• June 10, 2021

How Social Security and Medicare “Means Tests” Affect Mergers and Acquisitions

After recently hearing comments from Ken Langone, one of Home Depot’s founders, regarding “media testing,” I thought it would be wise to update my previous “media testing” email newsletter and send it 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 expenses for unhealthy items, earns, on average, $ 150 per week in overtime pay, and is very careful to buy only what he can afford. After forty years, at 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).

Based on the proposed “means tests” to determine whether Fred and John would receive Social Security and Medicare benefits, Fred would be entitled to full benefits, while John would not receive any benefits. Assuming Fred and John each live 25 more years, Fred would receive approximately $ 1,000,000 from the government and John would have to use up his $ 1 million savings. To add insult to injury is the fact that 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 well aware of the fact that even some of the established Republican leaders in Congress and some prominent businessmen, like Langone, are pushing to test the means. Consider the following comment from one of those people: “If you have substantial non-Social Security income while you are retired, why are we paying you at a time when we are bankrupt?” In other words, the government should reward bad behavior and penalize hard work, risk taking, and frugality.

Yes, this is a M&A problem. It is this same reasoning and the same people who will punish business owners who took great risks, failed more than once, made great sacrifices, and finally managed, against tremendous difficulties, to build and sell their business. After a lifetime of work, risks and hardships, you will be penalized by redistributing your wealth. That redistribution will occur primarily through taxation and reduction of your “paid benefits” so that others can build on your success. We must be vigilant to support those who understand that “equal opportunities” should be the goal and not “equal results”. More food for thought; Instead of taxing the successful ones higher, why not eliminate all their taxes and instead give them a bonus for creating jobs and wealth in America? Just a thought.

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