If the Obama Administration would cave in and allow an 85% US federal income tax holiday for all foreign earnings parked overseas and repatriated back to the US by Multinational Corps, I think a very robust debt deal would be agreed to by the Republicans, which would include a fair amount of tax revenue.
But wisely, it's not going to happen. Instead, I think the Obama Administration will use the Unremitted Foreign Earnings, parked overseas by US Multinational Corps, as a piggy bank for targeted, desperately needed US job creation.
The Obama Administration was hustled again by Big Corps when they demanded 100% first-year tax expensing of equipment. While that certainly increased Big Corp earnings and US GDP growth, it did absolutely nothing in the way of US job creation, consistent with what has happened every time robust bonus tax depreciation has been enacted in the past. And it also created a short term drain on the US Treasury financial coffers.
The only way it makes sense to allow 100% first year tax expensing of equipment or very robust bonus tax depreciation is if it is tied to payroll count increases. That way, the economic benefit from the tax incentive is shared by all of the US citizenry.
Likewise, just like what happened in 2004 and 2005 with the 85% US federal income tax holiday on foreign earnings repatriation, there will be no US job creation from trying it again.
What did Albert Einstein say about continuing to repeat actions over and over again and expecting a different result?.....didn't he define this as "insanity"?
It will work much more effectively if the Obama Administration can control this very lucrative piggy bank, with very heavy Congressional oversight. But then it shouldn't be used for either "trickle down" or "trickle up" attempts at job creation that frankly haven't worked, but have been very expensive to the US government.
US Multinational Corps would really like to get their hands on all of their foreign earnings parked overseas in tax havens. If they were able to do this and at an acceptable income tax cost, they would be able to substantially increase their Pretax Income by having the flexibility to invest this money where they can derive a much better risk-adjusted rate of return. They also would be able to bump up their Earnings Per Share (EPS) nicely by using the money to buy back their own common stock. Further, they will feel a lot better having all of this money moved away from very financially risky tax havens like Ireland.
Thus, the optimal result in this Debt Ceiling Deal, which clearly should include a substantial reduction in US Debt, is to provide US Multinational Corps with wise Foreign Earnings Repatriation tax incentives, which directly create US jobs.
Below here shows the magnitude of the present Unremitted Foreign Earnings of US Multinationals. This was just from a quick review of the income tax footnotes of hundreds of US publicly-held corps. I just included below those Multinational Corps with Unremitted Foreign Earnings of a rounded $1.5 bil or above.
There were many US Multinational Corps that decided not to disclose their amount of Unremitted Foreign Earnings. One of the largest of these is United Technologies. When I compare their relevant numbers with that of other Dow Industrials, my hunch is that United Technologies' Unremitted Foreign Earnings now is north of $20 bil.
The total Unremitted Foreign Earnings of the below 166 US Multinational Corps comes to $1,291 bil, with the most recent year layer added of $193 bil. When I extrapolate that to the universe of all US Multinationals Corps, including privately-held ones, my best estimate is that the Total Unremitted Foreign Earnings is now about $1.8 trillion.
That's quite a piggy bank for US job creation. I think it's time to wisely raid this piggy bank, and keep doing it, with smart job initiative after smart job initiative. When you have such a horrible structural employment recession, you have to keep doing this, until you finally get a decent breakthrough.
Since the US House of Representatives Ways and Means Committee, which is where the job-creating tax legislation must initiate, has decided to continue to do nothing in the way of designing wise, targeted, cost effective tax incentives to create US jobs, things have continued to get worse on the employment front.....just like Albert Einstein defines "insanity".....doing the same thing over and over again and expecting different results. In this instance, the same thing being done over and over again is following the laissez-faire approach to improve the dismal US job situation.
...................................................Unremitted Foreign Earnings..
.........................................Most...................One.......Increase
.......................................Recent..Current....Year.....(Decrease)
.........................................FYE....Amount...Earlier..Amount..%
......................................................(in billions of dollars)
1 GE……………………….......Dec 10.....94.0.......84.0.....10.0...12%
2 Pfizer…………………........Dec 10.....48.2.......42.5.......5.7...13%
3 Merck………………….......Dec 10.....40.4.......31.2.......9.2...29%
4 JNJ……………………........Dec 10.....37.0.......32.2.......4.8...15%
5 Exxon Mobil………..…...Dec 10.....35.0.......42.0......(7.0).-17%
6 Citigroup……………….....Dec 10.....32.1.......27.3.......4.8...18%
7 Cisco Systems…………...Jul 10......31.6.......24.1.......7.5...31%
8 IBM…………………….......Dec 10......31.1.......26.0.......5.1...20%
9 Procter & Gamble……...Jun 10.....30.0.......25.0.......5.0...20%
10 Microsoft………………..Jun 10.....29.5.......18.0......11.5...64%
11 Abbott Labs………….....Dec 10....26.8.......20.6.......6.2...30%
12 PepsiCo………………......Dec 10....26.6.......21.9.......4.7...21%
13 Hewlett Packard……….Oct 10.....21.9.......16.5.......5.4...33%
14 Chevron……………….....Dec 10.....21.3.......20.5.......0.8.....4%
15 Coca Cola………………...Dec 10.....20.8.......19.0.......1.8.....9%
16 Schlumberger(1)………Dec 10.....20.3.......18.0.......2.3...13%
17 Eli Lilly…………………...Dec 10.....19.9.......15.5.......4.4...28%
18 JP Morgan Chase……...Dec 10.....19.3.......15.7.......3.6...23%
19 Apache…………………....Dec 10.....19.2.......15.3.......3.9...25%
20 Bank of America……….Dec 10.....17.9.......16.7.......1.2.....7%
21 Goldman Sachs………...Dec 10.....17.7.......16.2.......1.5.....9%
22 Google…………………....Dec 10.....17.5.......12.3.......5.2...42%
23 Amgen…………………....Dec 10.....17.2.......14.3.......2.9...20%
24 WalMart……………….....Jan 11.....17.0.......13.7.......3.3...24%
25 BristolMyersSquibb....Dec 10.....16.4.......16.5.....(0.1)..-1%
26 Oracle………………….....May 11.....16.1.......13.0.......3.1...24%
27 Medtronic………………..Apr 11.....14.9.......12.4.......2.5...20%
28 PMI……………………......Dec 10.....14.0.......14.0.......0.0.....0%
29 TE Connectivity Ltd….Sep 10.....14.0.......14.0.......0.0.....0%
30 DuPont…………………....Dec 10.....12.6.......11.3.......1.3...12%
31 Dell…………………….......Jan 11......12.3.......11.3.......1.0.....9%
32 Apple………………….......Sep 10.....12.3.........5.1.......7.2..141%
33 Intel……………………......Dec 10.....11.8.......10.1.......1.7...17%
34 McDonald's……………....Dec 10.....11.0.........9.2.......1.8...20%
35 Caterpillar………………..Dec 10.....11.0.........9.0.......2.0...22%
36 Qualcomm…………….....Sep 10.....10.6.........8.6.......2.0...23%
37 Dow Chemical…………..Dec 10.......9.8.........8.7.......1.1...13%
38 Boston Scientific……....Dec 10.......9.2.........9.4.....(0.2)..-2%
39 Corning…………………....Dec 10.......8.9.........7.3.......1.6...22%
40 Kraft………………………...Dec 10.......8.4.........5.7.......2.7...47%
41 Ebay……………………......Dec 10.......8.3.........7.9.......0.4.....5%
42 Alcoa…………………….....Dec 10.......8.0.........8.1.....(0.1)..-1%
43 Baxter…………………......Dec 10.......7.5.........6.8.......0.7...10%
44 American Express…....Dec 10.......7.4.........6.6.......0.8...12%
45 Kimberly Clark………….Dec 10.......7.3.........5.8.......1.5...26%
46 Ingersoll-Rand………….Dec 10.......7.1.........6.0.......1.1...18%
47 Xerox…………………......Dec 10.......7.0.........8.0.....(1.0).-13%
48 General Motors………...Dec 10.......6.9.........6.3.......0.6...10%
49 News Corp…………….....Jun 10.......6.8.........5.3.......1.5...28%
50 Bunge, Ltd……………....Dec 10.......6.8.........4.2.......2.6...62%
51 ArcherDanielsMidlnd.Jun 10.......6.6.........6.0.......0.6...10%
52 Danaher……………….....Dec 10.......6.5.........6.5.......0.0.....0%
53 Occidental Petrol........Dec 10.......6.0.........5.5.......0.5.....9%
54 Honeywell……………....Dec 10.......6.0.........5.1.......0.9...18%
55 Eaton…………………......Dec 10.......6.0.........4.9.......1.1...22%
56 Praxair…………………....Dec 10.......5.9.........5.3.......0.6...11%
57 Illinois Tool Works…..Dec 10.......5.7.........5.7.......0.0.....0%
58 3M…………………………..Dec 10.......5.6.........5.6.......0.0.....0%
59 Forest Labs……………...Mar 11.......5.4.........4.1.......1.3...32%
60 Emerson Electric……..Sep 10.......5.2.........4.3.......0.9...21%
61 EMC……………………......Dec 10.......5.1.........4.3.......0.8...19%
62 Morgan Stanley………..Dec 10.......5.1.........4.0.......1.1...28%
63 Murphy Oil……………...Dec 10.......4.8.........4.0.......0.8...20%
64 Cameron Intl…...........Dec 10.......4.7.........1.7.......3.0..176%
65 Johnson Controls……..Sep 10.......4.5.........3.8.......0.7...18%
66 Amerada Hess………….Dec 10.......4.5.........3.4.......1.1...32%
67 Gilead Sciences………..Dec 10.......4.5.........3.2.......1.3...41%
68 Valero Energy………….Dec 10.......4.4.........4.1.......0.3.....7%
69 Heinz……………………....Apr 11.......4.4.........3.3.......1.1...33%
70 International Paper….Dec 10.......4.3.........3.5.......0.8...23%
71 Stryker…………………....Dec 10.......4.2.........3.2.......1.0...31%
72 Berkshire Hathaway....Dec 10.......4.1.........3.8.......0.3.....8%
73 Franklin Resources…...Sep 10.......4.1.........3.4.......0.7...21%
74 Ally Financial…………..Dec 10.......4.1.........2.9.......1.2...41%
75 ConocoPhillips………….Dec 10.......4.1.........2.1.......2.0...95%
76 Western Digital………...Jun 10.......4.0.........2.5.......1.5...60%
77 Mattel……………………...Dec 10.......3.9.........3.5.......0.4...11%
78 Celgene…………………....Dec 10.......3.9.........2.8.......1.1...39%
79 ThermoFisherScientif..Dec 10.......3.7.........3.2.......0.5...16%
80 Monsanto………………...Aug 10.......3.6.........3.4.......0.2.....6%
81 Marsh & McLennan…...Dec 10.......3.6.........3.1.......0.5...16%
82 Nike………………………...May 10.......3.6.........2.6.......1.0...38%
83 Texas Instruments…….Dec 10.......3.4.........3.1.......0.3...10%
84 Agilent Technologies...Oct 10.......3.4.........3.0.......0.4...13%
85 Air Prod&Chemicals....Sep 10.......3.4.........3.0.......0.4...13%
86 Becton Dickinson……...Sep 10.......3.3.........2.6.......0.7...27%
87 CBS…………………………..Dec 10.......3.2.........3.0.......0.2.....7%
88 Paccar……………………...Dec 10.......3.1.........3.1.......0.0.....0%
89 Colgate Palmolive……...Dec 10.......2.9.........2.9.......0.0.....0%
90 US Steel…………………....Dec 10.......2.9.........2.9.......0.0.....0%
91 Celanese…………………...Dec 10.......2.9.........2.8.......0.1.....4%
92 Goodyear Tire.............Dec 10.......2.9.........2.8.......0.1.....4%
93 United Parcel Svc…......Dec 10.......2.7.........2.2.......0.5...23%
94 Aon…………………….......Dec 10.......2.7.........2.1.......0.6...29%
95 Bank of NY Mellon……..Dec 10.......2.7.........1.9.......0.8...42%
96 McKesson……………......Mar 11.......2.7.........2.3.......0.4...17%
97 Seagate Technology…...Jul 10.......2.7.........0.1.......2.6....NM
98 EOG Resources…………..Dec 10.......2.6.........3.0.....(0.4).-13%
99 AGCO…………………….....Dec 10.......2.6.........2.1.......0.5...24%
100 Yahoo………………….....Dec 10.......2.6.........2.0.......0.6...30%
101 Natl Oilwell Varco.......Dec 10.......2.5.........2.8.....(0.3).-11%
102 TRW Automotive........Dec 10.......2.5.........2.5.......0.0.....0%
103 Baker Hughes…………...Dec 10.......2.5.........2.3.......0.2.....9%
104 PPG Industries………….Dec 10.......2.5.........2.0.......0.5...25%
105 Western Union………....Dec 10.......2.5.........2.0.......0.5...25%
106 Overseas Shiphldg Grp.Dec 10.......2.4.........2.4.......0.0.....0%
107 Whirlpool………………...Dec 10.......2.4.........2.4.......0.0.....0%
108 Avon Products………....Dec 10.......2.4.........2.2.......0.2.....9%
109 Biogen Idec……………...Dec 10.......2.4.........2.2.......0.2.....9%
110 General Mills…………....May 11.......2.4.........2.1.......0.3...14%
111 Eastman Kodak………....Dec 10.......2.4.........1.8.......0.6...33%
112 Dole Food Co…………....Dec 10.......2.3.........2.4.....(0.1)..-4%
113 Analog Devices………....Oct 10.......2.3.........1.9.......0.4...21%
114 Computer Sciences…...Mar 11.......2.3.........1.3.......1.0...77%
115 Pride International…...Dec 10.......2.2.........2.0.......0.2...10%
116 Zimmer Holdings………Dec 10.......2.2.........1.8.......0.4...22%
117 Cognizant Tech Sols…..Dec 10.......2.2.........1.5.......0.7...47%
118 Ensco International……Dec 10.......2.1.........2.6.....(0.5).-19%
119 Allergan………………......Dec 10.......2.1.........2.2.....(0.1)..-5%
120 Prudential Financial….Dec 10.......2.1.........1.7.......0.4...24%
121 Safeway…………………....Dec 10.......2.1.........1.7.......0.4...24%
122 Symantec………………...Mar 11.......2.1.........1.8.......0.3...17%
123 Cardinal Health………...Jun 10.......2.0.........3.4.....(1.4).-41%
124 Carefusion……………....Jun 10.......2.0.........2.2.....(0.2)..-9%
125 Owens Illinois…………..Dec 10.......2.0.........1.8.......0.2...11%
126 Transocean……………...Dec 10.......2.0.........1.8.......0.2...11%
127 Costco……………………..Aug 10.......2.0.........1.6.......0.4...25%
128 Arrow Electronics…….Dec 10.......2.0.........1.4.......0.6...43%
129 Home Depot................Jan 11.......2.0.........0.5.......1.5..300%
130 Stanley Black&Decker.Dec 10.......1.9.........2.1.....(0.2).-10%
131 Marathon Oil…………….Dec 10.......1.9.........1.9.......0.0.....0%
132 ITT……………………….....Dec 10.......1.9.........1.7.......0.2...12%
133 Vishay Intertechnol...Dec 10.......1.9.........1.7.......0.2...12%
134 Adobe………………….....Oct 10.......1.9.........1.5.......0.4...27%
135 Sempra Energy………...Dec 10.......1.9.........1.5.......0.4...27%
136 Genworth Financial…. Dec 10.......1.9.........1.4.......0.5...36%
137 CIT Group………………..Dec 10.......1.9.........0.2.......1.7....NM
138 Deere………………….......Oct 10.......1.9.........1.3.......0.6...46%
139 MeadWestvaco………...Dec 10.......1.8.........1.7.......0.1.....6%
140 Southern Copper……...Dec 10.......1.8.........1.8.......0.0.....0%
141 St Jude Medical………...Dec 10.......1.8.........1.4.......0.4...29%
142 Best Buy………………......Feb 11.......1.8.........1.3.......0.5...38%
143 Chiquita Brands………...Dec 10.......1.7.........1.7.......0.0.....0%
144 Ingram Micro…………...Dec 10.......1.7.........1.6.......0.1.....6%
145 SPX……………………….....Dec 10.......1.7.........1.6.......0.1.....6%
146 Avnet………………….......Jun 10.......1.7.........1.5.......0.2...13%
147 Rockwell Automatn…...Sep 10.......1.7.........1.4.......0.3...21%
148 Waters Corp…………......Dec 10.......1.7.........1.4.......0.3...21%
149 Tidewater………………....Mar 11.......1.7.........1.5.......0.2...13%
150 Broadcom....................Dec 10.......1.7.........0.2.......1.5..750%
151 Borg Warner……………...Dec 10.......1.6.........1.6.......0.0.....0%
152 Accenture……………......Aug 10.......1.6.........1.5.......0.1.....7%
153 Noble Corp…………….....Dec 10.......1.6.........1.5.......0.1.....7%
154 Wells Fargo…………….....Dec 10.......1.6.........1.4.......0.2...14%
155 Altera…………………........Dec 10.......1.6.........0.9.......0.7...78%
156 Amazon.com………….....Dec 10.......1.6.........0.9.......0.7...78%
157 Interpublic Group……...Dec 10.......1.5.........1.6......(0.1)..-6%
158 Time Warner……………...Dec 10.......1.5.........1.6......(0.1)..-6%
159 Herbalife………………......Dec 10.......1.5.........1.3.......0.2...15%
160 Kellogg…………………......Dec 10.......1.5.........1.3.......0.2...15%
161 Lexmark……………….......Dec 10.......1.5.........1.3.......0.2...15%
162 Mastercard……………......Dec 10.......1.5.........1.3.......0.2...15%
163 General Dynamics……....Dec 10.......1.5.........1.2.......0.3...25%
164 Noble Energy………….....Dec 10.......1.5.........1.2.......0.3...25%
165 State Street Corp………...Dec 10.......1.5.........1.2.......0.3...25%
166 Microchip Technlgy......Mar 11.......1.5.........1.1.......0.4...36%
Total...................................................1,291...1,098......193....18%
(1) Schlumberger 2010 amount is estimated based on its actual 2009 amount disclosed, and using the relevant other disclosures in 2010 and earlier years.
Saturday, July 16, 2011
Wednesday, July 13, 2011
Softening the Economic Damage to Big Corps of Tax Loophole Closing
President Obama would like to see the US Debt reduced by $4 trillion over the next 10 years. And he would like to see it fairly balanced, with both wise cost cuts and smart tax revenue increases.
Let’s say a fair split is $3 of cost cuts for every $1 of additional tax revenue. I think it’s fairly easy, albeit with much pain, to get to the $3 trillion of cost cuts. The $1 trillion of additional tax revenue is the stumbling block.
It is only reasonable that a substantial majority of the $1 trillion of additional tax revenues has to be the closing of Big Corp Tax Loopholes. There are so many of these, and the dollars involved are substantial.
But the fact of the matter is that Big Corps are so powerful, and some of the Big Corp community has as their point man for their interests, Eric Cantor, who despite the disastrous consequences to the country, stubbornly refuses to enter into any fair-minded, reasonable compromise with the President.
Cantor, and the Big Corps behind him, assume that President Obama will cave in on these $1 trillion of additional tax revenues. I think they are mistaken. They underestimate Obama’s resolve. Obama knows that he is on the right side of history here, and also has the support of the majority of the American people, and frankly, also has the support of a significant portion of the entire business community, both big and small.
To reach a good solution for all parties, here's what I would consider doing to solve this impasse.....I would consider taking steps to soften the economic damage to Big Corps of the Tax Loophole Closings.
First, as part of this Debt Ceiling Deal, there are job creating ideas that I, and many others, have proposed that clearly benefit Big Corps due to the substantial corporate tax benefits they would receive that are included as integral parts of the Debt Ceiling Deal.
When you click on the Blog Archive July 2011 Article at the right called "Debt Ceiling Deal Needs Bolder, More Targeted Job Creation", there are seven really fine job creating ideas, which are all wisely 100% paid for, and which are triggered by huge tax incentives given to Big Corps:
#8) Jobs Tax Credit
#2) Accelerated Building Tax Depreciation
#3) Energy Tax Credit on Commercial Green Retrofits
#6) Infrastructure Investments Funded by Foreign Earnings Repatriation Tax
#9) 100% Tax Expensing of Equipment Purchased in 2012
#7) Tax Incentive to Write Down Underwater Home Mortgages
#10) Marketing, Selling and Advertising Bump
Second, in deriving the Big Corp Tax Loophole Closers, I think the focus should be on selecting ones that are temporary tax differences, and thus the reported earnings impact to Big Corps is modest.
Third, I think one of the Big Corp Tax Loophole Closers should be making estimated US federal income tax deposits on all open IRS tax audits. The Big Corps have already booked the estimated tax liability they think they owe on these open IRS tax audits. Thus there would be no earnings impact, nor negative economic impact, to Big Corps in making these estimated tax deposits, since they have already booked the estimated tax liability on the open IRS Revenue Agent Reviews. And the funding here could be a very significant portion of the $1 trillion over the next 10 years.
And fourth, and probably even more important than the other three above, there is another way to wisely soften the economic damage to Big Corps of agreeing to some of these Big Corp Tax Loophole Closers. Let me explain.
I think if you would ask the majority of Big Multinational Corps what they would want more than anything else in the income tax area, it’s to be able to get their hands on some of their foreign earnings, which are parked overseas, and to do so without incurring substantial US federal income tax. The problem is that in order to do that, when the foreign earnings are repatriated to the US as dividends, they are grossed up, and income taxed in the US at a 35% federal income tax rate.
Thus, what I would consider doing is to allowing some of the Corporate Tax Loopholes that are to be closed as part of this Debt Ceiling Deal to be paid for by a like amount of US federal income tax owed on foreign earnings repatriated.
And to make it even more attractive to Big Corps, I would let these Big Corps repatriate these earnings in 2011 and in 2012, and the resultant US federal income tax on these foreign earnings repatriated would not be owed in 2011 or in 2012, and instead would be deferred.
And these deferred US federal income taxes from foreign earnings repatriation would be due when the Big Corp Tax Loophole Closers are to be paid under the Debt Ceiling Deal. And not just due then, but would also actually replace the US federal income tax owed then from the Tax Loophole Closers.
Let me explain.
Say that a Big Multinational Corp has a Corporate Tax Loophole, such as on LIFO inventory, whose Tax Loophole Closing is used as part of this $1 trillion of funding for the Debt Ceiling Deal. And assume that the amount of this Corporate Tax Loophole to be closed for this Big Corp is $700 mil, and that it is set up to be repaid in Years 4 through 10, at $100 million per year for each of those 7 years.
Thus, under my proposal, the Big Corp would be able to repatriate in 2011 or in 2012, an amount that in total would normally result in $700 mil of US federal income tax owed on foreign earnings repatriated. And to make it even more attractive to the Big Multinational Corp, I would consider even granting a somewhat discounted US federal income tax rate on its foreign earnings repatriated, thereby increasing the amount of foreign earnings it could repatriate in 2011 and 2012 that would result in $700 million of US federal income tax owed on foreign earnings repatriated.
Then, in each of the 7 years from Year 4 to Year 10, $100 million of the deferred US federal income tax from the foreign earnings repatriation in 2011 and 2012 would be used to settle the federal income tax owed from closing the LIFO Inventory Tax Loophole.
It’s a winner for everyone.
The Big Corp gets its hands right away on a substantial amount of its cash and investments sitting in foreign tax havens like Ireland (ouch, is that country now ever a financial risk). And it doesn't have to pay US federal income tax on these foreign earnings repatriated right away....instead, this tax is deferred for up to 10 years. The Big Corp gets no income tax charge on its income statement, because it simply changes its accounting out of LIFO, or if it’s another Tax Loophole Closer related to a temporary tax difference, then the Big Corp would also get no income tax charge on its income statement.
The US Government gets to count this, for CBO scoring purposes, and also economically, as a Corporate Tax Loophole Closing Funding over the next 10 years, and thus use this as a key part of its $1 trillion total tax revenue funding goal.
When I get some time, I'll be laying out in detail some specific tax items, of the many tax items that Big Corps presently take advantage of, that I think in all fairness should be considered as part of the Big Corp Tax Loophole Closing funding vehicle that should be integral parts of this $4 trillion Debt Ceiling Deal. I feel fairly certain that once it is clearly explained to them, that a clear majority of the American public would agree with me that these Big Corp Tax Loopholes that I will be detailing should be closed, and used to wisely help the country get out of its horrible economic mess.
Let’s say a fair split is $3 of cost cuts for every $1 of additional tax revenue. I think it’s fairly easy, albeit with much pain, to get to the $3 trillion of cost cuts. The $1 trillion of additional tax revenue is the stumbling block.
It is only reasonable that a substantial majority of the $1 trillion of additional tax revenues has to be the closing of Big Corp Tax Loopholes. There are so many of these, and the dollars involved are substantial.
But the fact of the matter is that Big Corps are so powerful, and some of the Big Corp community has as their point man for their interests, Eric Cantor, who despite the disastrous consequences to the country, stubbornly refuses to enter into any fair-minded, reasonable compromise with the President.
Cantor, and the Big Corps behind him, assume that President Obama will cave in on these $1 trillion of additional tax revenues. I think they are mistaken. They underestimate Obama’s resolve. Obama knows that he is on the right side of history here, and also has the support of the majority of the American people, and frankly, also has the support of a significant portion of the entire business community, both big and small.
To reach a good solution for all parties, here's what I would consider doing to solve this impasse.....I would consider taking steps to soften the economic damage to Big Corps of the Tax Loophole Closings.
First, as part of this Debt Ceiling Deal, there are job creating ideas that I, and many others, have proposed that clearly benefit Big Corps due to the substantial corporate tax benefits they would receive that are included as integral parts of the Debt Ceiling Deal.
When you click on the Blog Archive July 2011 Article at the right called "Debt Ceiling Deal Needs Bolder, More Targeted Job Creation", there are seven really fine job creating ideas, which are all wisely 100% paid for, and which are triggered by huge tax incentives given to Big Corps:
#8) Jobs Tax Credit
#2) Accelerated Building Tax Depreciation
#3) Energy Tax Credit on Commercial Green Retrofits
#6) Infrastructure Investments Funded by Foreign Earnings Repatriation Tax
#9) 100% Tax Expensing of Equipment Purchased in 2012
#7) Tax Incentive to Write Down Underwater Home Mortgages
#10) Marketing, Selling and Advertising Bump
Second, in deriving the Big Corp Tax Loophole Closers, I think the focus should be on selecting ones that are temporary tax differences, and thus the reported earnings impact to Big Corps is modest.
Third, I think one of the Big Corp Tax Loophole Closers should be making estimated US federal income tax deposits on all open IRS tax audits. The Big Corps have already booked the estimated tax liability they think they owe on these open IRS tax audits. Thus there would be no earnings impact, nor negative economic impact, to Big Corps in making these estimated tax deposits, since they have already booked the estimated tax liability on the open IRS Revenue Agent Reviews. And the funding here could be a very significant portion of the $1 trillion over the next 10 years.
And fourth, and probably even more important than the other three above, there is another way to wisely soften the economic damage to Big Corps of agreeing to some of these Big Corp Tax Loophole Closers. Let me explain.
I think if you would ask the majority of Big Multinational Corps what they would want more than anything else in the income tax area, it’s to be able to get their hands on some of their foreign earnings, which are parked overseas, and to do so without incurring substantial US federal income tax. The problem is that in order to do that, when the foreign earnings are repatriated to the US as dividends, they are grossed up, and income taxed in the US at a 35% federal income tax rate.
Thus, what I would consider doing is to allowing some of the Corporate Tax Loopholes that are to be closed as part of this Debt Ceiling Deal to be paid for by a like amount of US federal income tax owed on foreign earnings repatriated.
And to make it even more attractive to Big Corps, I would let these Big Corps repatriate these earnings in 2011 and in 2012, and the resultant US federal income tax on these foreign earnings repatriated would not be owed in 2011 or in 2012, and instead would be deferred.
And these deferred US federal income taxes from foreign earnings repatriation would be due when the Big Corp Tax Loophole Closers are to be paid under the Debt Ceiling Deal. And not just due then, but would also actually replace the US federal income tax owed then from the Tax Loophole Closers.
Let me explain.
Say that a Big Multinational Corp has a Corporate Tax Loophole, such as on LIFO inventory, whose Tax Loophole Closing is used as part of this $1 trillion of funding for the Debt Ceiling Deal. And assume that the amount of this Corporate Tax Loophole to be closed for this Big Corp is $700 mil, and that it is set up to be repaid in Years 4 through 10, at $100 million per year for each of those 7 years.
Thus, under my proposal, the Big Corp would be able to repatriate in 2011 or in 2012, an amount that in total would normally result in $700 mil of US federal income tax owed on foreign earnings repatriated. And to make it even more attractive to the Big Multinational Corp, I would consider even granting a somewhat discounted US federal income tax rate on its foreign earnings repatriated, thereby increasing the amount of foreign earnings it could repatriate in 2011 and 2012 that would result in $700 million of US federal income tax owed on foreign earnings repatriated.
Then, in each of the 7 years from Year 4 to Year 10, $100 million of the deferred US federal income tax from the foreign earnings repatriation in 2011 and 2012 would be used to settle the federal income tax owed from closing the LIFO Inventory Tax Loophole.
It’s a winner for everyone.
The Big Corp gets its hands right away on a substantial amount of its cash and investments sitting in foreign tax havens like Ireland (ouch, is that country now ever a financial risk). And it doesn't have to pay US federal income tax on these foreign earnings repatriated right away....instead, this tax is deferred for up to 10 years. The Big Corp gets no income tax charge on its income statement, because it simply changes its accounting out of LIFO, or if it’s another Tax Loophole Closer related to a temporary tax difference, then the Big Corp would also get no income tax charge on its income statement.
The US Government gets to count this, for CBO scoring purposes, and also economically, as a Corporate Tax Loophole Closing Funding over the next 10 years, and thus use this as a key part of its $1 trillion total tax revenue funding goal.
When I get some time, I'll be laying out in detail some specific tax items, of the many tax items that Big Corps presently take advantage of, that I think in all fairness should be considered as part of the Big Corp Tax Loophole Closing funding vehicle that should be integral parts of this $4 trillion Debt Ceiling Deal. I feel fairly certain that once it is clearly explained to them, that a clear majority of the American public would agree with me that these Big Corp Tax Loopholes that I will be detailing should be closed, and used to wisely help the country get out of its horrible economic mess.
Monday, July 11, 2011
Debt Ceiling Deal Needs Bolder, More Targeted Job Creation
President Obama is right on target in trying to make the Debt Ceiling Deal as large as possible. He is showing vision and courage here, unlike many of the Republicans and Democrats in Congress, who are taking such myopic, self-centered stances.
Going $4 trillion over 10 years is indeed a very good start. I think it would be even better to go for $4.5 trillion to $5 trillion over 10 years.
But even more important is the longer term US debt reduction. I would focus like a laser on getting a total of $15 to $17.5 trillion over the next 20 years. It is not that difficult to get there wisely. And it should be done in a fair, balanced manner, something like $3 of wise cost cuts for every $1 of higher tax revenues, which would predominantly come from the closing of tax loopholes.
But since the latter part of 2007, the major cause of the US debt expansion has been due to the lack of jobs. Thus, a key integral part of the debt deal should be in turning the horrible job situation around, and as quickly as possible.
Thus, I think there should be bold, more targeted job creation in this Debt Deal.
I like including an extension of Unemployment Benefits as part of the Debt Deal. These unfortunate people did nothing to cause the 2000s Lost Decade.
On the other hand, I don’t think the extension of the politically-popular payroll tax holiday passes the cost-benefit test. It’s very expensive. And why increase the US debt further by rewarding people who already have a job. Further, it’s "trickle up", and has the same intellectual flaws as a job creator as "trickle down" does.
If the payroll tax holiday is extended, then, from a fairness standpoint, I would try to focus it on the Underemployed, and thus I would give it on only up to a certain amount of wages, perhaps something like the first $30,000 or $40,000.
But here’s my top ten short list of clearly quick-hitting, cost effective, job creating gems that I think should be parts of the Debt Deal.
1) Upfront Refundable Investment Tax Credit Choice
For the remainder of 2011, and all of 2012, the US government should give smaller and medium-sized businesses, as well as larger businesses in a federal income tax loss position, a second choice on the capital expenditures, including computer software investments, they make.....they could either take 100% first year expensing in 2011, and 50% bonus depreciation in 2012, which they can do now, or they could instead get an equivalent upfront refundable investment tax credit.
There are several reasons the refundable investment tax credit option is a wise one to both be fair to all businesses, and also to best spike up US real GDP growth, and even more importantly, job creation. And it should result in very little, and perhaps even no, CBO-scored cost to the US Government over the next ten years.
First, many smaller businesses and most troubled businesses don’t have Cash available to buy this Equipment. And they also usually don’t have either a strong enough balance sheet, or robust enough future cash flow prospects, needed to secure financing on an Equipment purchase. And then in situations where they can get financing, the interest cost they pay will be much higher than what will be paid by a major corporation.
Second, assuming the smaller or troubled business can get financing to buy the Equipment, they won’t get the same economic tax break. Why not? Because from reviewing thousands of financial statements and footnotes in SEC filings of both smaller and troubled companies, there are so many of them that are in a significant federal income tax loss situation, due mainly to the Great Recession. Thus, they will not be able to get the immediate 35% federal income tax benefit from 100% tax expensing of this Equipment investment in the first year, like nearly all very profitable major corporations will be able to do.
So how should this clear unfairness to smaller and to troubled businesses be fixed, and at very little or no CBO-scored cost to the US Government over the next ten years?
It’s really simple. Give all smaller and medium-sized businesses, as well as larger businesses in a federal income tax loss situation, the option of getting in the first year an upfront refundable investment tax credit for 35% of the cost of the Equipment purchased in the remainder of 2011. And then the tax basis of this Equipment drops to Zero, and thus no future tax depreciation deductions can be taken on this equipment.
And for Equipment purchased in 2012, give these same businesses an option of getting an upfront refundable investment tax credit for 17.5% of the cost of the equipment. And then the tax basis of this equipment drops by 50% of the cost of the equipment, and thus future tax depreciation deductions on this equipment are cut in half.
Such an approach directly focuses on improving the poor financial status of many of the smaller businesses and nearly all of the many larger troubled businesses out there. The jolt of job creation so desperately needed doesn’t come mainly from the huge, very profitable major corps getting 100% tax expensing in the first year. It comes from the smaller businesses, which we should be making sure get the same economic benefit from 100% expensing as major corps do. And it also comes from the many at least somewhat troubled companies, like many of the Rust Belt manufacturers in tax loss positions, needing an immediate cash jolt from this 35% investment tax credit to upgrade their equipment infrastructure in order to be more competitive, and thus they will be able to either avoid laying off more employees, or hopefully even adding to their workforces.
This upfront 35% investment tax credit for the remainder of 2011 equipment purchases, and upfront 17.5% investment tax credit for 2012 equipment purchases, also makes it much easier for smaller and troubled companies to get financing for the Equipment purchase.
Further, the upfront cash infusion from the refundable investment tax credit will spur small business start ups. With the Great Recession, and saddled with a high debt load from financing their college educations, and perhaps from even having underwater home mortgages, prospective entrepreneurs are devoid of the cash necessary to start up a new business.
2) Accelerated Building Tax Depreciation
Also, I think there should be something done that addresses the need for manufacturing and other building upgrades. And I have a way to do it with very little, and perhaps even no, CBO-scored cost over the next ten years.
Presently, real property tax deprecation is spread over many years, much longer than the ten-year CBO scoring period.
What I would consider doing is to allow businesses of all sizes that make building improvements in the remainder of 2011, or in all of 2012, to get first-year tax expensing of the entire first 10 years of tax depreciation allowed presently under the tax rules. The tax basis of the property gets reduced for the first-year tax depreciation taken. Thus, they wouldn't be allowed any tax depreciation deductions on this building improvement in the following 9 years. And then, all tax depreciation taken after the first 10 years under present tax law, would be dramatically accelerated in some fashion, such as by cutting the remaining tax life in half, and thus doubling the annual tax depreciation starting in Year 11.
This highly incentivized scheme doesn’t change total real property tax depreciation, it just accelerates it dramatically from Years 2 through 10 to Year 1. And it also accelerates it starting in Year 11. Because you are just moving total tax depreciation around among years, there shouldn’t be any long-term CBO scoring cost to the US government for this initiative.
And then to really help small and medium-sized businesses, as well as larger business in a federal income tax loss situation, particularly those in the Rust Belt, I would also let them choose a first-year tax equivalent refundable 35% investment tax credit, in lieu of the first-year real property tax depreciation resulting from this initiative. And if a company chooses this 35% investment tax credit option, it would not be allowed any tax depreciation deduction in the first 10 years, and after reducing the tax basis of the real property, it would start tax depreciation in the 11th Year, on a very accelerated basis.
It wouldn’t just be the Rust Belt really helped by this initiative. All businesses throughout the country should be allowed to take advantage of it. And businesses in all industries should get this very front-loaded accelerated tax depreciation initiative on building remodelings.
I’d even consider allowing the same real property highly accelerated tax depreciation scheme for all new Manufacturing Buildings and perhaps even all new Buildings in all industries. Again, there shouldn’t be any CBO-scored cost over the 10 year CBO scoring period, because you are just moving tax depreciation deductions around among years, with total tax depreciation not changing.
I can think of no tax incentive that would do a better job of quickly re-energizing the troubled US manufacturing industry, and troubled commercial properties all throughout the country, than this real property massively accelerated tax depreciation scheme, particularly in combination with President Obama’s wise first-year 100% tax expensing in 2011, and 50% bonus depreciation in 2012, of equipment and computer software initiative, and particularly if both the real property and tangible personal property have first-year tax equivalent refundable investment tax credit options to help troubled companies in federal income tax loss positions and also to help many smaller and medium-sized businesses.
3) Energy Tax Credit for Commercial Building Green Retrofit Investments
For all commercial building green retrofit investments, as defined by the US Dept of Energy, made by businesses in the remainder of 2011, an upfront energy tax credit of 15% of the cost of these green investments would apply, and for similar green investments made in 2012, the energy tax credit would be 10%.
There would be no CBO scored cost to the US Government for large multinational corps making these green retrofit investments here, because I would require them to pay for it with a like amount of foreign earnings dividend repatriation tax, computed perhaps at a somewhat discounted federal income tax rate.
As one option to pay for these green building retrofit investments by other than large multinational corps, I would consider letting the US Infrastructure Bank supply the financing, at a somewhat favorable interest rate. The total interest received by the US Infrastructure Bank should far exceed the total bad debts here. And this excess cash inflow by the US Infrastructure Bank should be able to easily exceed the US Government Energy Tax Credit outflow.
As a second option to pay for the energy tax credit from these job creating green investments by these businesses other than large multinational corps, I would consider requiring these businesses to refund to the US Government over each of the next 10 years as energy cost saving rebates the total upfront Energy Tax Credit divided by 10.
In addition to the spark of job creation resulting from this initiative, US energy independence is also significantly enhanced.
4) Non-Profit Hospital Building Green Retrofit Investments
All building green retrofit investments, as defined by the US Dept of Energy, made by any Non-Profit Hospital in the remainder of 2011, would result in an upfront US government subsidy to the Hospital of 20% of the cost of these investments; and for similar green investments made in 2012, this US government subsidy would be 15% of the cost of these green investments made by these Non-Profit Hospitals.
This upfront US government subsidy will increase the Income of these Non-Profit Hospitals. In addition, these Non-Profit Hospitals will also increase their Operating Income for many years from the continuing lower energy costs resulting from making these green investments.
My recommendation to pay for the US Government subsidies to Non-Profit Hospitals making these job creating green investments is by having these Hospitals refunding to the US Government over each of the next 10 years as energy cost saving rebates the total upfront US government subsidy divided by 10.
The Energy Tax Credit proposed here for Non-Profit Hospital green investments is higher than that related to Commercial Businesses in #3 above. This is because Non-Profit Hospitals making green investments wouldn't also be receiving any economic tax benefits for accelerated tax depreciation in #2 above, whereas Commercial Businesses making green investments would.
In addition to the spark of job creation resulting from this initiative, US energy independence is also significantly enhanced.
5) Upfront Refundable Tax Benefits for Research Expenditures
Many business start-ups aren't able to receive the tax benefits from their research and experimental costs in the first year, or even in the first several years, because they are operating at a taxable loss in the initial years of their businesses.
The tax benefits here relate to both the federal income tax deduction for research and experimental costs incurred as well as the tax credit related to the increased research expenditures.
A significant part of these research expenditures relate to the hiring of new employees, who perform the necessary research to grow the innovative business.
This lack of upfront cash inflow is a clear obstacle to start up or to expand an innovative business, where substantial upfront research expenditures are necessary, but the economic benefit to the business can be way down the road.
Thus, my proposal to make US businesses more competitive, and at the same time to increase job hiring, is to permit small and medium-sized businesses to get an upfront refundable federal tax benefit for both the tax deduction of their research costs incurred and also the tax credit for their incremental research expenditures incurred, in either the remainder of 2011, or in all of 2012.
The upfront cash infusion from these refundable research tax benefits will spur innovative small business start ups. With the Great Recession, and saddled with a high debt load from financing their college educations, and perhaps from even having underwater home mortgages, prospective entrepreneurs are devoid of the cash necessary to start up a new innovative business.
There is another key initiative that would add juice to the job creation coming from this Research Tax Incentive. Since 40% of the graduate students in the country’s very best research universities are foreign students, then the last thing we should be doing is kicking these foreign students out of the country after they get their graduate degrees. They are needed here to grow the US economy. They are prime job creators.
There will be no long-term CBO cost to the US Government for a clear majority of these upfront research tax benefits granted by the US government. These businesses are getting the same research tax deductions and research tax credits in the long run, it's just that under this proposal, they are just being accelerated to spur business start-ups, immediate job creation and innovation.
6) US Infrastructure Investments 100% Funded by Foreign Earnings Repatriation Tax
For the remainder of 2011 and all of 2012, all US Multinational Corps would be allowed to repatriate their foreign earnings up to a total maximum of $10 billion for each company.
This foreign earnings repatriation would have a somewhat discounted US federal income tax rate on it. The largest US Multinational Corps repatriating some of their foreign earnings would have a much lower discount from the 35% US federal Income tax rate than would the other US Multinational Corps.
The entire amount of the US federal income tax from these foreign earnings repatriated would be transferred to a US Infrastructure Bank. All of these funds would be used for wisely, objectively, and quickly selected US Infrastructure Projects.
There would be no CBO scored cost to the US Government from this initiative.
7) Tax Incentive for Writing Down Underwater Home Mortgages
The US housing crash has been devastating. Frankly, I think the related government financial rescue plans for this extremely complex issue have not been very effective, and also very costly.
This proposal addresses financial relief for the housing crisis broadly, and I think is an effective initiative in starting to get to the core of solving this devastating multi-faceted problem, which negatively impacts so many people, and which is intertwined with the very troubled jobless recovery picture, with both sky-high unemployment and underemployment, and with very little hope of much improvement on the horizon for quite a while.
Under US generally accepted accounting principles, financial institutions must properly reflect in their audited financial statements, the economic amount of the Loan Losses on their home mortgage loans that they hold.
With all of the underwater first and second home mortgages that exist, the amounts of these Loan Losses is clearly gargantuan.
The problem is that even though they have booked these economic Loan Losses, these financial institutions have refused, for the most part, to write down the principal balance of these underwater mortgages.
To highly incentivize these financial institutions to write down underwater home mortgages, for the remainder of 2011, and all of 2012, my proposal would allow financial institutions a substantial Accelerated Bonus Loan Loss Provision federal income tax deduction for some multiple of the amount of principal underwater mortgages they write down, not to exceed the write down to below the value of the home.
The amount of this Accelerated Bonus Loan Loss Provision is clearly open to debate. I just think the focus must be on solving the horrible housing crisis as quickly as possible, which is weighing so very heavily on consumer spending, on consumer confidence, and even more importantly, on both unemployment and underemployment.
Thus, I would consider allowing smaller financial institutions a Triple Accelerated Bonus Loan Loss Provision federal income tax deduction, and larger financial institutions a Double Accelerated Bonus Loan Loss Provision federal income tax deduction for all underwater mortgage write downs in the remainder of 2011.
For write downs in 2012, I would consider allowing smaller financial institutions a Double Accelerated Bonus Loan Loss Provision federal income tax deduction, and larger financial institutions a Single Accelerated Bonus Loan Loss Provision federal income tax deduction.
And for any smaller financial institution in a federal income tax loss situation, I would make the tax effect of these Accelerated Bonus Loan Loss Provision federal income tax deductions refundable.
Under my proposal, because of the magnitude of these front-end tax deductions, there are clear economic incentives here for financial institutions to write down underwater mortgages. So, given how huge these tax deductions would be, wouldn’t this just put a severe strain on the US Debt?
Well, I have a fair way to do it at no CBO scored cost to the US Government over the next 10 years.
For 2011 write downs of underwater mortgages, my proposal would also require this Accelerated Bonus Loan Loss Provision federal tax deduction to turn around and increase taxable income by 25% of the amount of the Accelerated Bonus Loan Loss Provision tax deduction to the financial institution in each of the years 7 through 10.
For 2012 write downs of underwater mortgages, my proposal would also require this Accelerated Bonus Loan Loss Provision federal tax deduction to turn around and increase taxable income by 25% of the amount of the Accelerated Bonus Loan Loss Provision tax deduction to the financial institution in each of the years 6 through 9.
Let me illustrate.
Say, a home is now worth $200,000. And there is a first mortgage at Financial Institution (FI) #1 of $240,000, and a second mortgage at Financial Institution (FI) #2 at $30,000. Assume that FI #1 is a small financial institution and FI #2 is a large financial institution.
In 2011, assume FI #2 elects to write off the entire principal balance of $30,000, and FI #1 elects to write down $40,000 of the mortgage.
In 2011, FI #2 would get a Double Accelerated Bonus Loan Loss Provision federal income tax deduction of 2 X $30,000, or $60,000. In each of years 2017, 2018, 2019, and 2020, FI #2 would increase its federal taxable income by 25% X $60,000, or by $15,000 per year.
Also, in 2011, FI #1 would get a Triple Accelerated Bonus Loan Loss Provision federal income tax deduction of 3 X $40,000, or $120,000. In each of years 2017, 2018, 2019, and 2020, FI #1 would increase its federal taxable income by 25% X $120,000, or by $30,000 per year.
When you think about it, there are all kinds of wise tax incentives that the country uses to stimulate the US economy....100% tax expensing of equipment, bonus tax depreciation, accelerated tax depreciation (both method and life), R&D tax credits, just to name four. Incentivizing write downs of underwater home mortgages by providing Accelerated Bonus Loan Loss Provision tax deductions is consistent with this, and frankly, given the horrible housing crisis, much more of a job creator than the first three.
I don't personally have an underwater home mortgage, but from a fairness standpoint, if the country can bail out big financial institutions, which played a major role in causing this horrible housing crisis, then I think it is only fair for the country to also provide wise, cost-effective tax incentives that can help at least some of these many unfortunate home owners, suffering desperately with underwater mortgages.
8) Innovative Productivity Enhancing Jobs Tax Credit (IPEJTC)
To immediately jump start the desperately needed US private sector job creation, I think there must be bold legislation that increases US business demand sufficiently for businesses to quickly create jobs. Also, there also must be certainty that this increased US business demand clearly and directly results in substantial private sector job creation. Further, this should be done optimally, so that it is paid for, as determined by very prudent CBO front-end scoring.
The best way to increase US business demand is to simply give US business customers lucrative investment tax incentives that directly do just this. Thus, the old investment tax credit is clearly the optimal way to create US business demand, when things are so bad on the job front.
The widespread Republican proposal of just reducing the top income tax rate on the “job creators”, both wealthy individuals and corporations, and expecting that to indirectly “trickle down”, is flat out crazy reasoning.
But I also think the widespread Democratic proposal to just continue to spend money on programs that are needed in the expectation that it will “trick up” and create jobs, is equally crazy reasoning.
Instead, I think the US Government should be designing wise tax incentives for US businesses to execute that clearly and directly create US jobs in the private sector.
Thus my proposal here is a Jobs Tax Credit and Investment Tax Credit combination, with the goal to both create good jobs and, at the same time, enhance business innovative productivity….thus the name Innovative Productivity Enhancing Jobs Tax Credit, or IPEJTC, for short.
Under my proposal, I would set the Jobs Tax Credit earned by the business for each job created at a low of $10,000, and at a high of $20,000.
The purpose for having this $10,000 Jobs Tax Credit per job minimum is to reward companies taking the opportunity to enhance their productivity by hiring and training new highly-motivated employees, and to do so without adding much in the way of capital expenditures.
Now let me focus on the much more complicated $20,000 maximum Jobs Tax Credit per job added.
First, the higher the new people added are paid, the higher the Jobs Tax Credit per employee added will be.
To encourage higher pay for the new hires, and also to discourage lower pay for new hires, I think this tax credit per job added cannot exceed 50% X the actual average annual base pay for new hires for the company earning this tax credit in the current period.
What this means is that if the average annual pay for new people hired this period is $45,000, then the $20,000 remains at the maximum, since 50% X $45,000, or $22,500, is higher than $20,000.
On the other hand, let’s say a company is hiring new employees on the cheap, with the average base pay of new hires being only $22,000 per year. In this case, the maximum Jobs Tax Credit gets reduced from $20,000 per new job added down to $11,000, or $22,000 X 50%.
So we now have the maximum and minimum range of Jobs Tax Credit per new job set.
So let me address the more complicated capital expenditure element, which turns this Jobs Tax Credit into an Innovative Productivity Enhancing Jobs Tax Credit (IPEJTC).
I think this Innovative Productivity Enhancing Jobs Tax Credit should be healthy enough to accomplish the US business demand goal, and also to accomplish it as quickly as possible.
Thus, I would set the credit at 15% of new US eligible property purchased from now until the end of 2011, and then reduce it down some to 10% for all of calendar 2012 eligible property purchases.
For maximum effect, this Innovative Productivity Enhancing Tax Credit should apply to all (yes, that’s by both large and small businesses) new property placed in service in the US that is depreciable under MACRS, and that has a Recovery Period of seven years or less (i.e. all Three-Year Property, Five-Year Property, and Seven-Year Property). When you check out the Tax Code, you'll see that.....wow, these three MACRS property categories are pretty all encompassing.
In addition, all new building costs and building remodeling costs should be eligible. Also, any external computer software costs, any external computer software development costs, and any external web site development costs, should also all be eligible.
By combining together a Jobs Tax Credit and an Investment Tax Credit, this proposal substantially increases demand for US manufacturing and other businesses by providing very healthy tax incentives to US business customers to purchase innovative equipment and other property, along with providing an intertwined tax incentive for this business customer to also hire new employees.
And the merger of this property acquired with the key new employee element puts the company in a much better position to enhance its overall productivity, and to have its products and services better compete globally in the world economy.
Although this proposal focuses principally on enhancing the US manufacturing sector, all US businesses can benefit from the Innovative Productivity Enhancing Jobs Tax Credit, and thus can also benefit from it by having their productivity enhanced.
Let me illustrate the computation of the IPEJTC for a business.
Let’s assume that a company places in service, from now until the end of 2011, total eligible property of $6 mil. The tentative tax credit for 2011, before testing for payroll count increases, is 15% X $6 mil, or $0.9 mil.
Thus, going back to my earlier discussion on the Jobs Tax Credit per job added range, let’s assume that there is an increase in US full-time jobs for this company for the remainder of 2011 of 50, and that the average annual base pay of all new hires for this company for the remainder of 2011 is $45,000.
The maximum Jobs Tax Credit per new job added would be $20,000, since this $20,000 is lower than $22,500 (50% X $45,000). And the total maximum Jobs Tax Credit for 2011 would be $1.0 mil, or $20,000 X 50 employees added.
The minimum Jobs Tax Credit per new job is $10,000. And the total minimum Jobs Tax Credit for 2011 would be $0.5 mil, or $10,000 X 50 employees added.
Since the tentative Tax Credit based on capital expenditures added in the rest of 2011 is $0.9 mil, and it is also within the above $0.5 mil and $1.0 mil Jobs Tax Credit range, the final Innovative Productivity Enhancing Jobs Tax Credit earned for 2011 is $0.9 mil.
If instead, there were $20 mil of capital expenditures made in the remainder of 2011, the tentative Tax Credit would be 15% X $20 mil, or $3 mil. Since this is above the maximum Jobs Tax Credit of $1.0 mil, the Innovative Productivity Enhancing Jobs Tax Credit earned for 2011 would be $1.0 mil.
And if there were only $2 mil of capital expenditures made in the remainder of 2011, the tentative Tax Credit would be $0.3 mil, or $2 mil X 15%. Since this is below the minimum Jobs Tax Credit of $0.5 mil, the final Innovative Productivity Enhancing Jobs Tax Credit earned for 2011 would be $0.5 mil.
The jobs added in 2011 would be simply the difference between the number of full-time employees when you start the tax incentive and the number of full-time employees at the end of the year, exclusive of those added from acquisitions.
The jobs added in 2012 would be simply the difference between the number of full-time employees from the beginning of the year and the end of the year, exclusive of those added from acquisitions.
This Tax Credit earned should be computed on a total US company operations basis. Thus, separate US companies controlled by the same US company should be combined.
For maximum effect, I would make this Tax Credit immediately refundable. Also, I wouldn’t reduce the tax basis of the property for the Tax Credit earned.
To make these jobs created remain for a reasonably long period of time, I would also include a tax recapture of this Tax Credit if the increase in full-time jobs of this business doesn’t last for say four years. And I would have a 100% tax recapture for reductions in full-time payroll counts in the first two years, and a proportional time, pro-rata tax recapture for reductions in full-time payroll counts in years three and four. There would be no tax recaptured after four years.
It should be fairly simple to implement this tax credit program quickly. Its simplicity is enhanced by the ease in applying the payroll count requirements. Say it kicks in starting Aug 1, 2011. All you have to do is to count a company's overall combined US full-time payroll on that date and compare it with a similar count on Dec 31, 2011. The employee count change here is the relevant one used to compute the combined company tax credit earned for 2011.
And the same overall employee count change approach would be used to compute the combined company tax credit earned in 2012.
And for subsequent tax credit recapture computations, a company follows a similar overall combined company payroll count process. And if you thought it necessary to put in better controls, these counts could be made quarterly, or even monthly.
What makes this Innovative Productivity Enhancing Jobs Tax Credit particularly stimulating to US businesses is that the business adding employees will get not just an economic benefit, but also a highly desirable GAAP earnings increase, for this tax credit.
So it sounds like a great program. It clearly will create a lot of jobs. But how do we pay for it?
Well, I think that under any reasonable fair CBO score, it more than pays for itself. How could that possibly be?
Well, for the handful of very large global US companies with Total Unremitted Foreign Earnings of $10 bil or more, I would let them earn the above computed Innovative Productivity Enhancing Jobs Tax Credits only if it is also 100% paid for by a like amount of additional US federal income tax triggered by their foreign earnings repatriated to the US in the same period. I would consider granting these large global US companies an incentivized dividend received deduction of perhaps 20% to 30% on these foreign earnings repatriated used only to 100% fund their Innovative Productivity Enhancing Jobs Tax Credits.
For the many other smaller global US companies, I would give them a choice….they could either earn the Innovative Productivity Enhanced Jobs Tax Credits like pure domestic companies do, or they could instead elect to have it to be 100% paid for by a like amount of additional US federal income tax triggered by their foreign earnings repatriated to the US in the same period. I would consider granting these smaller global US companies a bit higher incentivized dividend received deduction of perhaps 40% or 50% on their foreign earnings repatriated used only to 100% fund their Innovative Productivity Enhancing Jobs Tax Credits.
In a fair CBO scoring, the above proposal should more than fund itself whenever it is enacted in a horrible job environment like the present one, where there is so very little private sector job increases, and where there are also expected to be so few private sector job increases over the next couple of years.
Under this Innovative Productivity Enhancing Jobs Tax Credit proposal, the bulk of the upfront tax credits granted by the US government will directly trigger substantial future incremental payroll tax receipts (both individual and company matched…15.3% of the higher gross payroll in total) and also substantial future incremental individual income tax receipts (probably average about 10% to 15% of the higher gross payroll) from the resultant payroll count increases.
The salient point here is that a company can't earn the tax credit unless it also increases its US full-time payroll count. Thus if the CBO counts the tax credit as a tax outflow, which it should, it also must count as a future cash inflow the higher incremental US federal government tax receipts that directly result from, and are inextricably linked to, the tax credit.
Because of the present very dismal private sector US job situation, there will be millions of new hires who previously wouldn’t be paying, or expected to be paying in the next couple of years, these federal taxes who now will be paying them due to this Innovative Productivity Enhancing Jobs Tax Credit proposal.
Thus, the CBO, in scoring this proposal, has to estimate the future amounts of these additional US federal tax receipts triggered by this proposal. Further, the CBO, in scoring this proposal, has to estimate the future amounts of US federal tax receipts due to the tax recapture aspect of this proposal.
Granted there will be some companies that will earn the tax credits even though they would have increased their number of full-time employees even without this proposal. However, there won’t be many of these, given the horrible private sector US job situation.
Further, under this proposal, all of the tax credits earned by the very large global US companies must be 100% funded by their additional US federal income tax related to their foreign earnings repatriated.
Also, under this proposal, the many smaller global US companies can elect to have some or all of their manufacturing tax credits 100% funded with the tax from their foreign earnings repatriated.
Thus, for all global companies funding their tax credits with the tax from their foreign earnings repatriated, there is no front end cost here to the US government at all.
And there is substantially positive CBO scoring here from the future incremental US federal government payroll tax receipts and US federal government income tax receipts, both caused by the US payroll count increases of these global US companies, as well as by all of the 100% domestic companies, triggered under this proposal.
In addition, there will be positive CBO scoring for the movement of the uninsured to insured status, since they will be added to full-time job status, many of them with a company-sponsored health care plan, due to this proposal. This positive scoring comes from the resultant reduction of the total US health care costs payable by the US Government, included in the Affordable Health Care legislation.
Also, there will be positive CBO scoring from the reduction in Unemployment Benefit payments made by the US Government, due to the reduction in the number of unemployed citizens, caused by this proposal.
Further, US states will significantly improve their financial coffers from this proposal.
First, they will be receiving additional corporate income taxes from the higher dividend income of the global US companies repatriating their earnings.
Second, they will be receiving higher individual income taxes from the new hires.
Third, they could elect to include this Innovative Productivity Enhancing Tax Credit as additional corporate taxable income, which triggers additional corporate income tax receipts.
And fourth, their Medicaid costs will drop due to the movement of the uninsured to insured status, resulting from their new full-time employee status.
When I rough out the numbers, given the horrible jobless recovery we now face, and which we will continue to face for at least the next couple of years, I get substantially positive CBO scoring from this proposal.
Thus, I would use some of this excess funding to also make a heavy dose of infrastructure investments, with primarily a green emphasis.
And the rest of the excess funding provided by this proposal here should be used to provide a good chunk of the $1 trillion of revenues needed to fund the $4 trillion Debt Ceiling Deal that President Obama would like to reach.
9) 100% Tax Expensing of Equipment in 2012
I would up the first-year 50% bonus tax depreciation for all 2012 equipment purchases to first-year 100% tax expensing, which substantially increases Big Corp profits in 2012, and thus also increases stock prices. And if you wanted to also include some payroll count increase requirements to earn the first-year 100% tax expensing for the really Big Corps, along with related subsequent tax recapture provisions (I would), that would also spur substantial long-term job creation, which also would feed into Big Corp profit increases in 2013 and beyond, with the resultant additional increases in stock prices, down the road.
10) Marketing, Selling and Advertising Investment Bump
Clearly, the major problem with the US economy is insufficient business demand. Something is needed to really give it a jolt.
To stimulate the dormant US business demand, my proposal here is to give a refundable tax credit on Marketing, Selling and Advertising costs of US businesses of all sizes incurred from now until Dec 31, 2012. I would make the percentage credit a bit higher for the rest of 2011 than for 2012.
So where's the Big Corp Tax Loophole closing, and related funding?
Well, it’s potentially substantial.
I would give say a 5% tax credit for the Marketing, Selling and Advertising costs in the remainder of the current year, and say a 2.5% tax credit in 2012, but then more than pay for it many times over, for the next ten-year CBO scoring period, by extending the life that all future Marketing/Selling/Advertising costs of Big US Corps are to be deducted over to say one year, 18 months or even two years.
I wouldn't start extending the life until after the country is completely out of this horrible structural recession...thus start scaling it in after say three years.
The positive CBO scoring on this should be off the charts.
And all businesses would get a very nice bump up of their reported GAAP earnings from just this, since the tax credit increases reported GAAP earnings, but the life extension is treated as a temporary tax difference.
And from a fairness standpoint, many Marketing, Selling and Advertising costs incurred are in essence Investments, benefiting businesses for many, many years.
The really cool part about the tax credit on Marketing, Selling and Advertising costs is that there are an infinite number of ways to very easily fine tune them to get the desired result.
For instance, if you wanted to reduce its CBO cost, you could just allow a tax credit on Marketing, Selling and Advertising Costs over and above some base period amounts, like the way the R&D tax credit works, and then you would also have the flexibility to significantly increase the percentage tax credit.
Also, if you wanted to increase the CBO favorable scoring, choosing a two-year life for amortizing these costs for federal income tax purposes would give you a monumentally more favorable CBO scoring than choosing a one-year life.
Another way to reduce the CBO cost here is to allow, or perhaps even require, US Multinational Corps to use their foreign earnings repatriation tax, with a related somewhat incentivized favorable dividend received deduction percentage, to 100% fund the same amount of tax credit for their Marketing, Selling and Advertising costs incurred.
And in a wise highly-incentivized twist, I would also consider allowing Big US Multinational Corps to fund the tax owed from extending their tax lifes for their Advertising, Marketing and Selling Costs with a like amount of tax owed from repatriating some of their foreign earnings at a somewhat discounted US federal income tax rate.
This Marketing, Selling, and Advertising Tax Credit would work especially well when it is combined with something like a 100% expensing of equipment, and even also with a Jobs Tax Credit and Investment Tax Credit combination. This Marketing, Selling, and Advertising Tax Credit would make those other tax incentives explosively effective.
Going $4 trillion over 10 years is indeed a very good start. I think it would be even better to go for $4.5 trillion to $5 trillion over 10 years.
But even more important is the longer term US debt reduction. I would focus like a laser on getting a total of $15 to $17.5 trillion over the next 20 years. It is not that difficult to get there wisely. And it should be done in a fair, balanced manner, something like $3 of wise cost cuts for every $1 of higher tax revenues, which would predominantly come from the closing of tax loopholes.
But since the latter part of 2007, the major cause of the US debt expansion has been due to the lack of jobs. Thus, a key integral part of the debt deal should be in turning the horrible job situation around, and as quickly as possible.
Thus, I think there should be bold, more targeted job creation in this Debt Deal.
I like including an extension of Unemployment Benefits as part of the Debt Deal. These unfortunate people did nothing to cause the 2000s Lost Decade.
On the other hand, I don’t think the extension of the politically-popular payroll tax holiday passes the cost-benefit test. It’s very expensive. And why increase the US debt further by rewarding people who already have a job. Further, it’s "trickle up", and has the same intellectual flaws as a job creator as "trickle down" does.
If the payroll tax holiday is extended, then, from a fairness standpoint, I would try to focus it on the Underemployed, and thus I would give it on only up to a certain amount of wages, perhaps something like the first $30,000 or $40,000.
But here’s my top ten short list of clearly quick-hitting, cost effective, job creating gems that I think should be parts of the Debt Deal.
1) Upfront Refundable Investment Tax Credit Choice
For the remainder of 2011, and all of 2012, the US government should give smaller and medium-sized businesses, as well as larger businesses in a federal income tax loss position, a second choice on the capital expenditures, including computer software investments, they make.....they could either take 100% first year expensing in 2011, and 50% bonus depreciation in 2012, which they can do now, or they could instead get an equivalent upfront refundable investment tax credit.
There are several reasons the refundable investment tax credit option is a wise one to both be fair to all businesses, and also to best spike up US real GDP growth, and even more importantly, job creation. And it should result in very little, and perhaps even no, CBO-scored cost to the US Government over the next ten years.
First, many smaller businesses and most troubled businesses don’t have Cash available to buy this Equipment. And they also usually don’t have either a strong enough balance sheet, or robust enough future cash flow prospects, needed to secure financing on an Equipment purchase. And then in situations where they can get financing, the interest cost they pay will be much higher than what will be paid by a major corporation.
Second, assuming the smaller or troubled business can get financing to buy the Equipment, they won’t get the same economic tax break. Why not? Because from reviewing thousands of financial statements and footnotes in SEC filings of both smaller and troubled companies, there are so many of them that are in a significant federal income tax loss situation, due mainly to the Great Recession. Thus, they will not be able to get the immediate 35% federal income tax benefit from 100% tax expensing of this Equipment investment in the first year, like nearly all very profitable major corporations will be able to do.
So how should this clear unfairness to smaller and to troubled businesses be fixed, and at very little or no CBO-scored cost to the US Government over the next ten years?
It’s really simple. Give all smaller and medium-sized businesses, as well as larger businesses in a federal income tax loss situation, the option of getting in the first year an upfront refundable investment tax credit for 35% of the cost of the Equipment purchased in the remainder of 2011. And then the tax basis of this Equipment drops to Zero, and thus no future tax depreciation deductions can be taken on this equipment.
And for Equipment purchased in 2012, give these same businesses an option of getting an upfront refundable investment tax credit for 17.5% of the cost of the equipment. And then the tax basis of this equipment drops by 50% of the cost of the equipment, and thus future tax depreciation deductions on this equipment are cut in half.
Such an approach directly focuses on improving the poor financial status of many of the smaller businesses and nearly all of the many larger troubled businesses out there. The jolt of job creation so desperately needed doesn’t come mainly from the huge, very profitable major corps getting 100% tax expensing in the first year. It comes from the smaller businesses, which we should be making sure get the same economic benefit from 100% expensing as major corps do. And it also comes from the many at least somewhat troubled companies, like many of the Rust Belt manufacturers in tax loss positions, needing an immediate cash jolt from this 35% investment tax credit to upgrade their equipment infrastructure in order to be more competitive, and thus they will be able to either avoid laying off more employees, or hopefully even adding to their workforces.
This upfront 35% investment tax credit for the remainder of 2011 equipment purchases, and upfront 17.5% investment tax credit for 2012 equipment purchases, also makes it much easier for smaller and troubled companies to get financing for the Equipment purchase.
Further, the upfront cash infusion from the refundable investment tax credit will spur small business start ups. With the Great Recession, and saddled with a high debt load from financing their college educations, and perhaps from even having underwater home mortgages, prospective entrepreneurs are devoid of the cash necessary to start up a new business.
2) Accelerated Building Tax Depreciation
Also, I think there should be something done that addresses the need for manufacturing and other building upgrades. And I have a way to do it with very little, and perhaps even no, CBO-scored cost over the next ten years.
Presently, real property tax deprecation is spread over many years, much longer than the ten-year CBO scoring period.
What I would consider doing is to allow businesses of all sizes that make building improvements in the remainder of 2011, or in all of 2012, to get first-year tax expensing of the entire first 10 years of tax depreciation allowed presently under the tax rules. The tax basis of the property gets reduced for the first-year tax depreciation taken. Thus, they wouldn't be allowed any tax depreciation deductions on this building improvement in the following 9 years. And then, all tax depreciation taken after the first 10 years under present tax law, would be dramatically accelerated in some fashion, such as by cutting the remaining tax life in half, and thus doubling the annual tax depreciation starting in Year 11.
This highly incentivized scheme doesn’t change total real property tax depreciation, it just accelerates it dramatically from Years 2 through 10 to Year 1. And it also accelerates it starting in Year 11. Because you are just moving total tax depreciation around among years, there shouldn’t be any long-term CBO scoring cost to the US government for this initiative.
And then to really help small and medium-sized businesses, as well as larger business in a federal income tax loss situation, particularly those in the Rust Belt, I would also let them choose a first-year tax equivalent refundable 35% investment tax credit, in lieu of the first-year real property tax depreciation resulting from this initiative. And if a company chooses this 35% investment tax credit option, it would not be allowed any tax depreciation deduction in the first 10 years, and after reducing the tax basis of the real property, it would start tax depreciation in the 11th Year, on a very accelerated basis.
It wouldn’t just be the Rust Belt really helped by this initiative. All businesses throughout the country should be allowed to take advantage of it. And businesses in all industries should get this very front-loaded accelerated tax depreciation initiative on building remodelings.
I’d even consider allowing the same real property highly accelerated tax depreciation scheme for all new Manufacturing Buildings and perhaps even all new Buildings in all industries. Again, there shouldn’t be any CBO-scored cost over the 10 year CBO scoring period, because you are just moving tax depreciation deductions around among years, with total tax depreciation not changing.
I can think of no tax incentive that would do a better job of quickly re-energizing the troubled US manufacturing industry, and troubled commercial properties all throughout the country, than this real property massively accelerated tax depreciation scheme, particularly in combination with President Obama’s wise first-year 100% tax expensing in 2011, and 50% bonus depreciation in 2012, of equipment and computer software initiative, and particularly if both the real property and tangible personal property have first-year tax equivalent refundable investment tax credit options to help troubled companies in federal income tax loss positions and also to help many smaller and medium-sized businesses.
3) Energy Tax Credit for Commercial Building Green Retrofit Investments
For all commercial building green retrofit investments, as defined by the US Dept of Energy, made by businesses in the remainder of 2011, an upfront energy tax credit of 15% of the cost of these green investments would apply, and for similar green investments made in 2012, the energy tax credit would be 10%.
There would be no CBO scored cost to the US Government for large multinational corps making these green retrofit investments here, because I would require them to pay for it with a like amount of foreign earnings dividend repatriation tax, computed perhaps at a somewhat discounted federal income tax rate.
As one option to pay for these green building retrofit investments by other than large multinational corps, I would consider letting the US Infrastructure Bank supply the financing, at a somewhat favorable interest rate. The total interest received by the US Infrastructure Bank should far exceed the total bad debts here. And this excess cash inflow by the US Infrastructure Bank should be able to easily exceed the US Government Energy Tax Credit outflow.
As a second option to pay for the energy tax credit from these job creating green investments by these businesses other than large multinational corps, I would consider requiring these businesses to refund to the US Government over each of the next 10 years as energy cost saving rebates the total upfront Energy Tax Credit divided by 10.
In addition to the spark of job creation resulting from this initiative, US energy independence is also significantly enhanced.
4) Non-Profit Hospital Building Green Retrofit Investments
All building green retrofit investments, as defined by the US Dept of Energy, made by any Non-Profit Hospital in the remainder of 2011, would result in an upfront US government subsidy to the Hospital of 20% of the cost of these investments; and for similar green investments made in 2012, this US government subsidy would be 15% of the cost of these green investments made by these Non-Profit Hospitals.
This upfront US government subsidy will increase the Income of these Non-Profit Hospitals. In addition, these Non-Profit Hospitals will also increase their Operating Income for many years from the continuing lower energy costs resulting from making these green investments.
My recommendation to pay for the US Government subsidies to Non-Profit Hospitals making these job creating green investments is by having these Hospitals refunding to the US Government over each of the next 10 years as energy cost saving rebates the total upfront US government subsidy divided by 10.
The Energy Tax Credit proposed here for Non-Profit Hospital green investments is higher than that related to Commercial Businesses in #3 above. This is because Non-Profit Hospitals making green investments wouldn't also be receiving any economic tax benefits for accelerated tax depreciation in #2 above, whereas Commercial Businesses making green investments would.
In addition to the spark of job creation resulting from this initiative, US energy independence is also significantly enhanced.
5) Upfront Refundable Tax Benefits for Research Expenditures
Many business start-ups aren't able to receive the tax benefits from their research and experimental costs in the first year, or even in the first several years, because they are operating at a taxable loss in the initial years of their businesses.
The tax benefits here relate to both the federal income tax deduction for research and experimental costs incurred as well as the tax credit related to the increased research expenditures.
A significant part of these research expenditures relate to the hiring of new employees, who perform the necessary research to grow the innovative business.
This lack of upfront cash inflow is a clear obstacle to start up or to expand an innovative business, where substantial upfront research expenditures are necessary, but the economic benefit to the business can be way down the road.
Thus, my proposal to make US businesses more competitive, and at the same time to increase job hiring, is to permit small and medium-sized businesses to get an upfront refundable federal tax benefit for both the tax deduction of their research costs incurred and also the tax credit for their incremental research expenditures incurred, in either the remainder of 2011, or in all of 2012.
The upfront cash infusion from these refundable research tax benefits will spur innovative small business start ups. With the Great Recession, and saddled with a high debt load from financing their college educations, and perhaps from even having underwater home mortgages, prospective entrepreneurs are devoid of the cash necessary to start up a new innovative business.
There is another key initiative that would add juice to the job creation coming from this Research Tax Incentive. Since 40% of the graduate students in the country’s very best research universities are foreign students, then the last thing we should be doing is kicking these foreign students out of the country after they get their graduate degrees. They are needed here to grow the US economy. They are prime job creators.
There will be no long-term CBO cost to the US Government for a clear majority of these upfront research tax benefits granted by the US government. These businesses are getting the same research tax deductions and research tax credits in the long run, it's just that under this proposal, they are just being accelerated to spur business start-ups, immediate job creation and innovation.
6) US Infrastructure Investments 100% Funded by Foreign Earnings Repatriation Tax
For the remainder of 2011 and all of 2012, all US Multinational Corps would be allowed to repatriate their foreign earnings up to a total maximum of $10 billion for each company.
This foreign earnings repatriation would have a somewhat discounted US federal income tax rate on it. The largest US Multinational Corps repatriating some of their foreign earnings would have a much lower discount from the 35% US federal Income tax rate than would the other US Multinational Corps.
The entire amount of the US federal income tax from these foreign earnings repatriated would be transferred to a US Infrastructure Bank. All of these funds would be used for wisely, objectively, and quickly selected US Infrastructure Projects.
There would be no CBO scored cost to the US Government from this initiative.
7) Tax Incentive for Writing Down Underwater Home Mortgages
The US housing crash has been devastating. Frankly, I think the related government financial rescue plans for this extremely complex issue have not been very effective, and also very costly.
This proposal addresses financial relief for the housing crisis broadly, and I think is an effective initiative in starting to get to the core of solving this devastating multi-faceted problem, which negatively impacts so many people, and which is intertwined with the very troubled jobless recovery picture, with both sky-high unemployment and underemployment, and with very little hope of much improvement on the horizon for quite a while.
Under US generally accepted accounting principles, financial institutions must properly reflect in their audited financial statements, the economic amount of the Loan Losses on their home mortgage loans that they hold.
With all of the underwater first and second home mortgages that exist, the amounts of these Loan Losses is clearly gargantuan.
The problem is that even though they have booked these economic Loan Losses, these financial institutions have refused, for the most part, to write down the principal balance of these underwater mortgages.
To highly incentivize these financial institutions to write down underwater home mortgages, for the remainder of 2011, and all of 2012, my proposal would allow financial institutions a substantial Accelerated Bonus Loan Loss Provision federal income tax deduction for some multiple of the amount of principal underwater mortgages they write down, not to exceed the write down to below the value of the home.
The amount of this Accelerated Bonus Loan Loss Provision is clearly open to debate. I just think the focus must be on solving the horrible housing crisis as quickly as possible, which is weighing so very heavily on consumer spending, on consumer confidence, and even more importantly, on both unemployment and underemployment.
Thus, I would consider allowing smaller financial institutions a Triple Accelerated Bonus Loan Loss Provision federal income tax deduction, and larger financial institutions a Double Accelerated Bonus Loan Loss Provision federal income tax deduction for all underwater mortgage write downs in the remainder of 2011.
For write downs in 2012, I would consider allowing smaller financial institutions a Double Accelerated Bonus Loan Loss Provision federal income tax deduction, and larger financial institutions a Single Accelerated Bonus Loan Loss Provision federal income tax deduction.
And for any smaller financial institution in a federal income tax loss situation, I would make the tax effect of these Accelerated Bonus Loan Loss Provision federal income tax deductions refundable.
Under my proposal, because of the magnitude of these front-end tax deductions, there are clear economic incentives here for financial institutions to write down underwater mortgages. So, given how huge these tax deductions would be, wouldn’t this just put a severe strain on the US Debt?
Well, I have a fair way to do it at no CBO scored cost to the US Government over the next 10 years.
For 2011 write downs of underwater mortgages, my proposal would also require this Accelerated Bonus Loan Loss Provision federal tax deduction to turn around and increase taxable income by 25% of the amount of the Accelerated Bonus Loan Loss Provision tax deduction to the financial institution in each of the years 7 through 10.
For 2012 write downs of underwater mortgages, my proposal would also require this Accelerated Bonus Loan Loss Provision federal tax deduction to turn around and increase taxable income by 25% of the amount of the Accelerated Bonus Loan Loss Provision tax deduction to the financial institution in each of the years 6 through 9.
Let me illustrate.
Say, a home is now worth $200,000. And there is a first mortgage at Financial Institution (FI) #1 of $240,000, and a second mortgage at Financial Institution (FI) #2 at $30,000. Assume that FI #1 is a small financial institution and FI #2 is a large financial institution.
In 2011, assume FI #2 elects to write off the entire principal balance of $30,000, and FI #1 elects to write down $40,000 of the mortgage.
In 2011, FI #2 would get a Double Accelerated Bonus Loan Loss Provision federal income tax deduction of 2 X $30,000, or $60,000. In each of years 2017, 2018, 2019, and 2020, FI #2 would increase its federal taxable income by 25% X $60,000, or by $15,000 per year.
Also, in 2011, FI #1 would get a Triple Accelerated Bonus Loan Loss Provision federal income tax deduction of 3 X $40,000, or $120,000. In each of years 2017, 2018, 2019, and 2020, FI #1 would increase its federal taxable income by 25% X $120,000, or by $30,000 per year.
When you think about it, there are all kinds of wise tax incentives that the country uses to stimulate the US economy....100% tax expensing of equipment, bonus tax depreciation, accelerated tax depreciation (both method and life), R&D tax credits, just to name four. Incentivizing write downs of underwater home mortgages by providing Accelerated Bonus Loan Loss Provision tax deductions is consistent with this, and frankly, given the horrible housing crisis, much more of a job creator than the first three.
I don't personally have an underwater home mortgage, but from a fairness standpoint, if the country can bail out big financial institutions, which played a major role in causing this horrible housing crisis, then I think it is only fair for the country to also provide wise, cost-effective tax incentives that can help at least some of these many unfortunate home owners, suffering desperately with underwater mortgages.
8) Innovative Productivity Enhancing Jobs Tax Credit (IPEJTC)
To immediately jump start the desperately needed US private sector job creation, I think there must be bold legislation that increases US business demand sufficiently for businesses to quickly create jobs. Also, there also must be certainty that this increased US business demand clearly and directly results in substantial private sector job creation. Further, this should be done optimally, so that it is paid for, as determined by very prudent CBO front-end scoring.
The best way to increase US business demand is to simply give US business customers lucrative investment tax incentives that directly do just this. Thus, the old investment tax credit is clearly the optimal way to create US business demand, when things are so bad on the job front.
The widespread Republican proposal of just reducing the top income tax rate on the “job creators”, both wealthy individuals and corporations, and expecting that to indirectly “trickle down”, is flat out crazy reasoning.
But I also think the widespread Democratic proposal to just continue to spend money on programs that are needed in the expectation that it will “trick up” and create jobs, is equally crazy reasoning.
Instead, I think the US Government should be designing wise tax incentives for US businesses to execute that clearly and directly create US jobs in the private sector.
Thus my proposal here is a Jobs Tax Credit and Investment Tax Credit combination, with the goal to both create good jobs and, at the same time, enhance business innovative productivity….thus the name Innovative Productivity Enhancing Jobs Tax Credit, or IPEJTC, for short.
Under my proposal, I would set the Jobs Tax Credit earned by the business for each job created at a low of $10,000, and at a high of $20,000.
The purpose for having this $10,000 Jobs Tax Credit per job minimum is to reward companies taking the opportunity to enhance their productivity by hiring and training new highly-motivated employees, and to do so without adding much in the way of capital expenditures.
Now let me focus on the much more complicated $20,000 maximum Jobs Tax Credit per job added.
First, the higher the new people added are paid, the higher the Jobs Tax Credit per employee added will be.
To encourage higher pay for the new hires, and also to discourage lower pay for new hires, I think this tax credit per job added cannot exceed 50% X the actual average annual base pay for new hires for the company earning this tax credit in the current period.
What this means is that if the average annual pay for new people hired this period is $45,000, then the $20,000 remains at the maximum, since 50% X $45,000, or $22,500, is higher than $20,000.
On the other hand, let’s say a company is hiring new employees on the cheap, with the average base pay of new hires being only $22,000 per year. In this case, the maximum Jobs Tax Credit gets reduced from $20,000 per new job added down to $11,000, or $22,000 X 50%.
So we now have the maximum and minimum range of Jobs Tax Credit per new job set.
So let me address the more complicated capital expenditure element, which turns this Jobs Tax Credit into an Innovative Productivity Enhancing Jobs Tax Credit (IPEJTC).
I think this Innovative Productivity Enhancing Jobs Tax Credit should be healthy enough to accomplish the US business demand goal, and also to accomplish it as quickly as possible.
Thus, I would set the credit at 15% of new US eligible property purchased from now until the end of 2011, and then reduce it down some to 10% for all of calendar 2012 eligible property purchases.
For maximum effect, this Innovative Productivity Enhancing Tax Credit should apply to all (yes, that’s by both large and small businesses) new property placed in service in the US that is depreciable under MACRS, and that has a Recovery Period of seven years or less (i.e. all Three-Year Property, Five-Year Property, and Seven-Year Property). When you check out the Tax Code, you'll see that.....wow, these three MACRS property categories are pretty all encompassing.
In addition, all new building costs and building remodeling costs should be eligible. Also, any external computer software costs, any external computer software development costs, and any external web site development costs, should also all be eligible.
By combining together a Jobs Tax Credit and an Investment Tax Credit, this proposal substantially increases demand for US manufacturing and other businesses by providing very healthy tax incentives to US business customers to purchase innovative equipment and other property, along with providing an intertwined tax incentive for this business customer to also hire new employees.
And the merger of this property acquired with the key new employee element puts the company in a much better position to enhance its overall productivity, and to have its products and services better compete globally in the world economy.
Although this proposal focuses principally on enhancing the US manufacturing sector, all US businesses can benefit from the Innovative Productivity Enhancing Jobs Tax Credit, and thus can also benefit from it by having their productivity enhanced.
Let me illustrate the computation of the IPEJTC for a business.
Let’s assume that a company places in service, from now until the end of 2011, total eligible property of $6 mil. The tentative tax credit for 2011, before testing for payroll count increases, is 15% X $6 mil, or $0.9 mil.
Thus, going back to my earlier discussion on the Jobs Tax Credit per job added range, let’s assume that there is an increase in US full-time jobs for this company for the remainder of 2011 of 50, and that the average annual base pay of all new hires for this company for the remainder of 2011 is $45,000.
The maximum Jobs Tax Credit per new job added would be $20,000, since this $20,000 is lower than $22,500 (50% X $45,000). And the total maximum Jobs Tax Credit for 2011 would be $1.0 mil, or $20,000 X 50 employees added.
The minimum Jobs Tax Credit per new job is $10,000. And the total minimum Jobs Tax Credit for 2011 would be $0.5 mil, or $10,000 X 50 employees added.
Since the tentative Tax Credit based on capital expenditures added in the rest of 2011 is $0.9 mil, and it is also within the above $0.5 mil and $1.0 mil Jobs Tax Credit range, the final Innovative Productivity Enhancing Jobs Tax Credit earned for 2011 is $0.9 mil.
If instead, there were $20 mil of capital expenditures made in the remainder of 2011, the tentative Tax Credit would be 15% X $20 mil, or $3 mil. Since this is above the maximum Jobs Tax Credit of $1.0 mil, the Innovative Productivity Enhancing Jobs Tax Credit earned for 2011 would be $1.0 mil.
And if there were only $2 mil of capital expenditures made in the remainder of 2011, the tentative Tax Credit would be $0.3 mil, or $2 mil X 15%. Since this is below the minimum Jobs Tax Credit of $0.5 mil, the final Innovative Productivity Enhancing Jobs Tax Credit earned for 2011 would be $0.5 mil.
The jobs added in 2011 would be simply the difference between the number of full-time employees when you start the tax incentive and the number of full-time employees at the end of the year, exclusive of those added from acquisitions.
The jobs added in 2012 would be simply the difference between the number of full-time employees from the beginning of the year and the end of the year, exclusive of those added from acquisitions.
This Tax Credit earned should be computed on a total US company operations basis. Thus, separate US companies controlled by the same US company should be combined.
For maximum effect, I would make this Tax Credit immediately refundable. Also, I wouldn’t reduce the tax basis of the property for the Tax Credit earned.
To make these jobs created remain for a reasonably long period of time, I would also include a tax recapture of this Tax Credit if the increase in full-time jobs of this business doesn’t last for say four years. And I would have a 100% tax recapture for reductions in full-time payroll counts in the first two years, and a proportional time, pro-rata tax recapture for reductions in full-time payroll counts in years three and four. There would be no tax recaptured after four years.
It should be fairly simple to implement this tax credit program quickly. Its simplicity is enhanced by the ease in applying the payroll count requirements. Say it kicks in starting Aug 1, 2011. All you have to do is to count a company's overall combined US full-time payroll on that date and compare it with a similar count on Dec 31, 2011. The employee count change here is the relevant one used to compute the combined company tax credit earned for 2011.
And the same overall employee count change approach would be used to compute the combined company tax credit earned in 2012.
And for subsequent tax credit recapture computations, a company follows a similar overall combined company payroll count process. And if you thought it necessary to put in better controls, these counts could be made quarterly, or even monthly.
What makes this Innovative Productivity Enhancing Jobs Tax Credit particularly stimulating to US businesses is that the business adding employees will get not just an economic benefit, but also a highly desirable GAAP earnings increase, for this tax credit.
So it sounds like a great program. It clearly will create a lot of jobs. But how do we pay for it?
Well, I think that under any reasonable fair CBO score, it more than pays for itself. How could that possibly be?
Well, for the handful of very large global US companies with Total Unremitted Foreign Earnings of $10 bil or more, I would let them earn the above computed Innovative Productivity Enhancing Jobs Tax Credits only if it is also 100% paid for by a like amount of additional US federal income tax triggered by their foreign earnings repatriated to the US in the same period. I would consider granting these large global US companies an incentivized dividend received deduction of perhaps 20% to 30% on these foreign earnings repatriated used only to 100% fund their Innovative Productivity Enhancing Jobs Tax Credits.
For the many other smaller global US companies, I would give them a choice….they could either earn the Innovative Productivity Enhanced Jobs Tax Credits like pure domestic companies do, or they could instead elect to have it to be 100% paid for by a like amount of additional US federal income tax triggered by their foreign earnings repatriated to the US in the same period. I would consider granting these smaller global US companies a bit higher incentivized dividend received deduction of perhaps 40% or 50% on their foreign earnings repatriated used only to 100% fund their Innovative Productivity Enhancing Jobs Tax Credits.
In a fair CBO scoring, the above proposal should more than fund itself whenever it is enacted in a horrible job environment like the present one, where there is so very little private sector job increases, and where there are also expected to be so few private sector job increases over the next couple of years.
Under this Innovative Productivity Enhancing Jobs Tax Credit proposal, the bulk of the upfront tax credits granted by the US government will directly trigger substantial future incremental payroll tax receipts (both individual and company matched…15.3% of the higher gross payroll in total) and also substantial future incremental individual income tax receipts (probably average about 10% to 15% of the higher gross payroll) from the resultant payroll count increases.
The salient point here is that a company can't earn the tax credit unless it also increases its US full-time payroll count. Thus if the CBO counts the tax credit as a tax outflow, which it should, it also must count as a future cash inflow the higher incremental US federal government tax receipts that directly result from, and are inextricably linked to, the tax credit.
Because of the present very dismal private sector US job situation, there will be millions of new hires who previously wouldn’t be paying, or expected to be paying in the next couple of years, these federal taxes who now will be paying them due to this Innovative Productivity Enhancing Jobs Tax Credit proposal.
Thus, the CBO, in scoring this proposal, has to estimate the future amounts of these additional US federal tax receipts triggered by this proposal. Further, the CBO, in scoring this proposal, has to estimate the future amounts of US federal tax receipts due to the tax recapture aspect of this proposal.
Granted there will be some companies that will earn the tax credits even though they would have increased their number of full-time employees even without this proposal. However, there won’t be many of these, given the horrible private sector US job situation.
Further, under this proposal, all of the tax credits earned by the very large global US companies must be 100% funded by their additional US federal income tax related to their foreign earnings repatriated.
Also, under this proposal, the many smaller global US companies can elect to have some or all of their manufacturing tax credits 100% funded with the tax from their foreign earnings repatriated.
Thus, for all global companies funding their tax credits with the tax from their foreign earnings repatriated, there is no front end cost here to the US government at all.
And there is substantially positive CBO scoring here from the future incremental US federal government payroll tax receipts and US federal government income tax receipts, both caused by the US payroll count increases of these global US companies, as well as by all of the 100% domestic companies, triggered under this proposal.
In addition, there will be positive CBO scoring for the movement of the uninsured to insured status, since they will be added to full-time job status, many of them with a company-sponsored health care plan, due to this proposal. This positive scoring comes from the resultant reduction of the total US health care costs payable by the US Government, included in the Affordable Health Care legislation.
Also, there will be positive CBO scoring from the reduction in Unemployment Benefit payments made by the US Government, due to the reduction in the number of unemployed citizens, caused by this proposal.
Further, US states will significantly improve their financial coffers from this proposal.
First, they will be receiving additional corporate income taxes from the higher dividend income of the global US companies repatriating their earnings.
Second, they will be receiving higher individual income taxes from the new hires.
Third, they could elect to include this Innovative Productivity Enhancing Tax Credit as additional corporate taxable income, which triggers additional corporate income tax receipts.
And fourth, their Medicaid costs will drop due to the movement of the uninsured to insured status, resulting from their new full-time employee status.
When I rough out the numbers, given the horrible jobless recovery we now face, and which we will continue to face for at least the next couple of years, I get substantially positive CBO scoring from this proposal.
Thus, I would use some of this excess funding to also make a heavy dose of infrastructure investments, with primarily a green emphasis.
And the rest of the excess funding provided by this proposal here should be used to provide a good chunk of the $1 trillion of revenues needed to fund the $4 trillion Debt Ceiling Deal that President Obama would like to reach.
9) 100% Tax Expensing of Equipment in 2012
I would up the first-year 50% bonus tax depreciation for all 2012 equipment purchases to first-year 100% tax expensing, which substantially increases Big Corp profits in 2012, and thus also increases stock prices. And if you wanted to also include some payroll count increase requirements to earn the first-year 100% tax expensing for the really Big Corps, along with related subsequent tax recapture provisions (I would), that would also spur substantial long-term job creation, which also would feed into Big Corp profit increases in 2013 and beyond, with the resultant additional increases in stock prices, down the road.
10) Marketing, Selling and Advertising Investment Bump
Clearly, the major problem with the US economy is insufficient business demand. Something is needed to really give it a jolt.
To stimulate the dormant US business demand, my proposal here is to give a refundable tax credit on Marketing, Selling and Advertising costs of US businesses of all sizes incurred from now until Dec 31, 2012. I would make the percentage credit a bit higher for the rest of 2011 than for 2012.
So where's the Big Corp Tax Loophole closing, and related funding?
Well, it’s potentially substantial.
I would give say a 5% tax credit for the Marketing, Selling and Advertising costs in the remainder of the current year, and say a 2.5% tax credit in 2012, but then more than pay for it many times over, for the next ten-year CBO scoring period, by extending the life that all future Marketing/Selling/Advertising costs of Big US Corps are to be deducted over to say one year, 18 months or even two years.
I wouldn't start extending the life until after the country is completely out of this horrible structural recession...thus start scaling it in after say three years.
The positive CBO scoring on this should be off the charts.
And all businesses would get a very nice bump up of their reported GAAP earnings from just this, since the tax credit increases reported GAAP earnings, but the life extension is treated as a temporary tax difference.
And from a fairness standpoint, many Marketing, Selling and Advertising costs incurred are in essence Investments, benefiting businesses for many, many years.
The really cool part about the tax credit on Marketing, Selling and Advertising costs is that there are an infinite number of ways to very easily fine tune them to get the desired result.
For instance, if you wanted to reduce its CBO cost, you could just allow a tax credit on Marketing, Selling and Advertising Costs over and above some base period amounts, like the way the R&D tax credit works, and then you would also have the flexibility to significantly increase the percentage tax credit.
Also, if you wanted to increase the CBO favorable scoring, choosing a two-year life for amortizing these costs for federal income tax purposes would give you a monumentally more favorable CBO scoring than choosing a one-year life.
Another way to reduce the CBO cost here is to allow, or perhaps even require, US Multinational Corps to use their foreign earnings repatriation tax, with a related somewhat incentivized favorable dividend received deduction percentage, to 100% fund the same amount of tax credit for their Marketing, Selling and Advertising costs incurred.
And in a wise highly-incentivized twist, I would also consider allowing Big US Multinational Corps to fund the tax owed from extending their tax lifes for their Advertising, Marketing and Selling Costs with a like amount of tax owed from repatriating some of their foreign earnings at a somewhat discounted US federal income tax rate.
This Marketing, Selling, and Advertising Tax Credit would work especially well when it is combined with something like a 100% expensing of equipment, and even also with a Jobs Tax Credit and Investment Tax Credit combination. This Marketing, Selling, and Advertising Tax Credit would make those other tax incentives explosively effective.
Friday, July 8, 2011
Non-Profit Hospitals: Are Their Profits Excessive?
Based on my extensive sample of the financial statements, mostly audited ones, of 25 Big Catholic Non-Profit Hospital Organizations and 136 Big Non-Catholic Non-Profit Hospital Organizations, whose Total Operating Revenues in fiscal year ended (FYE) 2010 totaled $427.1 bil, my best estimate is that these 161 Big Non-Profit US Hospitals comprised 38% of the Total Operating Revenues of all US Non-Profit Hospitals in 2010.
These 161 Big Non-Profit Hospital Organizations generated $17.2 bil of Hospital Operating Income(HOI) in FYE 2010. When I project that over all US Non-Profit Hospitals, my best estimate is that Total Hospital Operating Income (HOI) of all Non-Profit Hospitals in FYE 2010 totaled $45.2 bil.
This Hospital Operating Income includes as deductions Depreciation Expense, Bad Debt Expense, and for the most part, Interest Expense on all Debt. There is very little Investment Income included in Hospital Operating Income. The predominant portion of Investment Return Income and Losses is shown by these Hospital Organizations below Hospital Operating Income, as Non-Operating Income.
Also, my best estimate is that the Total Net Assets (i.e. Excess of Total Assets over Total Liabilities) of all Non-Profit Hospital Organizations presently is a bit above $700 bil, and that their Total Investments in Debt and in Equity Securities are just short of $600 bil.
This $700 bil of Total Net Assets represents predominately the cumulative untaxed Hospital Operating Profits and cumulative untaxed Investment Return Income of all of these Non-Profit Hospital Organizations, for all years since inception.
From my extensive sample of these 25 Big Catholic and 136 Big Non-Catholic, Non-Profit Hospital Organizations, here are the most recent percentage increases in Total Hospital Operating Income over the immediately preceding year:
……………………………...........Catholic………......Non-Catholic
Annual FYE 2009…………......19%........................34%
Annual FYE 2010…………......27%........................19%
Year to Date FYE 2011…….....14%........................25%
Three Year Annual Average..20%.......................26%
The Affordable Health Care Plan results in a substantial portion of the uninsured, getting insurance, and also results in many of the underinsured, getting better insurance.
Thus, Hospital Operating Income of all Hospital Organizations should increase sharply starting in 2014, due to the elimination of a good chunk of the Bad Debt Expense, and the addition of presently unrecorded Charity Care Income.
I think it would be wise to get a better handle on just how much Hospital Operating Income and Investment Income these Non-Profit Hospital Organizations will be generating in the long term, under the new Affordable Health Care Plan. Then everyone will be in a better position to understand if there are any excessive profits in the Non-Profit Hospital Industry, and if so, just how much.
Granted, there is a lot of uncertainty in making this computation. However, it’s just an objective mathematical computation, given certain assumptions, which will all be laid out.
The first assumption is how much will their annual percentage increase in Hospital Operating Income be.
Even in the horrible job environment of the past roughly three years, where the number of uninsured and the number of underinsured have both increased sharply, the three-year annual increases in total HOI have been superb…..averaging 20% for the Catholic Hospitals, and averaging an even higher 26% for the Non-Catholic, Non-Profit Hospital Organizations.
Thus, other than for 2014, when there should be a substantial increase in the number of both insured and better insured, I conservatively used an average annual increase in HOI of 12% per year, stepping down the much higher average actual HOI percentage increases of the most recent three years of 20% to 26%.
It is difficult to precisely measure the increase in HOI from both the Bad Debt Expense elimination and from the Charity Care Income pick-up, starting in 2014. In my below analysis, I am assuming that Bad Debt Expense gets reduced by 60% and also that 40% of the estimated Charity Care Income increases HOI, both in 2014.
My Bad Debt Expense estimates are based on the actual amounts recorded by these Hospital Organizations. My estimates of Child Care Costs, at cost, are based on the actual amounts disclosed by the Catholic Hospitals, and then conservatively estimating the amount related to the Non-Catholic Hospitals, by multiplying the ratio of Bad Debts Expenses of Non-Catholic Hospitals to Bad Debts Expenses of Catholic Hospitals by the Catholic Hospital Child Care Cost numbers.
I am excluding in my below analysis the amounts that the Hospital Industry agreed to pay in as part of the Affordable Health Care Plan. I just don’t have the numbers here.
Given the above assumptions, here’s my detailed computation of projected Total Hospital Operating Income for all Non-Profit Hospitals for each of the next 20 years:
……………………………............mils of dollars
2012.........................................56,685
2013.........................................63,487
2014.......................................141,734*
2015.......................................158,742
2016.......................................177,791
2017.......................................199,126
2018.......................................223,021
2019.......................................249,784
2020.......................................279,758
2021........................................313,329
Ten-year Total 2012-2021...1,863,457
2022........................................350,928
2023........................................393,040
2024........................................440,204
2025........................................493,029
2026........................................552,192
2027........................................618,455
2028........................................692,670
2029........................................775,791
2030........................................868,885
2031........................................973,152
Ten-year Total 2022-2031....6,158,346
* The huge growth in HOI in 2014 over 2013 is due mainly to the substantially lower Bad Debt Expense as well as to the pick up of Charity Care Income, both the result of the Affordable Health Care Plan causing many of the previously uninsured then getting insurance, and many of the previously underinsured, then getting better insured.
Yeah, that's $8.0 trillion of Total Hospital Operating Income over the next 20 years.....and not a dime of it is income taxed.
In addition, there will be substantial amounts of Investment Return Income by Hospital Organizations that are not included in the above projected Hospital Operating Income numbers.
I conservatively assumed an average annual investment return of 6% on the Average Investment Balance of Non-Profit Hospitals. I added the annual Hospital Operating Income to the Investment Balance, in computing the annual Investment Return Income. I assumed that the total hospital property cash additions are offset by total non-cash depreciation expense.
And below here are the related estimated annual Investment Return Income for each of the next 20 years.
..................Annual................Annual
.................Average............Investment
...............Investment........Earnings @6%
....................(in millions of dollars)
2012..........628,343...............37,701
2013..........726,129...............43,568
2014..........872,308...............52,338
2015........1,074,884..............64,493
2016........1,307,644..............78,459
2017........1,574,561..............94,474
2018........1,880,109.............112,807
2019........2,229,318.............133,759
2020.......2,627,847.............157,671
2021........3,082,062.............184,924
Ten-year Total 2012-2021...960,192
2022........3,599,114.............215,947
2023........4,187,044.............251,223
2024........4,854,889.............291,293
2025........5,612,799.............336,768
2026........6,472,178.............388,331
2027.......7,445,832.............446,750
2028........8,548,145.............512,889
2029........9,795,264.............587,716
2030.......11,205,318.............672,319
2031.......12,798,655.............767,919
Ten-year Total 2022-2031..4,471,154
Yeah, when you combine the above Total Hospital Operating Income and Total Non-operating Investment Returns, given all of the above assumptions explained earlier, the Total Earnings of all Non-Profit Hospital Organizations comes to $2.8 trillion over the next 10 years(2012 to 2021), and to an amazing $10.6 trillion over the second 20 years(2022 to 2031).....and all of it will be untaxed.
Is that excessive? Clearly, but what should be done?
As one suggestion, I think that the US government should take wise steps to reduce the egregious Non-Profit Hospital Organizations' annual percentage increases in HOI.
As a perspective, if the above assumed 12% average annual percentage increase were cut precisely in half to 6%, after all, these are Non-Profit Organizations, the Total Estimated Hospital Operating Income over the next 10 years drops from $1,863 bil to $1,230 bil, or by $633 bil. And over the next 20 years, this Total Estimated Hospital Operating Income drops from $8,022 bil to $3,619 bil, or drops by an incredible $4,403 bil.
And the above estimated Hospital profits exclude those of For-Profit Hospitals, which are quite substantial.
As a second suggestion, I think that the US government should take wise steps to reduce the egregious Total Bottom-line Earnings as a percentage of Total Operating Revenues of Non-Profit Hospitals. When I run the numbers, starting in 2014 and in every year thereafter, this key ratio for Non-Profit Hospitals in the aggregate, on an after-tax basis, will be higher than that of the majority of the pristine companies in the 30 Dow Industrials.
If this second suggestion were enacted, and resulted in bringing down the aggregate profit margin ratio to what, in all fairness, a Non-Profit Organization should be operating at, the Total Hospital Operating Income would drop by substantially more than the $4.4 bil reduction over the next 20 years resulting from my first suggestion.
Clearly, the opportunity to reduce the US Deficit dramatically, by removing a good chunk of the excess profits generated by Non-Profit Hospital Organizations through lower Medicare and Medicaid fees paid by the US Government, is just huge.
Also, in all fairness, immense pressure should be placed on these Non-Profit Hospitals to reduce fees charged to all insured patients.....and if effective, this should result in both businesses and individuals paying much less for their health care costs, with a resultant nice bump up in long-term US economic growth and in sustainable robust job creation.
In closing out this post....Is this where we want to be as a country where the US unemployment rate is 9.2%, the US Debt level is $14.5 trillion, but yet, given the above assumptions, the Non-Profit Hospital Industry is projected to generate Total Earnings of $13.4 trillion over the next 20 years, and with not a dime of it taxed?
These 161 Big Non-Profit Hospital Organizations generated $17.2 bil of Hospital Operating Income(HOI) in FYE 2010. When I project that over all US Non-Profit Hospitals, my best estimate is that Total Hospital Operating Income (HOI) of all Non-Profit Hospitals in FYE 2010 totaled $45.2 bil.
This Hospital Operating Income includes as deductions Depreciation Expense, Bad Debt Expense, and for the most part, Interest Expense on all Debt. There is very little Investment Income included in Hospital Operating Income. The predominant portion of Investment Return Income and Losses is shown by these Hospital Organizations below Hospital Operating Income, as Non-Operating Income.
Also, my best estimate is that the Total Net Assets (i.e. Excess of Total Assets over Total Liabilities) of all Non-Profit Hospital Organizations presently is a bit above $700 bil, and that their Total Investments in Debt and in Equity Securities are just short of $600 bil.
This $700 bil of Total Net Assets represents predominately the cumulative untaxed Hospital Operating Profits and cumulative untaxed Investment Return Income of all of these Non-Profit Hospital Organizations, for all years since inception.
From my extensive sample of these 25 Big Catholic and 136 Big Non-Catholic, Non-Profit Hospital Organizations, here are the most recent percentage increases in Total Hospital Operating Income over the immediately preceding year:
……………………………...........Catholic………......Non-Catholic
Annual FYE 2009…………......19%........................34%
Annual FYE 2010…………......27%........................19%
Year to Date FYE 2011…….....14%........................25%
Three Year Annual Average..20%.......................26%
The Affordable Health Care Plan results in a substantial portion of the uninsured, getting insurance, and also results in many of the underinsured, getting better insurance.
Thus, Hospital Operating Income of all Hospital Organizations should increase sharply starting in 2014, due to the elimination of a good chunk of the Bad Debt Expense, and the addition of presently unrecorded Charity Care Income.
I think it would be wise to get a better handle on just how much Hospital Operating Income and Investment Income these Non-Profit Hospital Organizations will be generating in the long term, under the new Affordable Health Care Plan. Then everyone will be in a better position to understand if there are any excessive profits in the Non-Profit Hospital Industry, and if so, just how much.
Granted, there is a lot of uncertainty in making this computation. However, it’s just an objective mathematical computation, given certain assumptions, which will all be laid out.
The first assumption is how much will their annual percentage increase in Hospital Operating Income be.
Even in the horrible job environment of the past roughly three years, where the number of uninsured and the number of underinsured have both increased sharply, the three-year annual increases in total HOI have been superb…..averaging 20% for the Catholic Hospitals, and averaging an even higher 26% for the Non-Catholic, Non-Profit Hospital Organizations.
Thus, other than for 2014, when there should be a substantial increase in the number of both insured and better insured, I conservatively used an average annual increase in HOI of 12% per year, stepping down the much higher average actual HOI percentage increases of the most recent three years of 20% to 26%.
It is difficult to precisely measure the increase in HOI from both the Bad Debt Expense elimination and from the Charity Care Income pick-up, starting in 2014. In my below analysis, I am assuming that Bad Debt Expense gets reduced by 60% and also that 40% of the estimated Charity Care Income increases HOI, both in 2014.
My Bad Debt Expense estimates are based on the actual amounts recorded by these Hospital Organizations. My estimates of Child Care Costs, at cost, are based on the actual amounts disclosed by the Catholic Hospitals, and then conservatively estimating the amount related to the Non-Catholic Hospitals, by multiplying the ratio of Bad Debts Expenses of Non-Catholic Hospitals to Bad Debts Expenses of Catholic Hospitals by the Catholic Hospital Child Care Cost numbers.
I am excluding in my below analysis the amounts that the Hospital Industry agreed to pay in as part of the Affordable Health Care Plan. I just don’t have the numbers here.
Given the above assumptions, here’s my detailed computation of projected Total Hospital Operating Income for all Non-Profit Hospitals for each of the next 20 years:
……………………………............mils of dollars
2012.........................................56,685
2013.........................................63,487
2014.......................................141,734*
2015.......................................158,742
2016.......................................177,791
2017.......................................199,126
2018.......................................223,021
2019.......................................249,784
2020.......................................279,758
2021........................................313,329
Ten-year Total 2012-2021...1,863,457
2022........................................350,928
2023........................................393,040
2024........................................440,204
2025........................................493,029
2026........................................552,192
2027........................................618,455
2028........................................692,670
2029........................................775,791
2030........................................868,885
2031........................................973,152
Ten-year Total 2022-2031....6,158,346
* The huge growth in HOI in 2014 over 2013 is due mainly to the substantially lower Bad Debt Expense as well as to the pick up of Charity Care Income, both the result of the Affordable Health Care Plan causing many of the previously uninsured then getting insurance, and many of the previously underinsured, then getting better insured.
Yeah, that's $8.0 trillion of Total Hospital Operating Income over the next 20 years.....and not a dime of it is income taxed.
In addition, there will be substantial amounts of Investment Return Income by Hospital Organizations that are not included in the above projected Hospital Operating Income numbers.
I conservatively assumed an average annual investment return of 6% on the Average Investment Balance of Non-Profit Hospitals. I added the annual Hospital Operating Income to the Investment Balance, in computing the annual Investment Return Income. I assumed that the total hospital property cash additions are offset by total non-cash depreciation expense.
And below here are the related estimated annual Investment Return Income for each of the next 20 years.
..................Annual................Annual
.................Average............Investment
...............Investment........Earnings @6%
....................(in millions of dollars)
2012..........628,343...............37,701
2013..........726,129...............43,568
2014..........872,308...............52,338
2015........1,074,884..............64,493
2016........1,307,644..............78,459
2017........1,574,561..............94,474
2018........1,880,109.............112,807
2019........2,229,318.............133,759
2020.......2,627,847.............157,671
2021........3,082,062.............184,924
Ten-year Total 2012-2021...960,192
2022........3,599,114.............215,947
2023........4,187,044.............251,223
2024........4,854,889.............291,293
2025........5,612,799.............336,768
2026........6,472,178.............388,331
2027.......7,445,832.............446,750
2028........8,548,145.............512,889
2029........9,795,264.............587,716
2030.......11,205,318.............672,319
2031.......12,798,655.............767,919
Ten-year Total 2022-2031..4,471,154
Yeah, when you combine the above Total Hospital Operating Income and Total Non-operating Investment Returns, given all of the above assumptions explained earlier, the Total Earnings of all Non-Profit Hospital Organizations comes to $2.8 trillion over the next 10 years(2012 to 2021), and to an amazing $10.6 trillion over the second 20 years(2022 to 2031).....and all of it will be untaxed.
Is that excessive? Clearly, but what should be done?
As one suggestion, I think that the US government should take wise steps to reduce the egregious Non-Profit Hospital Organizations' annual percentage increases in HOI.
As a perspective, if the above assumed 12% average annual percentage increase were cut precisely in half to 6%, after all, these are Non-Profit Organizations, the Total Estimated Hospital Operating Income over the next 10 years drops from $1,863 bil to $1,230 bil, or by $633 bil. And over the next 20 years, this Total Estimated Hospital Operating Income drops from $8,022 bil to $3,619 bil, or drops by an incredible $4,403 bil.
And the above estimated Hospital profits exclude those of For-Profit Hospitals, which are quite substantial.
As a second suggestion, I think that the US government should take wise steps to reduce the egregious Total Bottom-line Earnings as a percentage of Total Operating Revenues of Non-Profit Hospitals. When I run the numbers, starting in 2014 and in every year thereafter, this key ratio for Non-Profit Hospitals in the aggregate, on an after-tax basis, will be higher than that of the majority of the pristine companies in the 30 Dow Industrials.
If this second suggestion were enacted, and resulted in bringing down the aggregate profit margin ratio to what, in all fairness, a Non-Profit Organization should be operating at, the Total Hospital Operating Income would drop by substantially more than the $4.4 bil reduction over the next 20 years resulting from my first suggestion.
Clearly, the opportunity to reduce the US Deficit dramatically, by removing a good chunk of the excess profits generated by Non-Profit Hospital Organizations through lower Medicare and Medicaid fees paid by the US Government, is just huge.
Also, in all fairness, immense pressure should be placed on these Non-Profit Hospitals to reduce fees charged to all insured patients.....and if effective, this should result in both businesses and individuals paying much less for their health care costs, with a resultant nice bump up in long-term US economic growth and in sustainable robust job creation.
In closing out this post....Is this where we want to be as a country where the US unemployment rate is 9.2%, the US Debt level is $14.5 trillion, but yet, given the above assumptions, the Non-Profit Hospital Industry is projected to generate Total Earnings of $13.4 trillion over the next 20 years, and with not a dime of it taxed?
Wednesday, July 6, 2011
Update on Big Non-Profit Hospitals Had Incredible Financial Strength Enhancement in Most Recent Two Years
In my earlier post on this same topic, from a review of financial statements through the end of June 2011, in mostly two Internet sites: Dac.bond and EMMA (Electronic Municipal Market Access of the Municipal Securities Rulemaking Board), I found 134 Non-Catholic, Non-Profit Hospital Organizations with Net Assets (i.e. Excess of Total Assets over Total Liabilities) of at least $500 mil each.
Of these 134 Big Non-Profit Hospital Organizations, I could find very recent (1Q 2011) Net Assets amounts for 120 of them. Thus, I could derive reliable Net Asset growth for roughly the most recent two years for just these 120.
These 120 Big Non-Profit Hospital Organizations had total Net Assets of $191.5 bil at the most recent balance sheet date, which was March 31, 2011 for the overwhelming majority of them.
In comparison, the total Net Assets of these same 120 Non-Profit Hospital Organizations were $138.2 bil at their respective closest fiscal year ends two years earlier.
Thus, the Net Assets of these 120 Non-Profit Hospital Organizations increased by $53.3 bil, or by a remarkable 39%, in just the most recent two years.
In early July 2011, I went into more depth in this research review and I found 30 additional Non-Catholic, Non-Profit Hospital Organizations with Net Assets of at least $500 mil each.
Of these 30 additional Big Non-Profit Hospital Organizations found in July 2011, I could find very recent (1Q 2011) Net Assets amounts for 21 of them. Thus, I could derive reliable Net Asset growth for roughly the most recent two years for just these 21.
These 21 Big Non-Profit Hospital Organization late additions had total Net Assets of $19.4 bil at the most recent balance sheet date, which was March 31, 2011 for the overwhelming majority of them.
In comparison, the total Net Assets of these same 21 Non-Profit Hospital Organizations were $13.9 bil at their respective closest fiscal year ends two years earlier.
Thus, the Net Assets of these 21 Non-Profit Hospital Organization late additions increased by $5.5 bil, or by 39%, in just the most recent two years. This 39% increase precisely matched the 39% increase in the original 120 Non-Profit Hospital Organizations in the original research through the end of June 2011.
Below here are these 21 Non-Catholic, Non-Profit Hospital Organization Late Additions:
....................................................................Balance Sheet
..............................................................................2 Years
....................................................................Most...Earlier
..Hospital Organization and HQs.........FYE..Recent...FYE
Children's Med Ctr....Boston,MA..........Sep..Mar 11..Sep 08
Fairview Health.......Minneapolis,MN..Dec..Mar 11..Dec 08
John Muir Health....Walnut Creek,CA..Dec..Mar 11..Dec 08
Multicare Health......Tacoma,WA........Dec..Mar 11..Dec 08
Natnwde Chldrn's Hosp.Columbus,OH.Dec..Dec 10..Dec 08
Mission Health Sys....Asheville,NC......Sep..Mar 11..Sep 08
Nemours Foundatn..Jacksonville,FL...Dec..Dec 10..Dec 08
Children's Hospital...Denver,CO..........Dec..Dec 10..Dec 08
St Luke's Health......Kansas City,MO.....Dec..Mar 11..Dec 08
Cottage Health Sys..Santa Barbara,CA..Dec..Mar 11..Dec 08
Health Partners.......Bloomington,MN..Dec..Mar 11..Dec 08
Avera.................Sioux Falls,SD...........Jun..Mar 11..Jun 09
Univ Hlth Sys E Carol.Greenville,NC....Sep..Mar 11..Sep 08
Children's Hospital...Birmingham,AL...Dec..Mar 11..Dec 08
Meridian Health Sys...Red Bank,NJ......Dec..Mar 11..Dec 08
SouthCoast Health.....Fall River,MA.....Sep..Mar 11..Sep 08
Scottsdale Healthcare.Scottsdale,AZ....Sep..Mar 11..Sep 08
Caromont Health.......Gastonia,NC.......Jun..Mar 11..Jun 09
Summa Health..........Akron,OH...........Dec..Mar 11..Dec 08
Contracare Health.....St Cloud,MN.......Jun..Mar 11..Jun 09
Lifebridge Health.....Baltimore,MD......Jun..Mar 11..Jun 09
And below here are the Net Assets amounts of these 21 Non-Profit Hospital Organization late additions, and the increases in Net Assets over roughly the most recent two years.
.............................................Net Assets..Net Assets
....................................................Most........Two
...................................................Recent.....Years.....Increase..
...Hospital Organization................Date.......Earlier..Amount...%
.....................................................(millions of dollars)...
Children's Med Center Boston......3,078......2,398......680....28%
Fairview Health Services..............1,184.........732......452....62%
John Muir Health.........................1,128.........756......372....49%
Multicare Health System..............1,125.........650......475....73%
Nationwide Children's Hosp Ohio..1,122.........761......361....47%
Mission Health System.................1,042.........828......214....26%
Nemours Foundation......................988.........744......244....33%
Children's Hospital Colorado...........985.........678......307....45%
St Luke's Health System...................952.........703......249....35%
Cottage Health System....................947.........674......273....41%
Health Partners Minn......................840.........503......337....67%
Avera..............................................827.........673......154....23%
Univ Health Syst Eastern Carolina...698..........583......115....20%
Children's Hospital Alabama............652.........418......234....56%
Meridian Health System...................612.........339......273....81%
SouthCoast Health System...............566.........469........97....21%
Scottsdale Healthcare......................544.........423......121....29%
Caromont Health.............................532.........367......165....45%
Summa Health System.....................525.........409......116....28%
Contracare Health System................521.........381......140....37%
Lifebridge Health.............................507.........406......101....25%
Total 21 Late Additions...............19,375.....13,895...5,480...39%
Yeah, the lowest percentage increase of the above 21 is 20%. Now that is what I call whole-scale consistency of strong increases in financial strength of the Non-Profit Hospital industry during the Obama Administration.
And here are the 9 Non-Profit Hospital Organization late additions I found in early July 2011, with Net Assets above $500 mil each, which haven’t disclosed a recent 1Q 2011 Net Asset amount:
.............................................................................Balance Sheet
............................................................................Most..One Year
..Hospital Organization and HQs.................FYE...Recent..Earlier
Children's Hospital..............Cincinnati,OH..Jun..Jun 10..Jun 09
Geisinger Health.....................Danville,PA..Jun..Jun 10..Jun 09
Packard Children's Hosp.......Palo Alto,CA..Aug..Aug 10..Aug 09
VA Commonwlth Univ Hlth.Richmond,VA..Jun..Jun 10..Jun 09
Wellstar Health.......................Marietta,GA..Jun..Jun 10..Jun 09
WakeMed Health.......................Raleigh,NC..Sep..Sep 10..Sep 09
El Camino Hospital.......Mountain View,CA..Jun..Jun 10..Jun 09
Hartford Hospital....................Hartford,CT..Sep..Sep 10..Sep 09
Children's Natl Med Ctr.......Washington DC..Jun..Jun 10..Jun 09
And below here are the Net Assets of these 9 Non-Profit Hospital Organization late additions, and their one-year increases in their Net Asset amounts:
..............................................Net Assets..Net Assets
.....................................................Most........One
....................................................Recent......Year...Increase.....
.....................................................Date......Earlier...Amount....%
.......................................................(millions of dollars)...
Children's Hospital Cincy..............1,223......1,140.........83......7%
Geisinger Health System...............1,106.........901.......205.....23%
Packard Children's Hospital..........1,088......1,068.........20......2%
VA Commonwealh Univ Health.......872.........756.......116.....15%
Wellstar Health System...................787.........715.........72.....10%
WakeMed Health.............................761.........719.........42......6%
El Camino Hospital.........................722.........685.........37......5%
Hartford Hospital............................594.........569.........25......4%
Children's Natl Med Center..............547.........439.......108.....25%
Total 9 Final Late Additions.........7,700....6,992........708.....10%
When I combine the 134 Big Non-Catholic Non Profit Hospital Organizations in the original research through June 2011 with the 30 more in the most recent research in early July, I get total Net Assets of $237.2 bil.
And the 22 Big Catholic Hospital Organizations had another $63.6 bil in Net Assets.
That brings the total Net Assets of all Non-Profit Hospital Organizations to $300.8 bil. And this is for only very roughly 40% of all Non-Profit Hospitals. Thus the Net Assets of all Non-Profit Hospitals must be more than $700 bil now, and headed much higher.
And remarkably, all 186 of these Non-Profit Hospitals had Net Asset growth in roughly the most recent two years, thus during the Obama Administration. And many of the percentage increases were just spectacular.
The financial strength of all US Non-Profit Hospital Organizations, which hold an extensive treasure chest of investments in equity and debt securities, was just devastated in 2008 by the financial meltdown of the US economy. But this implosion of the financial status of Non-Profit Hospitals has been resurrected in the past two years.
This financial turnaround was due mainly to many wise actions by the Obama Administration, by the Fed, and by the US Congress, which created a US economic infrastructure which permitted US large businesses to flourish, with the resultant substantial rise in stock prices of Big Corps in the past two years.
Clearly, the executives of Non-Profit Hospitals, all employees of Non-Profit Hospitals, the Board of Directors of Non-Profit Hospitals, and the bondholders of these Non-Profit Hospitals have to all be elated with what has happened with the financial strength of their Non-Profit Hospitals during the Obama Administration.
But with this substantially increased financial status of the Big Non-Profit Hospitals, the question that I think has to be answered....In all fairness, just like Health Insurance Corps should, shouldn't all Hospital Organizations also be reducing their stiff prices in order to both patriotically and compassionately help reduce total US health care costs, to help suffering US individual hospital patients, to ease the health care burdens on US businesses, and to soften both the crushing US Federal Deficit and the many State Government severely-stressed Budgets?
Of these 134 Big Non-Profit Hospital Organizations, I could find very recent (1Q 2011) Net Assets amounts for 120 of them. Thus, I could derive reliable Net Asset growth for roughly the most recent two years for just these 120.
These 120 Big Non-Profit Hospital Organizations had total Net Assets of $191.5 bil at the most recent balance sheet date, which was March 31, 2011 for the overwhelming majority of them.
In comparison, the total Net Assets of these same 120 Non-Profit Hospital Organizations were $138.2 bil at their respective closest fiscal year ends two years earlier.
Thus, the Net Assets of these 120 Non-Profit Hospital Organizations increased by $53.3 bil, or by a remarkable 39%, in just the most recent two years.
In early July 2011, I went into more depth in this research review and I found 30 additional Non-Catholic, Non-Profit Hospital Organizations with Net Assets of at least $500 mil each.
Of these 30 additional Big Non-Profit Hospital Organizations found in July 2011, I could find very recent (1Q 2011) Net Assets amounts for 21 of them. Thus, I could derive reliable Net Asset growth for roughly the most recent two years for just these 21.
These 21 Big Non-Profit Hospital Organization late additions had total Net Assets of $19.4 bil at the most recent balance sheet date, which was March 31, 2011 for the overwhelming majority of them.
In comparison, the total Net Assets of these same 21 Non-Profit Hospital Organizations were $13.9 bil at their respective closest fiscal year ends two years earlier.
Thus, the Net Assets of these 21 Non-Profit Hospital Organization late additions increased by $5.5 bil, or by 39%, in just the most recent two years. This 39% increase precisely matched the 39% increase in the original 120 Non-Profit Hospital Organizations in the original research through the end of June 2011.
Below here are these 21 Non-Catholic, Non-Profit Hospital Organization Late Additions:
....................................................................Balance Sheet
..............................................................................2 Years
....................................................................Most...Earlier
..Hospital Organization and HQs.........FYE..Recent...FYE
Children's Med Ctr....Boston,MA..........Sep..Mar 11..Sep 08
Fairview Health.......Minneapolis,MN..Dec..Mar 11..Dec 08
John Muir Health....Walnut Creek,CA..Dec..Mar 11..Dec 08
Multicare Health......Tacoma,WA........Dec..Mar 11..Dec 08
Natnwde Chldrn's Hosp.Columbus,OH.Dec..Dec 10..Dec 08
Mission Health Sys....Asheville,NC......Sep..Mar 11..Sep 08
Nemours Foundatn..Jacksonville,FL...Dec..Dec 10..Dec 08
Children's Hospital...Denver,CO..........Dec..Dec 10..Dec 08
St Luke's Health......Kansas City,MO.....Dec..Mar 11..Dec 08
Cottage Health Sys..Santa Barbara,CA..Dec..Mar 11..Dec 08
Health Partners.......Bloomington,MN..Dec..Mar 11..Dec 08
Avera.................Sioux Falls,SD...........Jun..Mar 11..Jun 09
Univ Hlth Sys E Carol.Greenville,NC....Sep..Mar 11..Sep 08
Children's Hospital...Birmingham,AL...Dec..Mar 11..Dec 08
Meridian Health Sys...Red Bank,NJ......Dec..Mar 11..Dec 08
SouthCoast Health.....Fall River,MA.....Sep..Mar 11..Sep 08
Scottsdale Healthcare.Scottsdale,AZ....Sep..Mar 11..Sep 08
Caromont Health.......Gastonia,NC.......Jun..Mar 11..Jun 09
Summa Health..........Akron,OH...........Dec..Mar 11..Dec 08
Contracare Health.....St Cloud,MN.......Jun..Mar 11..Jun 09
Lifebridge Health.....Baltimore,MD......Jun..Mar 11..Jun 09
And below here are the Net Assets amounts of these 21 Non-Profit Hospital Organization late additions, and the increases in Net Assets over roughly the most recent two years.
.............................................Net Assets..Net Assets
....................................................Most........Two
...................................................Recent.....Years.....Increase..
...Hospital Organization................Date.......Earlier..Amount...%
.....................................................(millions of dollars)...
Children's Med Center Boston......3,078......2,398......680....28%
Fairview Health Services..............1,184.........732......452....62%
John Muir Health.........................1,128.........756......372....49%
Multicare Health System..............1,125.........650......475....73%
Nationwide Children's Hosp Ohio..1,122.........761......361....47%
Mission Health System.................1,042.........828......214....26%
Nemours Foundation......................988.........744......244....33%
Children's Hospital Colorado...........985.........678......307....45%
St Luke's Health System...................952.........703......249....35%
Cottage Health System....................947.........674......273....41%
Health Partners Minn......................840.........503......337....67%
Avera..............................................827.........673......154....23%
Univ Health Syst Eastern Carolina...698..........583......115....20%
Children's Hospital Alabama............652.........418......234....56%
Meridian Health System...................612.........339......273....81%
SouthCoast Health System...............566.........469........97....21%
Scottsdale Healthcare......................544.........423......121....29%
Caromont Health.............................532.........367......165....45%
Summa Health System.....................525.........409......116....28%
Contracare Health System................521.........381......140....37%
Lifebridge Health.............................507.........406......101....25%
Total 21 Late Additions...............19,375.....13,895...5,480...39%
Yeah, the lowest percentage increase of the above 21 is 20%. Now that is what I call whole-scale consistency of strong increases in financial strength of the Non-Profit Hospital industry during the Obama Administration.
And here are the 9 Non-Profit Hospital Organization late additions I found in early July 2011, with Net Assets above $500 mil each, which haven’t disclosed a recent 1Q 2011 Net Asset amount:
.............................................................................Balance Sheet
............................................................................Most..One Year
..Hospital Organization and HQs.................FYE...Recent..Earlier
Children's Hospital..............Cincinnati,OH..Jun..Jun 10..Jun 09
Geisinger Health.....................Danville,PA..Jun..Jun 10..Jun 09
Packard Children's Hosp.......Palo Alto,CA..Aug..Aug 10..Aug 09
VA Commonwlth Univ Hlth.Richmond,VA..Jun..Jun 10..Jun 09
Wellstar Health.......................Marietta,GA..Jun..Jun 10..Jun 09
WakeMed Health.......................Raleigh,NC..Sep..Sep 10..Sep 09
El Camino Hospital.......Mountain View,CA..Jun..Jun 10..Jun 09
Hartford Hospital....................Hartford,CT..Sep..Sep 10..Sep 09
Children's Natl Med Ctr.......Washington DC..Jun..Jun 10..Jun 09
And below here are the Net Assets of these 9 Non-Profit Hospital Organization late additions, and their one-year increases in their Net Asset amounts:
..............................................Net Assets..Net Assets
.....................................................Most........One
....................................................Recent......Year...Increase.....
.....................................................Date......Earlier...Amount....%
.......................................................(millions of dollars)...
Children's Hospital Cincy..............1,223......1,140.........83......7%
Geisinger Health System...............1,106.........901.......205.....23%
Packard Children's Hospital..........1,088......1,068.........20......2%
VA Commonwealh Univ Health.......872.........756.......116.....15%
Wellstar Health System...................787.........715.........72.....10%
WakeMed Health.............................761.........719.........42......6%
El Camino Hospital.........................722.........685.........37......5%
Hartford Hospital............................594.........569.........25......4%
Children's Natl Med Center..............547.........439.......108.....25%
Total 9 Final Late Additions.........7,700....6,992........708.....10%
When I combine the 134 Big Non-Catholic Non Profit Hospital Organizations in the original research through June 2011 with the 30 more in the most recent research in early July, I get total Net Assets of $237.2 bil.
And the 22 Big Catholic Hospital Organizations had another $63.6 bil in Net Assets.
That brings the total Net Assets of all Non-Profit Hospital Organizations to $300.8 bil. And this is for only very roughly 40% of all Non-Profit Hospitals. Thus the Net Assets of all Non-Profit Hospitals must be more than $700 bil now, and headed much higher.
And remarkably, all 186 of these Non-Profit Hospitals had Net Asset growth in roughly the most recent two years, thus during the Obama Administration. And many of the percentage increases were just spectacular.
The financial strength of all US Non-Profit Hospital Organizations, which hold an extensive treasure chest of investments in equity and debt securities, was just devastated in 2008 by the financial meltdown of the US economy. But this implosion of the financial status of Non-Profit Hospitals has been resurrected in the past two years.
This financial turnaround was due mainly to many wise actions by the Obama Administration, by the Fed, and by the US Congress, which created a US economic infrastructure which permitted US large businesses to flourish, with the resultant substantial rise in stock prices of Big Corps in the past two years.
Clearly, the executives of Non-Profit Hospitals, all employees of Non-Profit Hospitals, the Board of Directors of Non-Profit Hospitals, and the bondholders of these Non-Profit Hospitals have to all be elated with what has happened with the financial strength of their Non-Profit Hospitals during the Obama Administration.
But with this substantially increased financial status of the Big Non-Profit Hospitals, the question that I think has to be answered....In all fairness, just like Health Insurance Corps should, shouldn't all Hospital Organizations also be reducing their stiff prices in order to both patriotically and compassionately help reduce total US health care costs, to help suffering US individual hospital patients, to ease the health care burdens on US businesses, and to soften both the crushing US Federal Deficit and the many State Government severely-stressed Budgets?
Tuesday, July 5, 2011
Update on Big Non-Profit Hospital Operating Earnings on Fire under Obama, and Headed Higher
In my earlier post on this same topic, from a review of financial statements through the end of June 2011, in mostly two Internet sites: Dac.bond and EMMA (Electronic Municipal Market Access of the Municipal Securities Rulemaking Board), I found 113 Non-Catholic, Non-Profit Hospital Organizations with Hospital Operating Revenues in excess of $800 mil each in the fiscal year ended (FYE) 2010.
In early July 2011, I went into more depth in this research review and I found 23 additional Non-Catholic, Non-Profit Hospital Organizations with Hospital Operating Revenues in excess of $800 mil each in FYE 2010.
Below are the individual hospital organization Operating Earnings for each of the past three fiscal years for these 23 additional Non-Catholic, Non-Profit Hospital Organizations, along with the percentage change in Operating Earnings in the past two fiscal years from FYE 2008 to FYE 2010....what I call the Two-year Obama Administration Non-Profit Hospital Operating Income Percentage Bump, which totaled an incredibly strong 73% for all of these 23 late addition Non-Profit Hospital Organizations combined....and even a bit higher than the 59% Obama growth bump for the 113 Big Non-Profit Hospital Organizations in the original research.
...........................................................................2 YR
..........................................................................Obama
.........................................FYE.....FYE.....FYE....Admin
.........................................2010...2009...2008...Oper
.........................................Oper....Oper....Oper...Inc %
.........................................Inc......Inc.......Inc.....Bump
......................................(in millions of dollars)
Health Partners..................138.......96........65......112%
John Muir Health(1)...........132.......99........41......222%
Geisinger Health System.....127.......80.......83.......53%
Wellstar Health System........97.......81........52.......87%
Multicare Health System......95......121......110......-14%
VA Commonwlth Univ Hlth..89.......96........90.......-1%
Fairview Health Services......81......110........21......286%
Children's Med Ctr Boston....67.......83........65........3%
Children's Hospital Cincy.....64.......60........66.......-3%
Univ Hlth Syst East Carolina.62.......55........60.........3%
Nationwide Children's Hosp.54.......45.........24......125%
Park Nicollet Health.............47.......44.......(14).....436%
Saint Luke's Health System...43.......25..........4......975%
Avera...................................41.......20........25.......64%
Children's National Med Ctr..38........3...........3.....1167%
Mission Health System..........36.......40........30.......20%
Summa Health System...........32........8.......(13).....346%
Meridian Health System........31.......28........16.......94%
Wakemed Health...................20.......19........24......-17%
Dartmouth-Hitchcock...........19.......45........25......-24%
Scottsdale Healthcare............16........4.......(16).....200%
Lifebridge Health....................4.......22........20......-80%
Loyola Univ Health System.....0......(43).......(9).....100%
Total 23 Late Additions.....1,333...1,141.....772.......73%
% Increase Over Prior Year..17%....48%
(1) John Muir Health FYE 2008 Operating Earnings excludes Impairment Losses on Investments.
When I combine the above 23 Late Additions with the original 113 Non-Profit Hospital Organizations, the Total Operating Revenues of these 136 Non-Profit Hospitals was $329.7 bil, and Total Hospital Operating Income was $14.4 bil in FYE 2010.
My best estimate is that this sample of 136 Non-Catholic Hospital Organizations comprises 29% of the Total Operating Revenues of all Non-Profit Hospital Organizations in the US, including all Catholic, all Non-Catholic, and all Governmental ones.
Here are the Annual Total Operating Earnings % Increases over the Prior Year of these 136 combined Non-Profit Hospital Organizations during the Obama Administration:
Annual FYE 2009.........................+34%
Annual FYE 2010.........................+19%
Fiscal Year to date March 2011.....+25%
When you compound those three above percentage increases, you get precisely a doubling of Non-Profit Hospital Operating Profit during roughly the entire period of the Obama Administration so far.
And here are the Total Operating Margin Percentages (i.e. Total Operating Income / Total Operating Revenues) for these 136 combined Non-Profit Hospitals from 2008 to March 2011:
Annual FYE 2008………...............3.14%
Annual FYE 2009………...............3.89%
Annual FYE 2010………...............4.37%
Fiscal Year to date March 2011...4.57%
Now that is what I call superb, very consistent earnings and profit margin percentage increases, which was even much more robust than that of the Catholic Hospitals. This is particularly impressive given the horrible unemployment and underemployment prevailing during these periods, with the resultant increases in the number of uninsured and underinsured.
Embedded as charges in the FYE 2010 Total Operating Income of $14,422 mil were Total Bad Debt Expenses of a huge $13,989 mil. Thus the Total Bad Debt Expense as a percentage of Operating Income in FYE 2010 was 97% for these combined 136 Non-Profit Hospitals, much lower than the 209% comparable ratio for the 25 Catholic Hospitals.
I didn't capture Total Charity Care Costs for these 136 Non-Profit Hospitals. However, if you conservatively assume the same relative Non-Catholic, Non-Profit Hospital to Catholic Hospital Bad Debt Expense to Operating Income Ratio also applies to Total Charity Care Costs, then the estimated Total Charity Costs for these 136 Non-Profit Hospitals would be $12,763 mil for FYE 2010.
With the Affordable Health Care Plan, many of the presently uninsured will get insurance, starting in 2014. Likewise, many of the presently underinsured will get better insured, again starting in 2014.
It is difficult to estimate precisely how much Bad Debt Expense will be eliminated, as well as precisely how much unrecorded Charity Care Income will be picked up, as part of the Affordable Health Care Plan, once it fully kicks in.
But just as a perspective, let me assume that 60% of the Bad Debt Expense will be eliminated, and that 40% of the Charity Care Cost will be added to Revenues. Under these assumptions, and ignoring the Hospital Buy-in Costs that are part of the Affordable Health Care Plan, these 136 Non-Catholic, Non-Profit Hospital Organizations Reported Total Operating Income of $14,422 mil in FYE 2010 would nearly double to $27,920 mil, computed as follows:
FYE 2010 Total Operating Income,
.....as reported…………………………................................$14,422 mil
+ 2010 Reported Bad Debt Exp of $13,989 mil X 60%...$8,393 mil
+ 2010 Charity Care Costs of $12,763 mil X 40%..........$5,105 mil
= FYE 2010 Pro-forma Total Operating Income,
.....as adjusted for the above two items……..................$27,920 mil
It should be emphasized that the above $27.920 bil of 2010 Pro-forma Total Operating Income is just for the sample of 136 Non-Profit Hospital Organizations, which comprise roughly only 29% of the Total Operating Revenues of all US Non-Profit Hospital Organizations, including all Catholic, all Non-Catholic, and all Governmental ones.
Here are the Hospital Operating Income as a Percentage of Total Operating Revenue Margins for FYE 2010 for all of the 136 combined Non-Catholic, Non-Profit Hospital Organizations:
1.....Children's Healthcare of Atlanta.........GA.....14.39%
2.....UCLA Medical Center.........................CA.....13.78%
3.....University of Colorado Hospital.........CO.....13.17%
4.....Baptist Health South Florida...............FL.....10.94%
5.....Cook Children's Health.......................TX.....10.60%
6.....Duke University Health System..........NC......9.72%
7.....Methodist Health System...................TX......9.44%
8.....John Muir Health.............................. CA......9.03%
9.....Inova Health System.........................VA......8.60%
10....Univ California San Francisco...........CA......8.45%
11....Loma Linda Univ Medical Center......CA......8.03%
12....Baylor Health Care System................TX......7.97%
13....Children's Hospital Philadelphia........PA......7.91%
14....The Methodist Hospital System.........TX......7.89%
15....Virtua Health....................................NJ......7.84%
16....University Chicago Medical Center.....IL......7.80%
17....Presbyterian Health Care Services....NM......7.60%
18....Sutter Health.....................................CA......7.51%
19....Advocate HealthCare Network............IL......7.43%
20....OhioHealth........................................OH......7.40%
21....Univ Penn Health System...................PA......7.11%
22....Multicare Health System...................WA......6.86%
23....Mayo Clinic.......................................MN......6.80%
24....Adventist Health System....................FL......6.47%
25....Northwestern Memorial Health Care...IL......6.42%
26....Wellstar Health System......................GA......6.31%
27....Allina Health System.........................MN......6.14%
28....Adventist Health West........................CA......6.13%
29....Univ of Kansas Hospital......................KS......6.10%
30....Texas Health Resources.....................TX......6.02%
31....ProMedica Health Care......................OH......6.00%
32....Vanderbilt U Hosps & Clinics..............TN......5.81%
33....Scripps Health...................................CA......5.79%
34....Banner Health....................................AZ......5.78%
35....Cedars-Sinai Medical Center...............CA......5.78%
36....Baycare Health System.......................FL......5.69%
37....Shands Teaching Hosps & Clinics.........FL......5.68%
38....NYU Langone Medical Center.............NY......5.65%
39....Sentara Health Care............................VA......5.61%
40....North Shore Univ Health Systems........IL......5.58%
41....BJC Healthcare...................................MO......5.53%
42....Univ North Carolina Healthcare Syst...NC......5.48%
43....Geisinger Health System......................PA......5.36%
44....Mount Sinai Hospital...........................NY......5.35%
45....Rush University Medical Center............IL......5.28%
46....Christiana Care Health Services............DE......5.23%
47....Hoag Memorial Hosp Presbyterian.......CA......5.13%
48....Stanford Hospital & Clinics...................CA......5.08%
49....Palmetto Health...................................SC......5.07%
50....Virginia Commonwealth Univ Health...VA......5.06%
51....Yale-New Haven Hospital.....................CT......5.05%
52....Children's Medical Center Boston.........MA......4.93%
53....Scott & White Healthcare......................TX......4.89%
54....Cone Health..........................................NC......4.82%
55....Univ Health System East Carolina..........NC......4.73%
56....Medical College of Wisconsin................WI......4.70%
57....St Luke's Episcopal Health System.........TX......4.68%
58....Indiana University Health.....................IN......4.67%
59....Jefferson Health System........................PA......4.64%
60....Sharp Health Care.................................CA......4.55%
61....Nationwide Children's Hospital.............OH......4.48%
62....Avera....................................................SD......4.41%
63....University Hospitals Health System......OH......4.40%
64....Children's National Medical Center........DC......4.34%
65....Hackensack Univ Medical Center...........NJ......4.31%
66....Norton Health Care................................KY......4.30%
67....Cleveland Clinic Health System..............OH......4.26%
68....Health First............................................FL......4.14%
69....Saint Luke's Health System Kansas City..MO......4.08%
70....Baptist Memorial Health Care................TN......4.04%
71....Park Nicollet Health..............................MN......3.99%
72....Children's Hospital Cincy.......................OH......3.99%
73....Children's Medical Center of Dallas.........TX......3.95%
74....Premier Health Partners.........................OH......3.93%
75....Johns Hopkins Health System................MD......3.92%
76....Health Partners.....................................MN......3.86%
77....Sparrow Health System..........................MI......3.76%
78....Mission Health System...........................NC......3.72%
79....Piedmont Health Care.............................GA......3.72%
80....Memorial Sloan-Kettering Cancer Ctr......NY......3.69%
81....Memorial Hermann Healthcare System...TX......3.62%
82....Carolinas Health Care System.................NC......3.59%
83....Orlando Health........................................FL......3.59%
84....Montefiore Medical Center......................NY......3.45%
85....Community Health Network....................IN......3.40%
86....Integris Health........................................OK......3.36%
87....Parkview Health System..........................IN......3.34%
88....Baystate Medical Center..........................MA......3.34%
89....NY and Presbyterian Hospital..................NY......3.33%
90....Wake Forest Univ Health Sciences............NC......3.25%
91....Legacy Health System..............................OR......3.24%
92....Texas Children's Hospital.........................TX......3.23%
93....NorthShore Long Island Jewish Health....NY......3.22%
94....Essentia Health........................................MN......3.20%
95....Reading Hospital......................................PA......3.14%
96....Saint Barnabas..........................................NJ......3.06%
97....Kettering Health Network.........................OH......3.04%
98....Univ Michigan Hosp & Health Ctrs............MI......3.04%
99....West Virginia United Health System.........WV......3.02%
100...Lee Memorial Health System....................FL......3.00%
101...North Carolina Baptist Hospital................NC......2.88%
102...Fairview Health Services.........................MN......2.87%
103...Lehigh Valley Health Network..................PA......2.86%
104...CareGroup Health Care System.................MA......2.86%
105...University Maryland Medical System.......MD......2.82%
106...University Iowa Hospitals & Clinics...........IA......2.76%
107...Kaiser Permanente....................................CA......2.72%
108...UPMC........................................................PA......2.71%
109...Ochsner Health System..............................LA......2.63%
110...Iowa Health System...................................IA......2.59%
111...Meridian Health System.............................NJ......2.54%
112...Aurora Health Care...................................WI......2.49%
113...Partners Healthcare System......................MA......2.40%
114...Summa Health System..............................OH......2.38%
115...McLaren Health Care................................MI......2.32%
116...Sanford.....................................................SD......2.31%
117...South Broward Hospital District................FL......2.28%
118...Wakemed Health.......................................NC......2.10%
119...Greenville Hospital System.......................SC......2.06%
120...Novant Health..........................................NC......1.92%
121...LifeSpan....................................................RI......1.91%
122...Scottsdale Healthcare...............................AZ......1.87%
123...Mount Sinai School of Medicine................NY......1.64%
124...MedStar Health........................................MD......1.63%
125...Kaleida Health.........................................NY......1.58%
126...Henry Ford Health System......................MI......1.52%
127...WellSpan Health......................................PA......1.49%
128...Spectrum Health System.........................MI......1.30%
129...Dartmouth-Hitchcock.............................NH......1.25%
130...Oregon Health & Science Univ.................OR......0.48%
131...Lifebridge Health....................................MD......0.41%
132...Children's Health Care Minnesota............MN......0.35%
133...Loyola Univ Health System......................IL......0.00%
134...West Penn Allegheny Health Sys..............PA.....-1.17%
135...Alegent Health.........................................NE.....-1.35%
136...Baylor College of Medicine.......................TX.....-3.36%
Total all 136 Hospitals................................................4.37%
The Big Non-Profit Hospital Organizations have to be extremely happy with how their finances have already been substantially strengthened by wise actions of the Obama Administration, of the Fed, and of the US Congress. And competent HHS Secretary Kathleen Sebelius has to be very high on their thank you list.
And they also have to be licking their chops for the significant step up in Hospital Operating Earnings they will be receiving when the Affordable Health Care Plan totally kicks in.
But the question that I think has to be answered....In all fairness, just like Health Insurance Corps should, shouldn't all Hospital Organizations also be reducing their stiff prices in order to both patriotically and compassionately help reduce total US health care costs, to help suffering US individual hospital patients, to ease the health care burdens on US businesses, and to soften both the crushing US Federal Deficit and the many State Government severely-stressed Budgets?
In early July 2011, I went into more depth in this research review and I found 23 additional Non-Catholic, Non-Profit Hospital Organizations with Hospital Operating Revenues in excess of $800 mil each in FYE 2010.
Below are the individual hospital organization Operating Earnings for each of the past three fiscal years for these 23 additional Non-Catholic, Non-Profit Hospital Organizations, along with the percentage change in Operating Earnings in the past two fiscal years from FYE 2008 to FYE 2010....what I call the Two-year Obama Administration Non-Profit Hospital Operating Income Percentage Bump, which totaled an incredibly strong 73% for all of these 23 late addition Non-Profit Hospital Organizations combined....and even a bit higher than the 59% Obama growth bump for the 113 Big Non-Profit Hospital Organizations in the original research.
...........................................................................2 YR
..........................................................................Obama
.........................................FYE.....FYE.....FYE....Admin
.........................................2010...2009...2008...Oper
.........................................Oper....Oper....Oper...Inc %
.........................................Inc......Inc.......Inc.....Bump
......................................(in millions of dollars)
Health Partners..................138.......96........65......112%
John Muir Health(1)...........132.......99........41......222%
Geisinger Health System.....127.......80.......83.......53%
Wellstar Health System........97.......81........52.......87%
Multicare Health System......95......121......110......-14%
VA Commonwlth Univ Hlth..89.......96........90.......-1%
Fairview Health Services......81......110........21......286%
Children's Med Ctr Boston....67.......83........65........3%
Children's Hospital Cincy.....64.......60........66.......-3%
Univ Hlth Syst East Carolina.62.......55........60.........3%
Nationwide Children's Hosp.54.......45.........24......125%
Park Nicollet Health.............47.......44.......(14).....436%
Saint Luke's Health System...43.......25..........4......975%
Avera...................................41.......20........25.......64%
Children's National Med Ctr..38........3...........3.....1167%
Mission Health System..........36.......40........30.......20%
Summa Health System...........32........8.......(13).....346%
Meridian Health System........31.......28........16.......94%
Wakemed Health...................20.......19........24......-17%
Dartmouth-Hitchcock...........19.......45........25......-24%
Scottsdale Healthcare............16........4.......(16).....200%
Lifebridge Health....................4.......22........20......-80%
Loyola Univ Health System.....0......(43).......(9).....100%
Total 23 Late Additions.....1,333...1,141.....772.......73%
% Increase Over Prior Year..17%....48%
(1) John Muir Health FYE 2008 Operating Earnings excludes Impairment Losses on Investments.
When I combine the above 23 Late Additions with the original 113 Non-Profit Hospital Organizations, the Total Operating Revenues of these 136 Non-Profit Hospitals was $329.7 bil, and Total Hospital Operating Income was $14.4 bil in FYE 2010.
My best estimate is that this sample of 136 Non-Catholic Hospital Organizations comprises 29% of the Total Operating Revenues of all Non-Profit Hospital Organizations in the US, including all Catholic, all Non-Catholic, and all Governmental ones.
Here are the Annual Total Operating Earnings % Increases over the Prior Year of these 136 combined Non-Profit Hospital Organizations during the Obama Administration:
Annual FYE 2009.........................+34%
Annual FYE 2010.........................+19%
Fiscal Year to date March 2011.....+25%
When you compound those three above percentage increases, you get precisely a doubling of Non-Profit Hospital Operating Profit during roughly the entire period of the Obama Administration so far.
And here are the Total Operating Margin Percentages (i.e. Total Operating Income / Total Operating Revenues) for these 136 combined Non-Profit Hospitals from 2008 to March 2011:
Annual FYE 2008………...............3.14%
Annual FYE 2009………...............3.89%
Annual FYE 2010………...............4.37%
Fiscal Year to date March 2011...4.57%
Now that is what I call superb, very consistent earnings and profit margin percentage increases, which was even much more robust than that of the Catholic Hospitals. This is particularly impressive given the horrible unemployment and underemployment prevailing during these periods, with the resultant increases in the number of uninsured and underinsured.
Embedded as charges in the FYE 2010 Total Operating Income of $14,422 mil were Total Bad Debt Expenses of a huge $13,989 mil. Thus the Total Bad Debt Expense as a percentage of Operating Income in FYE 2010 was 97% for these combined 136 Non-Profit Hospitals, much lower than the 209% comparable ratio for the 25 Catholic Hospitals.
I didn't capture Total Charity Care Costs for these 136 Non-Profit Hospitals. However, if you conservatively assume the same relative Non-Catholic, Non-Profit Hospital to Catholic Hospital Bad Debt Expense to Operating Income Ratio also applies to Total Charity Care Costs, then the estimated Total Charity Costs for these 136 Non-Profit Hospitals would be $12,763 mil for FYE 2010.
With the Affordable Health Care Plan, many of the presently uninsured will get insurance, starting in 2014. Likewise, many of the presently underinsured will get better insured, again starting in 2014.
It is difficult to estimate precisely how much Bad Debt Expense will be eliminated, as well as precisely how much unrecorded Charity Care Income will be picked up, as part of the Affordable Health Care Plan, once it fully kicks in.
But just as a perspective, let me assume that 60% of the Bad Debt Expense will be eliminated, and that 40% of the Charity Care Cost will be added to Revenues. Under these assumptions, and ignoring the Hospital Buy-in Costs that are part of the Affordable Health Care Plan, these 136 Non-Catholic, Non-Profit Hospital Organizations Reported Total Operating Income of $14,422 mil in FYE 2010 would nearly double to $27,920 mil, computed as follows:
FYE 2010 Total Operating Income,
.....as reported…………………………................................$14,422 mil
+ 2010 Reported Bad Debt Exp of $13,989 mil X 60%...$8,393 mil
+ 2010 Charity Care Costs of $12,763 mil X 40%..........$5,105 mil
= FYE 2010 Pro-forma Total Operating Income,
.....as adjusted for the above two items……..................$27,920 mil
It should be emphasized that the above $27.920 bil of 2010 Pro-forma Total Operating Income is just for the sample of 136 Non-Profit Hospital Organizations, which comprise roughly only 29% of the Total Operating Revenues of all US Non-Profit Hospital Organizations, including all Catholic, all Non-Catholic, and all Governmental ones.
Here are the Hospital Operating Income as a Percentage of Total Operating Revenue Margins for FYE 2010 for all of the 136 combined Non-Catholic, Non-Profit Hospital Organizations:
1.....Children's Healthcare of Atlanta.........GA.....14.39%
2.....UCLA Medical Center.........................CA.....13.78%
3.....University of Colorado Hospital.........CO.....13.17%
4.....Baptist Health South Florida...............FL.....10.94%
5.....Cook Children's Health.......................TX.....10.60%
6.....Duke University Health System..........NC......9.72%
7.....Methodist Health System...................TX......9.44%
8.....John Muir Health.............................. CA......9.03%
9.....Inova Health System.........................VA......8.60%
10....Univ California San Francisco...........CA......8.45%
11....Loma Linda Univ Medical Center......CA......8.03%
12....Baylor Health Care System................TX......7.97%
13....Children's Hospital Philadelphia........PA......7.91%
14....The Methodist Hospital System.........TX......7.89%
15....Virtua Health....................................NJ......7.84%
16....University Chicago Medical Center.....IL......7.80%
17....Presbyterian Health Care Services....NM......7.60%
18....Sutter Health.....................................CA......7.51%
19....Advocate HealthCare Network............IL......7.43%
20....OhioHealth........................................OH......7.40%
21....Univ Penn Health System...................PA......7.11%
22....Multicare Health System...................WA......6.86%
23....Mayo Clinic.......................................MN......6.80%
24....Adventist Health System....................FL......6.47%
25....Northwestern Memorial Health Care...IL......6.42%
26....Wellstar Health System......................GA......6.31%
27....Allina Health System.........................MN......6.14%
28....Adventist Health West........................CA......6.13%
29....Univ of Kansas Hospital......................KS......6.10%
30....Texas Health Resources.....................TX......6.02%
31....ProMedica Health Care......................OH......6.00%
32....Vanderbilt U Hosps & Clinics..............TN......5.81%
33....Scripps Health...................................CA......5.79%
34....Banner Health....................................AZ......5.78%
35....Cedars-Sinai Medical Center...............CA......5.78%
36....Baycare Health System.......................FL......5.69%
37....Shands Teaching Hosps & Clinics.........FL......5.68%
38....NYU Langone Medical Center.............NY......5.65%
39....Sentara Health Care............................VA......5.61%
40....North Shore Univ Health Systems........IL......5.58%
41....BJC Healthcare...................................MO......5.53%
42....Univ North Carolina Healthcare Syst...NC......5.48%
43....Geisinger Health System......................PA......5.36%
44....Mount Sinai Hospital...........................NY......5.35%
45....Rush University Medical Center............IL......5.28%
46....Christiana Care Health Services............DE......5.23%
47....Hoag Memorial Hosp Presbyterian.......CA......5.13%
48....Stanford Hospital & Clinics...................CA......5.08%
49....Palmetto Health...................................SC......5.07%
50....Virginia Commonwealth Univ Health...VA......5.06%
51....Yale-New Haven Hospital.....................CT......5.05%
52....Children's Medical Center Boston.........MA......4.93%
53....Scott & White Healthcare......................TX......4.89%
54....Cone Health..........................................NC......4.82%
55....Univ Health System East Carolina..........NC......4.73%
56....Medical College of Wisconsin................WI......4.70%
57....St Luke's Episcopal Health System.........TX......4.68%
58....Indiana University Health.....................IN......4.67%
59....Jefferson Health System........................PA......4.64%
60....Sharp Health Care.................................CA......4.55%
61....Nationwide Children's Hospital.............OH......4.48%
62....Avera....................................................SD......4.41%
63....University Hospitals Health System......OH......4.40%
64....Children's National Medical Center........DC......4.34%
65....Hackensack Univ Medical Center...........NJ......4.31%
66....Norton Health Care................................KY......4.30%
67....Cleveland Clinic Health System..............OH......4.26%
68....Health First............................................FL......4.14%
69....Saint Luke's Health System Kansas City..MO......4.08%
70....Baptist Memorial Health Care................TN......4.04%
71....Park Nicollet Health..............................MN......3.99%
72....Children's Hospital Cincy.......................OH......3.99%
73....Children's Medical Center of Dallas.........TX......3.95%
74....Premier Health Partners.........................OH......3.93%
75....Johns Hopkins Health System................MD......3.92%
76....Health Partners.....................................MN......3.86%
77....Sparrow Health System..........................MI......3.76%
78....Mission Health System...........................NC......3.72%
79....Piedmont Health Care.............................GA......3.72%
80....Memorial Sloan-Kettering Cancer Ctr......NY......3.69%
81....Memorial Hermann Healthcare System...TX......3.62%
82....Carolinas Health Care System.................NC......3.59%
83....Orlando Health........................................FL......3.59%
84....Montefiore Medical Center......................NY......3.45%
85....Community Health Network....................IN......3.40%
86....Integris Health........................................OK......3.36%
87....Parkview Health System..........................IN......3.34%
88....Baystate Medical Center..........................MA......3.34%
89....NY and Presbyterian Hospital..................NY......3.33%
90....Wake Forest Univ Health Sciences............NC......3.25%
91....Legacy Health System..............................OR......3.24%
92....Texas Children's Hospital.........................TX......3.23%
93....NorthShore Long Island Jewish Health....NY......3.22%
94....Essentia Health........................................MN......3.20%
95....Reading Hospital......................................PA......3.14%
96....Saint Barnabas..........................................NJ......3.06%
97....Kettering Health Network.........................OH......3.04%
98....Univ Michigan Hosp & Health Ctrs............MI......3.04%
99....West Virginia United Health System.........WV......3.02%
100...Lee Memorial Health System....................FL......3.00%
101...North Carolina Baptist Hospital................NC......2.88%
102...Fairview Health Services.........................MN......2.87%
103...Lehigh Valley Health Network..................PA......2.86%
104...CareGroup Health Care System.................MA......2.86%
105...University Maryland Medical System.......MD......2.82%
106...University Iowa Hospitals & Clinics...........IA......2.76%
107...Kaiser Permanente....................................CA......2.72%
108...UPMC........................................................PA......2.71%
109...Ochsner Health System..............................LA......2.63%
110...Iowa Health System...................................IA......2.59%
111...Meridian Health System.............................NJ......2.54%
112...Aurora Health Care...................................WI......2.49%
113...Partners Healthcare System......................MA......2.40%
114...Summa Health System..............................OH......2.38%
115...McLaren Health Care................................MI......2.32%
116...Sanford.....................................................SD......2.31%
117...South Broward Hospital District................FL......2.28%
118...Wakemed Health.......................................NC......2.10%
119...Greenville Hospital System.......................SC......2.06%
120...Novant Health..........................................NC......1.92%
121...LifeSpan....................................................RI......1.91%
122...Scottsdale Healthcare...............................AZ......1.87%
123...Mount Sinai School of Medicine................NY......1.64%
124...MedStar Health........................................MD......1.63%
125...Kaleida Health.........................................NY......1.58%
126...Henry Ford Health System......................MI......1.52%
127...WellSpan Health......................................PA......1.49%
128...Spectrum Health System.........................MI......1.30%
129...Dartmouth-Hitchcock.............................NH......1.25%
130...Oregon Health & Science Univ.................OR......0.48%
131...Lifebridge Health....................................MD......0.41%
132...Children's Health Care Minnesota............MN......0.35%
133...Loyola Univ Health System......................IL......0.00%
134...West Penn Allegheny Health Sys..............PA.....-1.17%
135...Alegent Health.........................................NE.....-1.35%
136...Baylor College of Medicine.......................TX.....-3.36%
Total all 136 Hospitals................................................4.37%
The Big Non-Profit Hospital Organizations have to be extremely happy with how their finances have already been substantially strengthened by wise actions of the Obama Administration, of the Fed, and of the US Congress. And competent HHS Secretary Kathleen Sebelius has to be very high on their thank you list.
And they also have to be licking their chops for the significant step up in Hospital Operating Earnings they will be receiving when the Affordable Health Care Plan totally kicks in.
But the question that I think has to be answered....In all fairness, just like Health Insurance Corps should, shouldn't all Hospital Organizations also be reducing their stiff prices in order to both patriotically and compassionately help reduce total US health care costs, to help suffering US individual hospital patients, to ease the health care burdens on US businesses, and to soften both the crushing US Federal Deficit and the many State Government severely-stressed Budgets?
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