If there is ‘no’ inflation, why are Medicare premiums going up?
Last Modified: Mar 28, 2011 02:08AM
This column is devoted to making sense out of money issues. But some money topics seem to defy logic. And, not surprisingly, most of those illogical money issues revolve around government actions. I’m always wondering how they get away with this stuff.
1. No Social Security benefits increase, because of “no” inflation. But Medicare premiums set to rise 4.6 percent!
The government doesn’t think there’s any inflation around. Here’s the Social Security website, explaining why there will be no cost-of-living increase in benefits for Social Security recipients in 2011.
As determined by the Bureau of Labor Statistics, there is no increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) from the third quarter of 2008, the last year a COLA was determined, to the third quarter of 2010.
No inflation in the past two years? Where do they live? Even worse, the very same government announces that Medicare premiums are set to rise 4.4 percent over the 2010 levels, for anyone with income over $85,000. The government’s reasoning for the increase in premiums as written on the Medicare.gov website:
The Medicare Part B premium is increasing in 2011 because of possible increases in Part B costs.
Oh, great. The government is actually getting ahead of anticipated cost increases by charging you higher premiums — in advance! But they don’t recognize any inflation for the past two years when it comes to Social Security. Does this make any sense to you?
(By the way, your actual Medicare premium is based in your income two years ago — perhaps before you retired — and could be as high as $369.10 per month, a shocking fact for many recent retirees.)
2. Property taxes are rising, while home values are falling.
I don’t care how many county assessors and village clerks try to explain this to me, it can’t possibly make any sense. Even with lagging reassessments, there’s no way that property taxes reflect anything like current market values.
For example, Lake County’s property tax consumes an average of 6.5 percent of household income — the highest collection percentage in Illinois and in the nation. In fact, Illinois ranks as the sixth highest collector of property as a percentage of home value.
(You can check these figures for individual states and counties using the property tax lookup tool at interactive.taxfoundation.org.)
Even more astounding is the fact that property taxes in Lake County haven’t fallen, despite a 6.3 percent decline in “equalized assessed value.”
State and local governments make up for falling home values by increasing assessments through a variety of accounting tricks. But the bottom line remains the same: You’re paying more property taxes.
While home prices have fallen as much as 30 percent from their peaks in many states, property tax collections have climbed more than 10 percent nationally since 2008. Only government could get away with this — and that might not last long. Just ask the mayor of Miami, who was ousted in a recall election last week after proposing a 14 percent property tax increase.
3. Universities increase tuition, while graduates can’t repay loans.
Everyone agrees that education is the basic requirement for a successful, growing economy — even though today’s college graduates can’t find jobs and are having huge problems repaying student loans. It’s clear that college is being priced out of reach for many struggling families.
But instead of cutting costs and lowering prices to encourage more use of their product, colleges and universities across the nation are raising tuition rates. Last week the University of Illinois announced a 6.9 percent tuition increase. That’s just a reflection of what’s happening across the country.
Only one school seems to get it. In Terra Haute, Ind., the new freshman class at St. Mary-of-the-Woods College will be promised that their first year $25,000 tuition and fees cannot rise over their four-year course of study. Officials there said the policy is an attempt to increase enrollment and retention.
Finally, someone in college administration is acknowledging the reality of the marketplace: Higher prices destroy demand — unless government subsidizes student loans which can’t be defaulted. If we want an educated citizenry, schools will have to make better use of their resources instead of passing on higher costs.
What do all three of these examples have in common? Those who price the “product” don’t live in the real world where ordinary people have to make tradeoffs. Governments and universities always been able to pass along their “costs.” But not for much longer. And that’s the Savage Truth.
Terry Savage is a registered investment adviser
Copyright © 2011 — Sun-Times Media, LLC
