What John Boehner did on his summer vacation

John Boehner

In a last ditch effort to scare the American public into thinking that Obamacare is the evil that will kill America as we know it, Speaker of the House, John Boehner has been very busy tweeting disparaging remarks about the Affordable Care Act law while on his summer vacation.

One of his most often repeated claims is that full time jobs are disappearing as a result of Obamacare.

The Affordable Care Act, in an effort to not financially over-burden small businesses that may not be able to afford it, originally allowed a minimum employee requirement of at least 25 full time employees before a business must provide employee healthcare.  In order to compromise with Republicans, the law was later changed to require a minimum of at least 50 full time employees before insurance coverage was required.  Full time employees are defined as workers with at least 40 hours of work per week or 2080 hours of work per year.

This requirement was intended to protect businesses that may really be endangered financially if they were forced to provide insurance to their employees.   In other words, those businesses that may be forced out of business if they had to provide health insurance and could find no other way to save costs.  The Act also attempts to protect such fragile small businesses by providing tax credits of up to 50% of the non-elective contributions the employer made on behalf of its employees.

According to Boehner, businesses which do not fit the criteria are now using these allowances to side-step providing insurance for their employees.  Boehner cites one example of a business owner of 21 (yes, that's twenty-one) Subway restaurants who decided to reduce the hours of employees so that he could use the allowance to avoid having to provide health insurance.  Another report indicates that Wal-Mart is reducing full time employees and increasing part time employees (ten times more than last year) to keep costs down.  Apparently offering insurance is going to break the bank of the wealthiest family in the retail business.  Wal-Mart employs some of the lowest paid workers in the United States and in so doing are taking advantage of taxpayers who provide supplements to Wal-Mart employees wages in such programs as supplemental nutrition, medicaid, and increased medical premiums for unpaid medical bills.

It is odd that Boehner sees this as an Obamacare caused phenomenon instead of placing the blame where it belongs, on greedy and uncaring business owners.  I was struck by the statement of the wealthy subway owner who was quoted as saying "I know the impact that I am having on some of my employees."  The article left out the remaining thought that was obviously knocking around inside the owner's head but didn't come out...the one that goes something like "but I don't care."

Now there are plenty of studies that indicate the majority of employers are not side-stepping Obamacare  by taking what most would say are unethical steps to avoid it, so this rant that Boehner is taking may just be another Republican ruse that uses fear to deceive.  Republican leadership appears adamant to fight Obamacare by any unethical means possible, just as some unethical business owners are sure to use tactics that they have always used to avoid providing benefits for their employees.

The only fault I see with the Affordable Care Act law is the fact that there was a business allowance at all.  Short of being a single payer program, it should have required all business to provide insurance and perhaps give tax breaks based on the size of the business, with smaller businesses getting more of a tax break.  The temptation was too great for dishonest business owners to use it as a loop-hole and then flaunt their arrogance by blaming the law for their unethical behavior.

So let's call it like it is Mr Speaker.  You can't blame Obamacare for the unethical actions of your constituents.

How the rich will make $millions while avoiding the impending financial crisis

Ben Bernanke

When Fed commissioner Ben Bernanke announced that the Fed’s purchase of mortgage securities might be reduced if the economy continued to improve, he gave early warning to the 1% that they should cash out of the market and use one of their off-shore tax shelters to keep their money safe.

As a result, the market lost billions of dollars in the last two days when many wealthy investors cashed out.  The market doesn't look much better today.

I contribute the recent loss in the stock market directly to the one-per centers.  

This was not a case of middle-class investors cashing out their 401K’s because the penalty is too much to cash out a 401K.  It was not a case of investors moving their investments around because that would have had no net change impact on the market.  It was an outright removal of investment cash by selling while prices are still good.  The group of investors who can do this without tax consequence are the wealthiest people in America.  Other investors may soon follow in this selling frenzy now that the trend is sounding alarm bells.

Middle-class workers who try to save some of their pay in 401Ks have the most to lose. 

They do not have the freedom to cash out of the market without losing 40% of their cash to early withdrawal penalty tax.  They must weather the storm when disaster happens.  So when the billionaire investors got out of the market it caused the loss in value which will be to the detriment of middle-class owners of 401Ks.

In 2007 we saw the serious financial collapse of the market as millionaire’s and billionaire’s who had the freedom to remove their dollars from the market did so at a rapid-fire pace.  In that disaster middle-class Americans lost up to 50% of their savings in 401K’s.  

After only the last two days, the market has lost up to 5% of its value.  The trend seems to be continuing today.  If it continues to lose at this rate it will only take a month to repeat the 2007 disaster.

Do the wealthy believe that Bernanke’s security purchase program is really improving the employment situation?  Is that what is worrying them?  Of course not!  They are the job creators, so they should realize that increasing jobs only happens when there is an increase in product and service demand.  That is not happening.  So what are they worried about?  

They worry that Bernanke may be starting to realize that any increase in the economic outlook or jobs for America is really not due to his policies.  They are getting the idea that Bernanke will end security purchases even if the job situation and the economy does not improve.

Up until now, Bernanke’s policies have kept interest rates low and made it easy for investors to purchase stocks and bonds without fear.  The stock market usually does very well when interest rates are low and investors feel confident.  This undoubtedly favors the wealthiest investors.  

By removing that investor guarantee, Bernanke has decreased the certainty of profiting in the stock market.  And one thing the 1%’ers love more than anything is profit.  So they are willing to trash the rest of America and start the collapse of the market in order to preserve their beloved cash.

I expect that this free-fall in the stock-market will persist in the upcoming weeks as more and more of the wealthy catch on to what many of them have already deduced.  They will remove their cash from the market, shelter it off-shore and just wait it out.  When the market bottoms out, they will be ready to pounce on some really cheap stocks and the whole cycle will repeat itself.  That's how you make millions and avoid the financial crisis.

And for the millions of baby-boomers who are retiring, or about to retire, they can thank the wealthy for the additional burden that they will have in their old age as they try to find ways to stretch their greatly reduced nest eggs.  Even when the market comes back eventually, we will have lost whatever time it takes and this lost time will stunt financial growth.

I hope I am wrong.

A Republican to English dictionary

Although born and raised in the United States, my father, who passed away in his old age a few years ago, was not really good with the English language.  Sometimes he used words that he made up in conversation that sounded like words that they really weren't.  My kids were often confused by their "Papa", as they used to call him, and I would joke with them that maybe we needed to get a Papa- to-English dictionary.

Because of their support for policies which Republicans stand for, most of which go against their best interest, middle-class Republicans may be well served if they had a Republican-to-English dictionary.  Perhaps that way they could better understand that their welfare is not of concern when it comes to modern Republican politics.

Here are a few examples of statements we have heard our Republican leaders talk about.  I have given some assistance to the American voter by attempting to identify the true meaning of these words in plain English.

"Jobs, Jobs Jobs": Cheap foreign labor for America's Corporations.  

"Support for our troops": Increasing government funding of defense contractors.

"Reducing the deficit":  Protecting the 1% by taking revenue off the table, increasing military budgets to protect defense contractors and only calling for government spending reductions in programs for the poor, women, children, the elderly, students, the handicapped, military veterans and the unemployed.

"Smaller Government": 1. Eliminating government protections of it citizens in regards to regulations on business so that big business can operate with a free hand to decrease costs involved with making a safe product, protecting the environment, giving fair wages, creating a safe work environment, treating workers fairly and otherwise operating responsibly.  2. Reducing government spending by eliminating public service jobs such as teachers, police, fire-fighters and government workers and rejecting the American Jobs Act that would have improved the infrastructure of roads, bridges, schools, etc. 

"2nd Amendment rights": Returning the favor for NRA lobbyist money and preserving the market and demand for weapon manufacturers regardless of the wishes of the majority of Americans for stronger gun laws.

"Obama-Care": Originally a Republican introduced derogatory term for the Affordable Care Act which later became adopted as a catch-phrase by President Obama.  Republican intent is to put fear into American citizens and protect big insurance corporations from the effects of treating American citizens with fairer insurance rules and charging costs that would benefit the citizen.  Most of the effort of the Republicans in the 113th Congress has been in attempting to repeal Obama-Care law 37 times as of this date.

"Sequester": A Republican plan since 2010 to reduce the size of government in a way that would protect the wealthy and would otherwise never be possible by normal legislative proceedings.

"Filibuster": The cornerstone of Republican obstructionism used to prevent problem resolution, slow down progress on legislation and block President Obama's appointees and ideas that support middle-class Americans.

"Balanced Budget": A financial plan that reduces spending on useful government programs such as medicare, medicaid, the social safety net and social security which must not be balanced by any increase in revenue, especially by increased taxes on the wealthy or corporations. 

"501(c)4": Republican worked loophole in the IRS regulations that permits a political action committee to receive donations that are exempt from federal taxes and then to complain when the IRS workers request information that may prove they are political action committees.  The 501(c)4 is supposed to be for non-political social organizations.

"Stimulus package": Another name for the American Recovery and Reinvestment Act.  An act carried out by the Democrats and President Obama that saved the country from financial collapse.  Republicans voted against the stimulus package.

"Voter ID": An attempt to reduce access to voting by members of the citizenry who would not vote Republican in elections.  This action as well as closing down voting precincts and voting hours were used by Republican state legislatures as a strategy in the 2012 elections.

Republicans have proven that they do not represent the middle-class or the poor.  If you are in one of these groups and you vote Republican, I would be interested in knowing why you would vote that way.

If you have any other definitions, please feel free to add a comment.  I'll add the best one's to my collection.

Fed promises unlimited mortgage security purchases...should we be worried?

Ben Bernanke

The Federal Reserve Board today, indicated that in attempts to restore jobs to the economy, they will be purchasing upwards of $40 Billion per month in mortgage securities.  Should we be worried?

While it seems that the short term goal of reducing interest rates for banks and business will most probably work, is the longer term goal of increasing jobs going to be guaranteed from this strategy?  I seriously doubt it.  And here's why.

If you follow the demand side theories of job creation, then you would expect increase in demand to be the major factor in creating new jobs.  This demand theory is supported by President Obama.  Consumers are the source of new demand for business.  Consumer spending is dictated by the amount of cash available to them after necessities spending.  The primary source of this cash for most middle-class workers is take-home pay from a job.

If you follow supply side theories of job creation, then you would expect anything that reduces the expenditures of business should automatically allow them to spend on new hiring.  The new demand part of the equation is not really important in this theory.

While some middle-class workers have 401K's the increase in the value of these accounts due to the Fed's actions will not give them any immediate spending capacity since the cash in the 401K can only be accessed after retirement without significant financial penalties.

Those elderly retired persons who have 401K's may see some immediate benefit to their cash available, but these people are already retired and are not looking for jobs.  It is also doubtful that this extra cash would be a new source of demand for businesses as most retirees would probably need the extra cash for necessities and not luxury items.

It does not appear that the Feds actions today will do anything to help spur significant new demand.  So the only hope of creating new jobs would be based on the Feds belief in supply-side economics.

The main recipients of the benefit of reduced interest rates and increased stock market prices are wealthy investors, banks and businesses.

One might think that with this cash, business will be motivated to grow and at the same time hire.  But we know that most US Corporations are already sitting on the largest cash reserves they have had in decades.  They are not using these funds to grow or hire, although some are buying up competitors businesses and consolidating the workforce by layoffs of excess personnel.  This is the reverse of what the Fed is shooting for.

We also know from the history of Corporate America for the last 30 years or so, supply side economics does not work for creating new jobs.  When American Corporations were allowed to have significant tax breaks, American jobs were not increased, they were actually decreased.  Over the last twelve years or so, we have lost close to ten million American jobs to outsourcing to foreign countries.

One hope for creating new jobs using supply-side arguments is new small business start-ups.  With low interest loans, new small business start-ups might increase, but with interest rates already extremely low, and small business start-ups not currently saving our economy or producing significant jobs, this option does not look promising.

The Feds approach to creating new jobs supports supply-side economics and from my observations at least, has little chance of creating new jobs.  Millionaires and billionaires will be happy with their new cash inflow, but are very unlikely to use the opportunity to hire without demand requiring it.

In order for jobs to be created, we also need a significant increase in demand across all industries.  If new technologies or new products are not being developed, then we need to support the middle-class with increased wages, federally funded jobs, returning jobs to America and other work supports to give them the ability to increase demand until government and business research brings new products to market.

President Obama's American Jobs Act meets all of these requirements.  We need the Republican Congress to stop filibustering the Act and do the job that Americans want them to do.  They need to approve the American Jobs Act.  We Americans need to re-elect President Obama.

From Romney's Official Web Site - His Tax Plan explained

Romney and Ryan

While on the Campaign trail we hear a lot of platitudes and rhetoric from Romney and Ryan but very little factual information on how they plan to improve our economic condition.  The Romney tax plan has been one of these kinds of issues.  

So for this session, I will review the actual facts as presented by Romney on his official web site, http://www.mittromney.com  When I am done, I think you'll understand why he is so quiet about it on the campaign trail.  Those lines that are in quotes are extracted from Romney's web site.  Those lines that follow the quoted lines are my explanatory comments.

“To repair the nation’s tax code, marginal rates must be brought down to stimulate entrepreneurship, job creation, and investment, while still raising the revenue needed to fund a smaller, smarter, simpler government. The principle of fairness must be preserved in federal tax and spending policy.”

“Lower marginal tax rates secure for all Americans the economic gains from tax reform.”

The following paragraphs cite the various steps in Romney's plan.

Romney's Tax Plan For Individuals:

“Make permanent, across-the-board 20 percent cut in marginal rates"

Marginal rates have the greatest effect on the wealthiest of taxpayers. A twenty percent rate cut is a huge amount but only makes a real difference to the wealthiest among us.   Add to that the tax loop-holes that are only available to the wealthy and soon middle class America will not only be paying a higher tax percentage than the wealthy, but some may even pay more in absolute tax dollars than the rich.

“Maintain current tax rates on interest, dividends, and capital gains”

The categories of income included in interest, dividends and capital gains are used almost exclusively by the wealthy. The current tax rates for these are very low with capital gains as low as 15%. With the many tax loop-holes available to the ultra-rich, this tax rate is already lower than that for most wealthy taxpayers. The point is that this tax favoritism is again directed toward the rich. Most of the middle-class will have almost no tax savings at all because they do not have income from investments.

“Eliminate taxes for taxpayers with AGI below $200,000 on interest, dividends, and capital gains”

Again, these categories are already non-existent for most middle-class Americans. The estimated AGI income of the Middle class Americans is around $50,000. About 94% of America has AGI less than $100,000.  Ask yourself how much of your taxable income (not 401K investments) comes from cash stock trades done throughout the year.  Do you understand that Romney's plan is targeting benefits for the wealthy?

“Eliminate the Death Tax”

This tax is already non-existent for middle class Americans unless an individual has over $5,000,000 in assets.  And who do you think would benefit from such a tax elimination? Let me give you a clue.  It is estimated that the heirs of the each of Koch brothers would benefit by nearly $8 billion dollars if this tax was eliminated

“Repeal the Alternative Minimum Tax (AMT)”

The AMT is paid only if the regular tax amount would be less than the AMT amount. It is not used in addition to the regular tax rate, but as the name implies, as an alternative to the regular rate. It is normally required by individuals and Corporations with incomes over $200,000. Since Romney is proposing to make the regular tax rates for the wealthiest individuals much less, he must repeal the AMT, or his favoritism to the wealthy would be over-ridden by the AMT. So this strategy is not to benefit the middle-class, but instead to ensure that his tax favoritism for the wealthy stays in tact.

Romney's Corporate Tax Plan:

“Cut the corporate rate to 25 percent”

Romney's tax plan for Corporations calls for a 10% reduction in tax rates. Similar to the plan for wealthy individuals it goes without saying that Corporate Tax initiatives would favor the wealthiest in America. It has very little benefit on the middle class. No jobs will be created because Corporations have their taxes cut unless demand increases. The American worker is the source of nearly 75% of the demand in America. Reducing taxes for the rich will only benefit the rich as it has for the last thirty years with very little improvement in jobs or take-home pay for workers. When more workers are employed and wages are improved, demand will increase. This starts from the middle-class out and not from the top down.

“Strengthen and make permanent the R&D tax credit”

This tax advantage is intended to increase spending on Corporate Research. It is difficult to know how much of an impact that this tax credit has had on the economy but it is known what kind of tax advantages are had by Corporations because of it. A study by Ernst and Young in 2005 reported that 17,700 Corporations claimed $6.6 Billion in R&D Tax credits.

“Switch to a territorial tax system”

This is Romney's way of allowing American Corporations to escape paying taxes on any business carried out in foreign countries. A territorial Tax system is one that only taxes income earned in the United States. This would be a huge loop-hole for Corporate America to escape paying their fair share of taxes. It is difficult to estimate how much revenue would be lost since it would likely change Corporate practices to take advantage to the greatest extent possible.  It is easy to say that the reduction in Corporate tax revenue would be extremely high and outsourcing of plants and jobs would likely be increased to the max.

“Repeal the corporate Alternative Minimum Tax (AMT)”

For the same reason as the individual AMT repeal, this would be necessary if Romney's other reductions in taxes are to be effective in reducing taxes for the wealthy.

Ultimately, Romney's tax plan would favor the wealthiest of Americans and do little for the middle class.  With a territorial tax it may even hurt the middle class by taking more jobs out of the country.  And who do you think will get stuck paying the taxes that are being lifted from the rich?  You guessed it...Middle-class America.

If you hear Romney and Ryan proclaim that they are for the middle class during their campaign tour, now you'll know that they are both compulsive liars who will say anything to get your vote.  

Like sheep to the slaughter, millions of our middle class American Republicans are being led astray by the slick double-talk of their so-called concerned Republican leaders.  

Save your vote and your job.  Vote a total Democratic ticket this November.

As anxious as I am for the release of the iPhone 5, I'm even more anxious for the release of Rmoney tax records on September 28th.

Today, CNN reported that Price Waterhouse Cooper's (PWC) Franklin, TN, the Republican Campaign and the Democratic Campaign offices received a package from an anonymous person who claims that Mitt and Ann Romney's tax records were stolen from the PWC office and will be released to the Public on September 28th.  PWC is an accounting firm that is often used for complex tax returns.

Some of the details of this break-in are reported by the group or person who claims responsibility on the website called "pastebin.com" which you can find here. 

Although CNN claims that the group is holding the data ransom for $1,000,000, there is no mention of this in the letter posted to the paste bin site.  Perhaps this info was included in the package left with PWC, or perhaps was just made up.  This was not clear as of this writing.

The Secret Service is reportedly involved in an investigation.

It was not certain if this was a scam or a real incident, but the Republican and Democratic Campaign offices both did report receiving the package which they purport to not have opened.

I guess time will tell.

Deciding factors that create jobs

Republicans advocate reducing taxes on the job creators as a viable means to grow jobs.  They claim that burdening job creators with additional costs will reduce the likelihood that they will hire.  I like to call this the "job creator lie" because it is nothing more than a Republican empty threat.  Greed is the source of the lie.  It is intended to prevent government taxes on the wealthy, ruling class who apparently are teetering between great wealth and possible financial ruin and taxes would make all the difference.

Are taxes really the major determining factor preventing job creation?  Certainly not.  Studies have shown that there is absolutely no correlation between taxes and job creation.  In fact, some have reported that in times where the rich have had to pay higher taxes, more jobs have been created.  You can rest assured that taxes are not the reason that Republicans spread this job creator lie.

So let's assume that greed is the main reason for the lie.  What then are the factors that really play a part in job creation?  Some factors like supply and demand appear obvious.  There are many theories behind how these two factors interact.  But which is most important?  And are there any other factors like cost of labor or business owner's wealth?

When a business is started, it is assumed that markets have been evaluated and the product or service is something of value which consumers will purchase.  Some estimate of the demand and the profits are made in a business plan and start-up funding is found.  Eventually people are hired to operate the business and the first jobs are created.  In some large businesses there is a choice of hiring from an American workforce or a foreign workforce.  Because patriotism is not a belief of many profit motivated businessmen, where it is possible it is an easy choice to hire cheaper labor from foreign sources.  So even when a new business is started, American job growth is not guaranteed.  In that way, business owner's wealth and cost of labor is an important factor determining where jobs will be created.

Simply stated, job growth usually happens when a business has a product or service which has demand that exceeds the supply or when the demand for a greater number of products or services offered exceed the capacity of the existing workforce.  The important word is "demand."

When we talk about demand sources, we are talking about the consumers who mainly are also the workers in America.  The major factor which affects consumer demand is consumer pay.  Pay comes from jobs.  When Americans do not have jobs or when those that have jobs are not paid well, American demand for products will decrease.  This decrease in demand cannot be overcome by making more products.  It cannot be overcome by reducing taxes of the wealthy business owners.  It cannot be overcome by producing cheaper products in a foreign country or by foreign workers in America.  It can only be overcome by finding new markets or sources of demand.

For many businesses this is not an option.  As demand decreases, so do the profits of that business.  Without new sources of demand, the business is forced to take drastic actions.  Perhaps first trying to increase demand by reducing the price of products and then by reducing the workforce to be more in line with the decrease in demand.  Eventually it may mean the business is sold off to a venture capitalist or becomes bankrupt and fails.

Businesses need consumers.  The loss of demand is a bigger threat to them than any increase in taxes.

There should be a synergy between the executives and the workers in a business where both parties are aware of the importance each has for the other.  In recent years workers wages have stayed stagnant while executives wages have increased 300 percent.  The greed that is implied in these statistics is as much a cause for the loss of demand and resultant loss of jobs than anything else unscrupulous business owners have done.

It is time that American workers have been made whole again and received the importance they deserve  in this relationship with business.  President Obama's policies are the greatest hope we have to restore jobs to Americans, revitalize the economy and return demand to businesses.

Little did I know that my layoff in 1995 from Dupont Medical Products was a God-send that saved my Dupont pension from the Bain Capital boogey-men

New England Nuclear logo

After college, I started working for a little medical diagnostics company in Worcester, Massachusetts known as New England Nuclear in 1974.  We occupied two converted former residential houses on Harvard Street, which was a newly zoned business district.  Our specialty was manufacturing medical diagnostic kits that utilized a radioactive "tracer" component.

When I began working there, the company had sites in Worcester, Boston and Westwood, Massachusetts.  We didn't make much money then, but it seemed the owners were satisfied with their share of small profits, which still allowed them to live well.  Executive salaries in the tens of millions of dollars was not common and really could never have been accommodated given our tiny profits at the time.  It was a different time then.  The profit motive was not the only consideration to businessmen at that time.  Employees made the difference and executives realized that and honored them for it.  We all could feel the warm concern that our employers had for us.  Many of us worked for them for a long time.  We were a small "family" that grew with each other.  We considered ourselves scientifically trained intellectuals and all had respect for each other.   We had fun doing our jobs and fun socializing with each other.

Investment in research helped us rapidly develop a number of new diagnostics kits and our product line and profits began to increase.  In about a year after I started, the business  expanded and moved from Worcester to a nice new facility in Billerica.  And that is where I worked for the next 20 years.

In 1982, Dupont Company became interested in our little company and purchased us.  It was really a good thing for our company.  Dupont management was very knowledgeable and taught us much about managing a company.  But this huge Corporation was very different than anything we knew before.  The corporate culture was very structured and inflexible.   The environment became somewhat more uneasy and competitions between departments began to arise.  As Dupont began to bring in their own people some of the original members of our New England Nuclear team lost out on promotions.  We played second fiddle to Dupont's own talented organization.

Around 1992, the newest thing to managing a business was Manufacturing Requirements Planning (MRP). The essence of MRP was to implement a computer tracked transactional system that allowed management and business users to have much better understanding of their sales, production capacity, inventory, purchases and financials.  We began an implementation of MRP in 1992.  We did a good job of implementing that computer system and became a "Class A" manufacturing company within two years of implementing it.  It gave management a better understanding of our business activities, future potential and financial situation.

In anticipation of undisclosed future actions, Dupont management moved the people from the Billerica diagnostics operations to the Boston site.   Perhaps because the MRP system was providing such good information, or perhaps because Dupont expected more profits than we could produce, in 1995 Dupont management decided to have a reduction in force of a good percentage in all divisions.  Many of us who were with New England Nuclear from the early days were let go.  I was one of them.  Maybe they were trying to save the greatest costs or perhaps they thought our severance package would get us further along to finding a new job, but we were all surprised by the selection of experienced people who were laid off.

For those of us who were terminated, it was a stressful time.  Jobs were not easy to find.  One of our young colleagues was found dead in his apartment.  I never knew why he died.  It may have been due to some other cause or due to some other reason, but I tended to believe it was suicide.

Because of my longevity with Dupont I was one of the lucky ones.  I had enough time in to have earned a Dupont pension.  I was given eleven and a half months severance pay and eleven months later I finally found a lower paying job.  Not my best choice in jobs, but my only choice since I had come up empty on any other offers.  At the time I thought this was terrible, but I did not know that my lay-off in 1995 was going to save me from a fate worse than the lay-off I had just experienced.

Dupont management's undisclosed plan was to divest entirely of the medical diagnostics division.   Dupont's main reason for the move from Billerica to Boston was to move the medical diagnostic personnel into a common location with the other medical site that they also planned to sell off.  Some commonly refer to this as putting all the crap into one sock.  The year after I was laid off, in 1996 Dupont found a buyer in Bain Capital.

Mitt Romney and Bain Capital team

Bain had already purchased another medical diagnostic company called Dade International in 1994 using mostly borrowed money.  Right away Bain paid themselves nearly $100 million in fees for buying the company and managing it. This amount was over three times Bain's original investment.

In 1996 Bain included my former colleagues into the Dade organization.   During Bain's reign over Dade International, more than 1700 US workers were laid off.  Some of my colleagues were the first with a layoff in 1997.  At first Bain's approach to cost cutting included reducing salaries and not paying overtime to existing employees.  Then they revoked their pensions.  Finally they laid them off.

In 1998, Bain wanted to sell Dade and were given a generous offer by Kohlberg Kravis Roberts and Company, but Romney wasn't happy with the offer.  By the next year Bain used creative financing to find a way out.  Romney had Dade take out hundreds of millions of dollars in loans to buy out half of Bain's shares and half of those of its investment partners.  As a result, Bain extracted $242 million from Dade and Goldman Sachs got $121 million.  Top Dade executives got $55 million.  Total payout was $420 million.

In 2002 Dade's liabilities reached nearly $2 billion.  By leveraging the company so badly in order to pay themselves, Bain put the company into bankruptcy.  In the bankruptcy, Romney was accused of "unjust enrichment" and Bain had to relinquish its remaining ownership of Dade.  Romney and Bain kept the $342 million.  The other creditors didn't fair so well.

After bankruptcy, Dade's revenue and share price rapidly increased and it was bought by Siemens in 2007.

Here's hoping that many of my former colleagues survived Romney and Bain Capital.  My bet is that they will not  be voting for Romney for President, even if they're Republicans.

How to shelter $100,000,000 in an IRA

Recent controversy over Mitt Romney's tax returns has included questions over his IRA (individual retirement account) which is reported to contain well over $100,000,000.

For those of you who do not have an IRA, it is important to note that regulations impose a $5000 limit to the annual contribution that an individual can make to it and even less than this was allowed in the years before 2012.

If Mitt Romney worked at Bain Capital for 25 years, then at the current allowable deposit amount and excluding interest, Mitt's principal would grow to $125,000 in that time.  Yet Romney has nearly 1000 times that amount in his IRA.  So let's say that the investments made by the IRA gave Romney a 15% return each year.  After twenty-five years that IRA should contain about $1,600,000.  Still a far cry from $100,000,000.

So how could Romney's IRA contain so much more?  Allow me to speculate.

When Romney founded Bain Capital, it was created as a Private Corporation.  Legally, Private Corporations do not have the financial transparency that Public Corporations have.  The stock of the Private Corporation is not sold to the public and usually remains under the ownership of the partners of the Investment firm.

The United States Treasury Office began to see a phenomenon occurring with Private Corporations around year 2000.  In increasing numbers, Private Corporations began to find tax shelters to protect their profits from United States taxes.  Additionally, certain stock based compensation plans did not comply with what IRS called "deferred compensation" tax rules.  For example, certain individuals were given stock options with an exercise price that was less than the fair market value of the company's common stock.  To block this practice after year 2000, regulations were adopted to add an additional 20% tax on these transactions.  The idea was to discourage evading taxes by writing regulations that made it less profitable to do so.

In certain companies (Bain may be one of them), under-priced stocks were given to the owners and directly deposited into their IRA accounts.  So let's say the $5000 limit on the IRA deposit was achieved by under-pricing these stocks by a huge amount.  For example, let's speculate that the per share fair market value of the stock was $50.00 but the owners got shares deposited into their accounts at $0.10.  In that case, the number of shares at the fair market value is 100, but at the reduced price is 50,000.  For reporting to the IRS, the Individual Retirement Account meets the regulations and only $5000 is reported as being deposited.  Yet in reality, the true value of the number of shares is 50,000 shares x $50.00 per share = $2,500,000.  

Repeat this year after year and you will soon have $100,000,000.  Even if you do not reduce the price of the stock as much as in my example, you will still be there in no time.

If the individual has a Roth IRA, then the situation is even more favorable.  With a Roth IRA, the taxes are paid on the deposit amount and are not taxed upon withdrawal at retirement.  So in our example above, the Roth IRA owner would pay taxes on $5000 up front and not on the $2,500,000 withdrawn during retirement.

So if you want to shelter $100,000,000 in an IRA, open a Private Corporation, setup a Roth IRA and give yourself stock options at a seriously reduced price.  Pay taxes on $5000 and enjoy the tax-free high life at retirement.