unable to adjust to life on the outside. To get out of the hole it has dug itself into California must stop digging. That means that it has to make a sincere effort to reduce its prison population through parole and rehabilitation. Dumping state prisoners into local jails will just get the state deeper into the hole.

John Payne, Attorney
Garrison LawHouse, PC
1800 Grindley Park Street, Suite 6
Dearborn, Michigan 48124
Come visit me at: http://www.law-business.com
313.563.4900/fax 866.399.7695

Pennsylvania Office:
9853 Old Perry Highway.
Wexford, Pennsylvania 15090
800.220.7200/fax 866.399.7695

Trust the Government to Do It Right

Why do TEA Partiers and other neo-Cons point to government programs like Medicare, the Postal Service, and Amtrak to “prove” that anything the government tries to do is doomed to failure? In the first place, Medicare is an astonishing success. Just ask any of your relatives who are over 65, and they will tell you how great Medicare is. Government programs work the way they are supposed to 98.36% of the time, according to the U.S. Department of Hypothetical Statistics, and they are much less likely to cheat us than private businesses. Any government role in providing health care is more likely to improve quality and availability than to cause deterioration.

Amtrak loses money now, but this nation was built on economical rail transportation. If we got smart, we would stop relying on cars and trucks so much and go back to rail transportation. The Postal Service may not make money, but to whom do you turn when you have to send a letter to Aunt Alice in Ass-End-of-Elsewhere, Alaska?

Whether Amtrak and the Postal Service make money is not the only measure of their success. Police and fire departments don’t turn a profit, either; should we do away with them? If we served up public services the way we do health care, only a dues-paying member of municipal services could get the fire department to come and put out their fire or the police department to investigate the arson. Get real!

I do not want my neighbor to lack health insurance any more than I want him or her to lack fire protection. In the absence of fire protection, if my neighbor’s house catches fire and burns to the ground, that hurts my property values. Furthermore, if the fire department won’t come put out his fire, it will spread to my house.

If my neighbor lacks health insurance, he or she has to rely on the emergency room for the unpaid emergency services that I pay for. Furthermore, if my neighbor doesn’t get treated for communicable diseases, they will be passed on to me.

Mandatory health care coverage is the only fair answer. If some of that coverage is under a government-run plan, I’d sign up in a minute. Wait, I already have a government plan. I have Medicare, and I’m damned glad I do!

John Payne, Attorney
Garrison LawHouse, PC
1800 Grindley Park Street, Suite 6
Dearborn, Michigan 48124
Come visit me at: http://www.law-business.com
313.563.4900/fax 313.583.3100

Pennsylvania Office:
9853 Old Perry Highway.
Wexford, Pennsylvania 15090
800.220.7200/fax 412.548.0022