How Social Security and Medicare "media test" Affects Mergers and Acquisitions

After recently hearing comments from Ken Langone, one of the founders of Home Depot, regarding “means testing,” I thought it would be time to update my previous “means testing” email newsletter and send it out again.

Consider the following scenario. Fred spends $100 a week on various unhealthy habits, never works overtime, and doesn’t hesitate to use a credit card for numerous impulsive expenses. John avoids spending on unhealthy items, earning, on average, $150 a week in overtime pay, and is very careful to buy only what he can afford. After forty years, at age 65, Fred has no savings. At the end of the same forty-year period, after saving $500 per month, John has accumulated savings of more than $1,000,000 (assuming a 6% annual rate of return).

Under the proposed “means test” to determine whether Fred and John would receive Social Security and Medicare benefits, Fred would be entitled to all benefits while John would receive no benefits. Assuming that Fred and John each live another 25 years, Fred would receive approximately $1,000,000 from the government and John would have to spend his $1 million in savings. To add insult to injury, John also paid more taxes, due to his extra effort and earnings, to further support Fred’s government-sponsored retirement.

This is a great example of those on the political spectrum who want “equal results” without “equal responsibility.” Those of us who believe in personal responsibility should be acutely aware of the fact that even some of the established Republican leaders in Congress and some prominent businessmen, like Langone, are pushing for means tests. Consider the following comment from one such person: “If you have substantial non-Social Security income while you’re retired, why are we paying you at a time when we’re broke?” In other words, the government should reward bad behavior and penalize hard work, risk taking, and frugality.

Yes, this is a merger and acquisition issue. It is this same reasoning and the same people that will punish entrepreneurs who took big risks, failed more than once, made big sacrifices, and finally succeeded, against all odds, in building and selling their business. After a lifetime of work, risk and hardship, you will be penalized through the redistribution of your wealth. That redistribution will occur primarily through taxes and the reduction of your “paid benefits” so that others can ride on your success. We need to be vigilant in supporting those people who understand that “equal opportunity” should be the goal and not “equal results.” More food for thought; Instead of taxing the successful ones higher, why not eliminate their taxes altogether and instead give them a bonus for creating jobs and wealth in America? Just a thought.