The Upcoming Healthcare Debacle
The Market Ticker ® - Commentary on The Capital Markets
Posted 2012-06-16 16:59
by Karl Denninger
in Health Reform
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The Upcoming Healthcare Debacle
 

The Supremes are scheduled to rule before the end of the month on Obamacare.  If you read the punditry, the expectations are that some or all of it will be struck as unconstitutional.  That would not surprise.

But what also does not surprise is the duplicity of everyone in the political sphere on the actual root cause of the problems in the medical system, and our refusal to address them.  Witness this from the WSJ over the weekend:

In short, the GOP may be positioning itself to become the dog that caught the car. Political and policy uncertainty is perhaps inevitable given the range of what the Court could do. But the Republicans need a more coherent strategy, and more credible alternatives, to avoid reprising the payroll tax holiday debacle of last Christmas, except with generational consequences.

Republicans are down the line opposed to the individual mandate, but there's an internal debate about what to do if the Court also overturns the main insurance regulations. A sizable cargo cult within the GOP wants to preserve some Affordable Care Act provisions and favors passing stand-alone bills reinstating them if necessary. The idea circulating is that the Republican Party should consider a "keep the good stuff" approach.

Uh, yeah.

Nobody (except for a few like myself) are talking about what really happened with Medical Care and why we're here.  In brief (which I've explained at great length) the mess began with EMTALA, the Reagan-era law mandating that anyone who shows up with an "emergent" condition be treated irrespective of ability to pay, and we compounded the errors up and down the line by providing the medical industry in all its forms with "protections" that allow it to behave in ways that are unacceptable in any other line of business (and in many are flatly felonious.)

Specifically:

You can be provided a service without any idea what you will pay for it until after the fact.  This is especially true if you're in duress (e.g. unconscious); in such a circumstance you will be later billed the maximum they think they can extract, sometimes 10, 20 or even 100 times what they would pay a government insurer for the same thing.

If your "debt" (after being billed 10x the rate paid by some other person) is then "forgiven", you will be 1099'd for the difference as taxable income on an amount that the other party would have never paid in the first place.

You cannot buy a service that is billable only if the person alleging to provide you with help succeeds in doing so (would you accept a mechanic working on your car billing you if he failed to fix it?)

The medical industry has lobbied for and received "protection" from you going across a border and buying the very same drug or device made in an authentic manufacturer's factory and bringing it back here for resale, thereby enforcing an artificial 2, 3 or 10-tier pricing mechanism that effectively forces you to pay 90% of the cost of a Canadian's access to the same therapy.

The medical industry is "encouraged" to develop therapies for which there is no rational cost justification; as an example Dendreon's Provenge provides an average 4.1 months of additional life to recipients yet it costs nearly $100,000.  That is, for every additional statistical year of life the price is $250,000 -- to someone.  Were the "someone" each individual who received it there would likely be no market for this drug.  Yet it was developed "on the come" with the premise that government would pay (a large percentage of prostate cancer patients are Medicare) -- that is, government would force everyone to fork up that which the average senior citizen would refuse to pay for himself.

The market is an excellent arbitrer of what is an "acceptable" cost for a given thing.  I would love to drive a Lamborghini.  I cannot rationally justify buying one, as the price does not convey to me sufficient value, in my view, to purchase, own and insure one.  Therefore I do not buy one and the market is constrained -- there are few produced, as there are few people who have both the means and ability to purchase one.

But with health care it's different.  The demand for "every breath I can draw" is of course nearly infinite.  Most people, if there is no material bar to the lengths they can go to extend their life, will spend as much of other people's money as is possible.

The only means to stop this sort of thing is to bring back the market and accept mortality.  That is, we must accept that we are all born with a unique genetic make-up and some of us drew longer straws in that department than others.  We did so in intellectual capacity and, of course, health.  We are able to influence but not guarantee outcomes through our behavior.  All of this makes each of us unique.

The only sustainable position is that one's unique gifts -- or curses -- when it comes to medical matters are things that one must deal with through their own resources.  This does not mean that we cannot help others through voluntary compassion; we both can and should.  But it does mean that "equality of result", which in fact is the goal of socialization of medicine no matter how it is couched, is both doomed to failure and a relentless cause of ratcheting costs far beyond our ability to pay.

We have taken medical spending at the federal level alone from $53 billion in 1980 to $820 billion last year.  This is a 9.3% approximate rate of compounding.  At this rate of increase within 15 years medical spending will rise to $3.28 trillion 15 years from now -- a time when most people who are 65 years and younger will live to see. 

The government cannot spend that amount of money as it doesn't have it and can't acquire it.  If we do not stop this here and now both government and private industry will collapse attempting to provide cost-shifted medical care "from cradle to grave, on demand, in any amount demanded" to everyone in the country.

We must both tell the truth about the lies we have put into the public sphere on this matter in the past and accept or mortality in the present and future.  There is, quite literally, no other choice.

I have written repeatedly on the specifics of how to address these problems in the health industry; you can find the compendium here -- start with the oldest articles first.  Or, alternatively, pick up a copy of Leverage -- the medical industry figures large within the book both in problems and solutions as it is one of the largest areas of distortion in our economy and one of the first and most-important we must address.

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Andysvw
Posts: 1734
Incept: 2010-06-26
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Tujunga Ca
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The AMA jumped the shark long ago.

They need to find a way to do what they do honestly and openly. Up front billing is by its nature the way business is done. If its charity then whats with the bill. You dont get it both ways pick one.
Donethat
Posts: 771
Incept: 2009-04-22

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End of life drugs, Erbitux and Avastin, same old story, either no change in life expectancy or less than 6 months, read the studies ....
Buddy
Posts: 157
Incept: 2008-10-25
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Here is an example in macular degeneration where the motive for higher costs trump an equally effective medicine. Avastin vs Lucentis for the treatment of wet AMD, one of the most common causes of vision loss in the elderly. CATT 2 data recently released shows both medicines equivalent in efficacy if used with the same treatment paradigm. And if treatment paradigms are compared they are nearly equivalent for primary endpoint (mean vision gain) with monthly treatment showing 2.4 more letter improvement in monthly versus as needed treatment, though the percent of people with driving vision, gaining sig. vision, or prevention of sig vision loss is the same.

What is the cost difference between using avastin as needed versus lucentis monthly: about 800 dollars over two years versus 45,000 dollars (per patient). And given that avastin cost about 50 dollars versus lucentis 2000 dollars, and the as needed arm needed on average 7-8 injections a year versus 12 on monthly doses, there still would be about a 45:1 cost differential between avastin and lucentis given monthly (with equal efficacy).

Right now Novartis, who make both medications is trying to prevent NHS from offering avastin because of systemic risks (which have not been proven to be due to medications, and looking at the systemic effects of the chemo avastin given systemically at 500x the dose, these side effects are not seen statistically in CATT or other studies): http://www.bbc.co.uk/news/health-1781794....

Furthermore, hospitals get a four hundred dollar discount on the reimbursement cost of the lucentis to use it. There are rebate programs given for the use of lucentis, and one can get a certain percent of revenue based on the cost of medicine.

Interestingly, the majority of retina specialist (except likely in hospitals) use the less expensive alternative, even thought it would profit them more to use the more expensive medicine. And reviewing the reasons why likely comes down to saving the medical system money.

http://www.willseyeonline.org/viewConten.... (you might need to register to see it, and reg is free)

But overall, the market incentives, and likely medical lobby (and the politicians that pander to them), is likely very influential in keeping the cost of medicine high, when less expensive options with equal efficacy are available, in order to enrich a balance sheet.

Buddy
Posts: 157
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Correction: Novartis makes lucentis, and not avastin
Crzymorse
Posts: 1189
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Maryland
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The GOP has no credibility anymore. Its a real problem for them. They never deliver anything except bigger budget deficits. Walks like a pandering politician, sounds like a pandering politician, my gosh they are pandering politicians.
Preidt2
Posts: 552
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spokane/wash
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oamama care is just a tax to pay debt but it will not work

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Noodleman
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Illegal invaders can walk into any ER in the nation and use it as their free ticket to soup to nuts medical care. Obamacare failed to even address that problem. It does not prohibit free medical care for illegal invaders. Business as usual. Meanwhile, American citizens lose their homes to the medical establishment if they can't pay their medical bills. So Obamacare would force all citizens on record to buy medical coverage but the big free carrot for illegals remains untouched. And now Obama has pretty much given amnesty to all illegals under 31 years of age - so the bill just gets bigger and bigger and bigger. No wonder the medical care in America has declined in quality while becoming unaffordable in the last few decades. It doesn't serve the citizens anymore. It serves the oligarchy and their special interests.

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"Ammunition beats persuasion when you are looking for freedom." Will Rogers, 4 Nov 1879 - 15 Aug 1935

Curious1
Posts: 440
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Karl, thanks for mentioning provenge. The politics around that drug, as well as erbitux and avastin, really*****es me off. In England they will pay for about 30k per year of life saved; provenge is about one order of magnitude too expensive according to their model!

Drugs and devices are protected. There will be no improvement in the health care arena until that changes, and that won't happen any time soon.

Two big problems with CMS:

1. Anything FDA approved they have to cover. It can be a drug like erlotinib for pancreatic cancer that adds about 17 days to median survival at 5k/month; they have to cover it. Congress needs to remove that mandate (they won't)

2. CMS is the "price setter" and has approved OUTRAGEOUS PRICES for numerous drugs and devices.

This is specifically a Federal issue so don't expect any improvement any time soon.
Noodleman
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The big health plans make a killing off selling some classes of drugs since the co-pay is larger than the contract price. For example, birth control pills are dirt cheap for the big HMO's. They might pay a contract price of $5/cycle pack or less then turn around and collect a $10-$15 co-pay for it from the member. The drug companies might do bundled contracts where they break even on one class of contracted drug and gouge for another then use direct to consumer advertising to pressure the health plan to add it to the drug formulary and push volume. Drug costs are an increasing portion of the cost pie which helps drive premiums higher. I would be interested to know how many of the plans have drugs like Provenge or Avastin on their formularies? Since Avastin is an older drugs it's probably on most of the big formularies.

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"Ammunition beats persuasion when you are looking for freedom." Will Rogers, 4 Nov 1879 - 15 Aug 1935

Debtpie
Posts: 534
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What about the ability of businesses to shift the cost of health care onto the Federal Government?

Billions in pay/bonuses for the top few while the workers generating those profits are either uninsured or under-insured.

Starbucks CEO Schultz made $65 million in 2011 while the average salary for a Starbucks barista is $15,000.

Starbucks health insurance...oh yeah, the top tiers get insurance...but everyone else gets the shaft...you have to work so many hours to qualify...and guess what...they make sure you "just miss" the number of hours needed.

Personally, I don't think your health insurance should come from your job...but that is the system we have...so lets' make it really come from your job...not this scam where it's "available to everyone that qualifies" and the only people that "qualify" are those at the top...the rest end up on medicaid at taxpayer expense...or just go without insurance until "something happens" and then run up huge bills they'll never pay on that $15k Starbucks salary...

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A Leader, or an Opportunist? "A leader has the capacity of vision, the ability to see where things are headed before people in general see those things." Mitt Romney --- DebtPie's definition: a leader decides where "things" should head and "leads" us there.

Houstonstan
Posts: 961
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Debtpie - you are right. US people don't realize that in other countries, Businesses are not involved in running health care for their workers. As such, they are already at a competitive disadvantage if they offer it.

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Hobbies: Masturbation and smoking. I'm a 40 day'er and I smoke a lot.
Morla
Posts: 815
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Quote:
US people don't realize that in other countries, Businesses are not involved in running health care for their workers.
One of the biggest things we need to undo, a major factor requiring people to pay for "insurance" against things they know they'll need well in advance. If not for outright collusion to maintain two VERY different pricing schemes the "insurance" sector would be entirely optional, with responsible people able to pay out of pocket. You can self-insure a car, but try and self-insure yourself and you'll be gouged penniless regardless of the actual cost of medicines or procedures.

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Fear of govt IS the government.. Statism is a pack of unbacked threats; If govt gets out of control, ignore it and go about life as you see fit. Where's your crown, King Nothing?
Mannfm11
Posts: 3539
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I believe we are dealing with the $400 hammers and toilet seats in medical care. Everything the US government touches turns into this kind of cost scale. It is the incentive of the political class to blow bubbles.

Now, I know there have been some advances in medicine, but what has been attributed to medicine is just as likely to have arisen from better sanitation. Safer working conditions. Easier, and cooler work conditions. A million and one things besides better pills. I doubt, once you get beyond the basic antibiotics and a few heart procedures that medicine has done much of anything. Television sold us a bunch of bull**** in the past 40 years.

Now, for what was costly, but affordable 40 and 50 years ago, we are now being herded like cattle by our own government, because it costs too much. When are the people going to call, bull****? I believe that is what Karl is saying. Tell them to roll the whole ****ing mess up or fix it. There are very few men alive, whose attention is going to keep you alive and the ones there are, aren't worth over $1000 or so an hour. Spend some time around a hospital getting care. It will cost you $3000 to lie on a gurney for 3 hours. Plus, every damn hospital is loaded with staff and other dangerous germs. I doubt they save many more lives than they kill. Nice to have the assistance. The problem is, they can get an average mans salary out of them and you wonder where it went.

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The only function of economic forecasting is to make astrology look respectable.---John Kenneth Galbraith
Blurtman
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The developers of Provenge were not shooting for 4.1 months of additonal life to recipients. They were certainly hoping for much more. The quest of cancer vaccines is to bestow immunity to cancer. Provenge is a first step in that quest, but it is untrue to state that the developers were encouraged to develop Provenge irrespective of rational cost justification. Immunity to cancer would be priceless, and much less costly than all the therapies a cancer patient would receive in his/her life to treat the disease.

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Blurtman
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@Curious1,

It is untrue that CMS has to cover anything the FDA approves. Back in 2002 or therabouts, Medtronic received FDA approval for their Infuse bone morphogenic protein for use in bone grafting, but CMS would not authorize reimbursement for the product, as it was no more effective than the iliac crest harvest, which had no cost as it was harvested fro the patient who was already going to be in the OR anyway. Medtronic spent millions to conduct another large Phase III study to show that their Infuse product got patients back to work several weeks earlier than those who had an iliac crest harvest due to pain and morbidity issues.

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I have a reading comprehension problem and the owner banned me for repeatedly displaying it after being warned.
Johnpuma
Posts: 4
Incept: 2012-06-13

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I'm no fan of ObamNey care, from the process that created it to the fact that it is simply a gift to an already bloated industry, like Bush accomplished with Medicare part D. I has NO provisions for containing costs. Also, most importantly, as I understand it, there is NOTHING in the bill about education on how to promote/maintain health as opposed to paying for the consequences of lack of health. (See below.)

BUT, given "the mandate" to insure oneself, how does one then bemoan having to pay for some else's health care?

Other points:

While one might see some justification in banning cross-border purchase of drugs/devices for RESALE here, why not more forcefully complain about the effective ban on cross-border purchase for one's OWN USE? How is it that the GLOBAL free market has boundaries for human persons but not the fantastical corporate persons?

While unions are being destroyed around us why not demand the same for the doctors' union, the AMA?

I agree totally that we must accept our mortality, as end-of-life, "heroic" measures, constitute a wildly disproportionate fraction of overall health care costs.

The genetic analysis is appreciated but whatever ones genetic make-up, the current industrial food system must take a great deal of the blame for causing the problems that are handed over to the health care industry to deal with . From processed "food products" to candy to soda to the ubiquitous high fructose corn syrup (ample reason, alone, for ending farm subsidies), we are being methodically poisoned from cradle to grave and health care costs efficiently reflect it.

Then, of course, there is smoking, the recreation that kills, for profit, whose effect in health care costs outweigh the taxes collected for its use.

I'm reluctant to read the archived articles for fear I’d encounter another version of one of the most bizarre of ideological dicta that I have ever seen (from a proud libertarian commenter on another site) dealing with healthcare issues: "Life sometimes gets in the way of liberty." (sic!)

Jstanley01
Posts: 8178
Incept: 2008-07-30
Silver A True American Patriot!
San Antonio, Texas
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Quote:
The idea circulating is that the Republican Party should consider a "keep the good stuff" approach.
It's two steps forward, one step back, people. That's how we've been progressing further and further into the socialist swamp since FDR.

It's also the "two sides to every issue" grift, a.k.a. dialectical materialism. In which there is no such thing as "right and wrong," "good and evil," or "truth and lie," the discerning of which can produce a rational and real solution. There is only "thesis and antithesis," "your side of the issue and my side of the issue," which produces a "synthesis."

For the generations since GD 1.0, the whole game of economic and social policy in the West has consisted of triangulating this or that politically-viable "synthesis" which will tilt the game board in one's own personal favor, by way of confiscating at gunpoint the resources of the productive. And the Republi-turds are masters at the game.

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You can't cheat an honest man. ~P.T. Barnum

Noodleman
Posts: 2389
Incept: 2008-11-01

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Well, the government has come up with new way to save money on medical costs: Discontinue regular PSA screenings for men of any age. This is the recommendation that a government medical panel headed by a female pediatrician has recently come up with. While the PSA test is not a perfect test - it is the best test we have available to detect prostate cancer. The American Urological Soceity has called bull**** on this recommendation. The only other way a man knows whether he has prostate cancer is with symptoms of pain and by that time it has likely metasticized to the bone, lymph nodes or bladder which means he's probably a dead man walking who would need hundreds of thousands of dollars in treatment to stay alive for 2 years. I guess this is the government's idea of men's liberation and preventative health care :^)

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"Ammunition beats persuasion when you are looking for freedom." Will Rogers, 4 Nov 1879 - 15 Aug 1935

Bertdilbert
Posts: 2656
Incept: 2008-12-22
Gold
CA
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Quote:
If your "debt" (after being billed 10x the rate paid by some other person) is then "forgiven", you will be 1099'd for the difference as taxable income on an amount that the other party would have never paid in the first place.


Is this not just an accounting scam, overcharging multiples of what is normally paid and then claiming an oversized loss on their taxes? If so, they are ripping off the IRS. Karl, since this is a pet peeve of yours, perhaps you should sue on behalf of the government and when you get your half billion share of the loot, go and buy a nice atoll in the South Pacific for you and your daughter to weather out the coming financial storm. Hell, you would have enough bucks to buy one with an airstrip.

All I ask is for a small plot with a few coconut trees on the far corner of the island as a finder's fee....

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Dear Euroland: Relax, Germany has a plan for your money!

Political Capital Defined: We are out of money but will tax our citizens for whatever it takes to "SAVE" the Euro.
Mpilar
Posts: 5587
Incept: 2009-01-05
Gold
Nashville, TN
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Quote:
Is this not just an accounting scam, overcharging multiples of what is normally paid and then claiming an oversized loss on their taxes? If so, they are ripping off the IRS

No, they're not...you get the pay the taxes to the IRS for the "missing" money reported in your 1099...in fact, you'll probably pay it at a higher tax rate than the hospital, so the IRS is making money on this.

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Every normal man must be tempted at times to spit on his hands, hoist the black flag, and begin to slit throats. H. L. Mencken
Bertdilbert
Posts: 2656
Incept: 2008-12-22
Gold
CA
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Sure, as long as you can convince a jury that you can make an unrelated party responsible for the taxes you failed to pay...

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Dear Euroland: Relax, Germany has a plan for your money!

Political Capital Defined: We are out of money but will tax our citizens for whatever it takes to "SAVE" the Euro.
Mrbill
Posts: 7846
Incept: 2008-10-19
Gold
North Carolina
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Noodleman: The PSA test is not a good test. Find me a study where the NNT is something under 20. The data from big studies just doesn't lie on this one.

Oh, wait, the AUA is against this? You mean all the people making a living doing this pointless test and all the unnecessary follow-on procedures are against being put out of a job? SHOCKED!

Ugh. Emotional children, Jstanley was right. Just produce a study that has better data than the European study that shows a significant benefit for PSA testing (or a new, improved test) and it'll be back on the menu.
Mpilar
Posts: 5587
Incept: 2009-01-05
Gold
Nashville, TN
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Quote:
Sure, as long as you can convince a jury that you can make an unrelated party responsible for the taxes you failed to pay...

You don't need to...the 1099 makes YOU responsible for the taxes...going to court won't mitigate that away...as soon as the hospital writes the "income" off and sends you that little form, it makes you responsible for the taxes they were going to pay if you actually paid your hospital bill...at a higher tax rate, generally, then they would have paid on that income. Their loss of income, becomes your income.

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Every normal man must be tempted at times to spit on his hands, hoist the black flag, and begin to slit throats. H. L. Mencken
Peterm99
Posts: 4982
Incept: 2009-03-21
Gold
SoCal
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I don't believe so, Bert.

The end of the appeal process for the requirement to pay taxes is NOT adjudicated by a jury, but by a Tax Court - no jury involved. You CAN appeal the validity of the law under which the Tax Court made its decision or whether the Tax Court applied the law correctly, but, again, at the appellate level, no jury is involved.

A jury only becomes involved if they charge you criminally, e.g., tax evasion, fraud, whatever, but that is a "standard" criminal trial, and has nothing to do with Tax Court decisions about what you "owe".

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". . . the Constitution has died, the economy welters in irreversible decline, we have perpetual war, all power lies in the hands of the executive, the police are supreme, and a surveillance beyond Orwell’s imaginings falls into place." - Fred Reed

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