Reuters Money
The rich respond to Obama’s “Buffett Rule”
Once the debt ceiling rancor faded, financial gurus and observers had little reason to think debate on taxing the wealthy would ignite again before Nov. 23. That’s when the 12-member congressional super committee issues its recommendations on finding at least $1.2 trillion in deficit reduction.
Then came President Obama’s announcement on Monday of the “Buffett Rule,” a plan to raise taxes on American households making more than $1 million annually. Suddenly, the millionaires who support such a plan — like Warren Buffett himself — had cause for hope after many months of anti-tax furor and tax hike inaction.
“It’s an excellent policy proposal,” says Wealth for the Common Good co-founder Chuck Collins. “The defenders of wealth and power are going to crazy over this proposal, but our job is to help balance the story. We’re already putting out calls; our members will call their legislators; they’ll organize their peers; they’ll write letters to editors.”
Yet it was also as though the Buffett Rule came with an unspoken corollary: Where proposals to tax the rich come, rhetoric and strong words on both sides of the issue will surely follow.
“The President’s speech today drew a clear line in the sand between patriotic Americans and people who just use the United States as a place to park their planes on the way to St. Bart’s,” says Agenda Project founder Erica Payne, who has worked closely with Wealth for the Common Good. “This issue is not complicated. It is not nuanced. If you care about your country, you pay taxes. If your country is in trouble, you pay more taxes.”
Under the President’s proposal — spelled out in a 67-page report issued by the Office of Management and Budget — the Buffett Rule (named for billionaire Warren Buffett) would mean that “No household making over $1 million annually should pay a smaller share of its income in taxes than middle-class families pay. As Warren Buffett has pointed out, his effective tax rate is lower than his secretary’s. No household making over $1 million annually should pay a smaller share of its income in taxes than middle-class families pay. This rule will be achieved as part of an overall reform that increases the progressivity of the tax code.”
Indeed, the 2,500 folks of high net worth who make up Patriotic Millionaires for Fiscal Strength would definitely agree — though not all of them find the President’s latest proposal exciting, let alone revolutionary, even though it’s sure to meet stiff opposition from anti-tax Republican lawmakers.
Obama plan to shore up pension insurance fund stirs controversy
Can you count on your pension when it’s time to retire? I get that question often from private sector workers worried about their pension plans in the wake of the financial crisis and 2008 market meltdown.
They’re surprised when I tell them not to worry. Nearly all private sector defined benefit (DB) plans are backed by the Pension Benefit Guaranty Corporation (PBGC), a little-known federally sponsored agency that insures nearly all private sector plans. If you work for a company that goes belly up, the PBGC takes over the plan and its obligations; while some higher-income workers take a haircut on benefits in those situations, most workers get 100 percent of promised benefits.
By law, the PBGC is funded entirely through insurance premiums paid by plan sponsors. But the agency has been chronically underfunded due to a mismatch between the premiums charged and the risks it manages. Premium levels are set by Congress, and PBGC has no control over the type of risk it insures. “The PBGC is a rare kind of insurer, in that it has no control over its risks or what it can charge ,” says Douglas Elliott, a fellow in economic studies at The Brookings Institution.
In 2010, the PBGC paid out nearly $6 billion in benefits to more than 800,000 beneficiaries; it’s also responsible for future payments to another 700,000 workers who haven’t retired yet. Plan sponsors currently pay a flat-rate annual premium of $35 per plan participant, plus another $9 for each $1,000 in underfunding. That figure varies considerably among plan sponsors, but averages out to a total annual premium of $65 per year for each employee.
The PBGC reported a gap of $23 billion between assets on hand and its long-term obligations to pension recipients for the federal fiscal year 2010. The agency has plenty of money to meet its near-term obligations, but worries about PBGC flare whenever very large plans run into trouble. For example, if the federal government hadn’t bailed out General Motors and Chrysler, PBGC’s assumption of the companies’ pension obligations would have roughly doubled the agency’s funding gap.
The Obama Administration’s 2012 budget proposal calls for a $16 billion boost in premiums over 10 years – but also seeks permission for PBGC to set premiums without Congressional approval, via a process similar to the one used by the Federal Deposit Insurance Corp. PBGC also proposes developing a new approach to risk-based pricing for weaker pension plans.
That approach is endorsed by the President’s National Commission on Fiscal Responsibility and Reform, which identified the PBGC’s long-term imbalance as a threat to the federal government’s financial health and expressed concern that a government bailout of the fund might be needed at some point.
When Republican presidents destroy the social programs, it’s all good (GWB / Medicare D). But when a fiscally responsible Democrat wants to make sure the system functions correctly, suddenly it’s a dictatorship. Let’s take a gander at what else Obama has been accused of dictatoring since he was sworn in:
1. The Health Care Law which requires everyone to get medical insurance through a PRIVATE insurer, unless you are already happy with the insurance you have (yay dictatorship)
2. For creating the Consumer Financial Protection Bureau (oh the horrors!)
3. For doing everything he can to get rid of discriminatory laws against the LGBT (oh no he hates religion!)
Seriously, is there anything that Obama’s critics can say that anyone (outside of Bellview Hospital) believes?
There they go again: GOP, NPR beat up on Social Security
Republicans are miffed that the Obama Administration and Congressional Democrats won’t take the bait and join them in shredding Social Security benefits (not yet, anyway).
The GOP is engaged in bad policy and bad politics here, so it’s squirming. And that seems to have pushed Republicans to distort the facts about Social Security’s condition even more than usual. Here’s what they’ve been saying this week, as quoted by NPR on Tuesday. I’m appending reality checks to each of the quotes, something I’m sure NPR just forgot to do.
Sen. Tom Coburn (R-Oklahoma): “The fact is … $2.8 trillion was stolen from Social Security . . .The money was spent. It’s broke. And we’re going to have to fund $2.8 trillion over the next 20 years just to make the payments that we’ve got. I would think most people would think we ought to fix that.”
Reality check: The Social Security Trust Fund (SSTF) lends money to the U.S. Treasury under terms spelled out by the Social Security Act. Those terms allow the SSTF to earn a return on the massive $2.5 trillion surplus it’s been building since the early 1980s by purchasing U.S. Treasury notes.
Federal law requires that the surplus be invested in government issued or backed obligations. Though the current practice is to invest in special issue Treasury bonds, this is not necessary. If the budget were in balance and no new Treasury bills were being issued, the SSTF could purchase Treasury obligations traded on the open market or could purchase other Treasury-guaranteed obligations.
(If the law were changed, the SSTF could invest part of the portfolio in equities, but that’s a conversation for another day.)
Yes, the money was spent; the U.S. Government has no reason to borrow money other than to meet its spending needs.
By the way, thanks for this article. Two days ago I was posting on another Reuters blog that I thought it was time the investment reporting industry should start telling the actual truth about SSA.
But it’s not just the GOP, nor NPR. The mutual fund/annuity industry has an enormous effort underway to make it seem like there is a crisis. For a good time run a story urging Congress to require that every financial adviser have a fiduciary responsibility to their clients.
The notion that investment advisers should have a legal responsibility to act for the benefit of their clients instead of themselves may put most of the annuity salemen in this country out of business.
It’s time for the “Net Worth Tax”. Income and payroll taxes attack the production of wealth, stifling growth and restricting the accumulation of wealth (“the rich get richer”), while the wealthy, such as Mr. Buffet, accumulate more.
Why not tax all wealth, instead of wealth production? It seems a very simple task to require each citizen to report an annual Net Worth statement to the IRS, detailing assets & liabilities (real-estate, stocks, bonds, mutual funds, collectibles, savings, etc. . . . including offshore bank accounts) and a simple flat tax be paid monthly to the IRS, eliminating the withholding of income, social security, and medicare payroll taxes.
This Net Worth Tax, would answer both political sides by truly “taxing the rich,” and unfettering societies’ wealth producers, creating growth like never seen before. Nay sayers will say it would be impossible to enforce accurate reporting. However, I don’t see where enforcement would be more difficult than current complicated system of reporting income and deductions. Failure to report accurately would result with similar punishments