Wednesday, November 28, 2012

New report calls out hypocrisy of CEO's advocating for cuts to entitlements

Posted By on Wed, Nov 28, 2012 at 11:27 AM

Illinois Democratic U.S. Senator Dick Durbin
  • Illinois Democratic U.S. Sen. Dick Durbin
Like it or not, most of the news coming out of the nation's capital over the next month will be about the "fiscal cliff." And that means that liberal and conservative advocacy groups and think tanks will chime in with their corresponding position papers on how to deal with the financial situation at hand.

The Institute for Policy Studies is a liberal D.C. based group that is taking on those CEO's and their "Fix the Debt" offensive that calls on Congress and President Obama to come together on a deficit reduction deal. The institute just released a report primarily about the huge retirement benefits for those CEO's, as well as the shortfalls in their employee pension funds.

Just as Republicans are acting intransigent in raising taxes (or at least tax rates), Democrats are now arguing that the big drivers of the deficit, Medicare and Medicaid, need not be addressed immediately as "taxmageddon" approaches at the end of the year.

That's why you've been seeing prominent Democrats like Illinois Sen. Dick Durbin questioning raising the age of beneficiaries for Medicare, for example. And Durbin, like many others, said that Social Security has nothing to do with the debt and deficit in this country and should be left off the table.

Senate Majority Leader Harry Reid agrees, saying, "I personally believe there are things that we can do with entitlements that don't hurt beneficiaries. But I'm not going to negotiate this with you simply other than to say that we hope that they can agree to the tax revenue that we're talking about, and that is rate increases. And then as the president has said on a number of occasions, we'll be happy to deal with entitlements."

The Fix the Debt crowd has discussed raising the retirement age for people to collect Social Security. The Institute for Policy Studies report suggests that one motivating factor is that it would increase their leverage to try to raise the retirement age in their corporate pension accounts. The report states, "Such a move, if successful, would allow them to defer paying promised benefits and save their underfunded pension plans tens of billions of dollars."

Currently the retirement age to qualify for Social Security is 66, and will move up to 67 in 2027.

The Institute for Policy Studies lists three ways it believes Social Security can be shored up:

1. Eliminating the Cap on Wages Subject to Social Security Taxes

Presently just the first $110,100 of an American worker‘s wage income is subject to a 10.4 percent Social Security tax. Honeywell CEO David Cote had the highest cash compensation among the Fix the Debt CEOs last year — $25.1 million. Cote paid just $11,107 in Social Security taxes last year. If the cap were lifted, Cote would have paid $2.6 million in Social Security taxes. New legislation introduced by Senator Mark Begich (D-AK) proposes eliminating the cap on Social Security taxes for upper income earners like Cote. The Congressional Research Service analyzed a similar proposal in 2010 and found that it would eliminate 95 percent of the expected Social Security shortfall over the next 75 years.

2. End the Ability of CEOs and other high income employees to defer unlimited amounts of pay in their retirement plans
Average employees can set aside no more than $22,000 tax-free each year in their 401(k) plans. Corporate executives face no such limits. Last year, Fix the Debt member Thomas Monahan, CEO of Corporate Executive Board Corporation, set aside $1,360,491 tax-free in his company‘s executive deferred compensation program. If Monahan had been bound by the same rules as other workers, he would have paid an additional $468,472 in federal income taxes in 2011. In the past, Congress has considered legislation to close this CEO-friendly loophole, but no legislation to address this is currently pending.

3. Support Universal, Secure and Adaptable (USA) Retirement Funds
Senator Tom Harkin (D-IA) has proposed a plan which recognizes the shared responsibility between employees, employers, and government to ensure that every worker enjoys a secure retirement. In order to provide this, Harkin‘s proposal would require employers currently not providing retirement benefits to contribute to a USA Retirement Fund on their workers‘ behalf. These funds would be pooled and professionally managed, ensuring that all workers have some pension assets to supplement their Social Security.

The Washington Post reported that Fix the Debt has now formed chapters in 17 states with more due to open soon. The number of corporate members has jumped to 130, from 80 in late October.

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