Category: Public Finance

Social Security Reform: Taxation Options

Mary Pat Campbell

Link: https://www.actuary.org/sites/default/files/2022-08/SocSecReformTaxation0822.pdf

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Social Security was originally
funded by a tax on the wages of
covered workers plus interest on
accumulated taxes not yet paid
out as benefits. Later, a tax on the
benefits of some beneficiaries
was added.
• Both the tax rate and the limit
on wages subject to taxation
have been raised periodically to
fund increases in the scope and
amount of benefits.
• According to the 2021 Social
Security Trustees Report,
accumulated assets will be
depleted by 2034 and income
to the system thereafter will be
insufficient to pay all scheduled
benefits when due.
• Some or all of this shortfall can
be averted by raising the tax rate
on wages, increasing the limit
on wages subject to taxation,
broadening coverage to include
all state and local government
employees, increasing taxes on
benefits, and/or creating new
taxes dedicated to funding Social
Security benefits.
• This issue brief explores a
wide variety of proposals for
increasing system revenue
that have been made over the
years by members of Congress,
government-appointed panels
and commissions, and outside
experts.

Author(s): American Academy of Actuaries Social Security Committee

Publication Date: August 2022

Publication Site: American Academy of Actuaries

DiNapoli: NYSLRS Announces Employers’ Retirement System Contribution Rates for 2023-2024

Mary Pat Campbell

Link: https://www.osc.state.ny.us/press/releases/2022/09/dinapoli-nyslrs-announces-employers-retirement-system-contribution-rates-2023-2024&utm_source=weekly+news&utm_medium=email&utm_campaign=nyslrs&utm_term=contribution+rates&utm_content=20220903

Report: https://www.osc.state.ny.us/files/retirement/resources/pdf/actuarial-assumptions-2022.pdf

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New York State Comptroller Thomas P. DiNapoli today announced employer contribution rates for the New York State and Local Retirement System (NYSLRS). Employers’ average contribution rates for the State Fiscal Year 2023-24 will increase from 11.6% to 13.1% of payroll for the Employees’ Retirement System (ERS) and from 27.0% to 27.8% of payroll for the Police and Fire Retirement System (PFRS).

NYSLRS is made up of these two systems, which pay retirement and disability benefits to public employees and death benefits to their survivors.

“The state pension fund’s performance in the fiscal year that ended March 31 was strong, but recent domestic and global economic volatility demands caution,” DiNapoli said. “As we move forward with our prudent investment strategy, we remain focused on long-term stable returns for New York’s public employers and workforce. Uncertainty may be a constant in financial markets, but the rates announced today will help ensure that New York’s pension fund will continue to be one of the nation’s strongest and best funded, ready to provide retirement security for generations to come.”

Author(s): press release of Office of State Comptroller of New York

Publication Date: 1 Sept 2022

Publication Site: Office of the State Comptroller

12 States High Earners Are Flocking To

Mary Pat Campbell

Link: https://www.thinkadvisor.com/2022/08/11/12-states-most-high-earners-are-moving-to/

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U.S. households that earn upward of $200,000 a year can have a significant impact when they move between states, despite their relatively small numbers, according to a recent analysis by SmartAsset. In 2020, these tax filers comprised 6.8% of total tax returns filed across the 50 States and the District of Columbia.

High-earning households’ influence is so great because a state that loses more of them than it gains in a given year may experience a decline in tax revenues and its fiscal situation may worsen.

As part of its analysis, SmartAsset identified the states with the most movement of high-earning households. Researchers examined the inflow and outflow of tax filers making at least $200,000 in each state and the District of Columbia between 2019 and 2020.

Author(s): Michael S. Fischer

Publication Date: 11 Aug 2022

Publication Site: Think Advisor

Democrats’ $80 billion wager: A bigger IRS will be a better IRS

Mary Pat Campbell

Link: https://www.washingtonpost.com/business/2022/08/06/inflation-reduction-act-irs/

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The result is that the IRS’s prolific enforcement capabilities — which bring in on average better than $10 in revenue for every $1 spent pursuing audits — are often trained on the most economically vulnerable taxpayers.

More than half of the agency’s audits in 2021 were directed at taxpayers with incomes less than $75,000, according to IRS data. More than 4 in 10 of its audits targeted recipients of the earned income tax credit, one of the country’s main anti-poverty measures.

Congress and the White House, when led by Republicans, have starved the IRS of resources for so long, experts say, that even with an influx of $80 billion in new funding, the agency’s ability to transform itself is far from assured.

Some of its main computers still run on programming language that dates to the 1960s, called COBOL, the IRS has repeatedly told policymakers. The program is so old that college computer science courses rarely teach it anymore, forcing the IRS to spend heavily on training new hires in antiquated systems.

The IRS has 60 discrete case management systems that do not communicate with one another.

Its staffing levels have dropped by 17 percent since 2010, including a 30 percent decline in enforcement employees, because its budget has flatlined: Adjusted for inflation, its annual appropriation from Congress is down 12 percent over the same span, at $12.6 billion this year.

Author(s): Jacob Bogage

Publication Date: 6 Aug 2022

Publication Site: Washington Post

7 Democratic Senators Just Did Their Wall Street Donors a Huge Favor

Mary Pat Campbell

Link: https://jacobin.com/2022/08/democratic-senators-wall-street-donors-private-equity

Excerpt:

In the name of preserving carefully negotiated legislation, Senate Democrats’ leaders united their caucus to vote down amendments that would have added the party’s Medicare expansion plan and expanded child tax credit into the final spending bill now moving through Congress.

That unity, though, was not universally enforced: soon after those votes, seven Democratic senators joined with Republicans to cast a pivotal vote shielding their private equity donors from a new corporate minimum tax.

The seven Democrats who joined the GOP to give private equity firms that $35 billion gift were: Senators Kyrsten Sinema and Mark Kelly of Arizona, Raphael Warnock and Jon Ossoff of Georgia, Jacky Rosen and Catherine Cortez Masto of Nevada, and Maggie Hassan of New Hampshire.

Five of the seven Democrats are among the Senate’s top recipients of campaign donations from private equity donors, according to data from OpenSecrets. The group collectively raked in more than $1.4 million of campaign cash from the private equity industry, which has become a huge source of capital for the fossil fuel conglomerates that are creating the climate crisis.

The contrast between voting to protect private equity donors and voting against programs for the working class effectively screamed the quiet part out loud about whom senators typically respond to — and whom they don’t.

In this case, Democratic and Republican senators responded to the demands of an industry that has not only spent more than a quarter billion dollars on the last two federal elections, but that also employs an army of government-officials-turned-lobbyists to influence lawmakers in Washington. The world’s largest private equity firm is headed by one of the Republican Party’s largest donors, and now employs the son-in-law of Senate majority leader Chuck Schumer as a lobbyist.

That influence machine is fueled by $6.3 trillion industry’s profits, generated by collecting massive fees off investments by public pensions and other institutional investors. Those fees have ballooned even when the industry often provides poorer returns than the stock market. Cloaked in secrecy, the industry invests in Medicare and health care privatization, as well as virulently anti-union and fossil fuel companies.

Author(s): David Sirota

Publication Date: 10 Aug 2022

Publication Site: Jacobin

Citizens must be accurately informed for government to work

Mary Pat Campbell

Link: https://www.news-gazette.com/opinion/columns/sheila-weinberg-citizens-must-be-accurately-informed-for-government-to-work/article_5d93e9cf-73c5-54c9-b762-133f91a94824.html

Excerpt:

An example of questionable disclosure practices is found in the Illinois budgeting and financial reporting process, specifically regarding pension contributions. In 1994, then-Gov. Jim Edgar led an effort to pass a bipartisan bill to solve the state’s $15 billion pension deficit. The plan would resolve the deficit within 50 years. The plan was structured to pay down the debt very slowly in the first 15 years and accelerate at the end. This ensured that sitting politicians in the early days of the plan would not be required to make the necessary tax increases or budget cuts to pay down the debt in a meaningful way.

This program is shown in charts to look like a skateboard ramp, appropriately named the “Edgar Ramp.” The problem is, the plan doesn’t work.

It is so unsuccessful that the Illinois pension deficit has grown from $15 billion to $317 billion as of June 30, 2020, according to Moody’s Investors Service. The state’s latest bond offering document emphasizes, “The state’s contributions to the retirement systems, while in conformity with state law, have been less than the contributions necessary to fully fund the retirement systems as calculated by the actuaries of the retirement systems.”

The latest Illinois Annual Comprehensive Financial Report discloses cash-flow problems, significantly underfunded pension obligations, other post-retirement benefit deficits and multiple references to debt-obligation bonds.

Author(s): Shiela Weinberg

Publication Date: 7 Aug 2022

Publication Site: News Gazette

The Government Pension Reckoning Cometh

Mary Pat Campbell

Link: https://www.wsj.com/articles/the-government-pension-reckoning-cometh-equable-institute-report-11660084312?st=j8a7o7efyyvjtdp&reflink=article_email_share&utm_source=Wirepoints+Newsletter&utm_campaign=24f39fc2e0-RSS_EMAIL_CAMPAIGN&utm_medium=email&utm_term=0_895ee9abf9-24f39fc2e0-30506353#new_tab

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The California Public Employees’ Retirement System reported a negative 6.1% return for the year, which includes a 21.3% positive return on private equity and 24.1% return on real estate as reported through the second quarter of 2022. What will happen if real-estate prices start to fall and some leveraged private-equity buyouts go south amid rising interest rates?

Collective-bargaining agreements limit how much workers must contribute to their pensions, so taxpayers are required to make up for investment losses. Employer retirement contributions—that is, taxpayers—make up 20% of government worker compensation. That amount has soared over the past decade as pension funds tried to make up for losses during the 2008-2009 financial panic.

A recent report by the Equable Institute found that state and local pension plans now are only 77.9% funded on average, which is about the same as in 2008. But some like Chicago’s are less than 40%. Advice to taxpayers in Illinois: Run.

Author(s): WSJ Editorial Board

Publication Date: 9 Aug 2022

Publication Site: WSJ

Ken Griffin talks the pension crisis, a once-secret meeting with Pritzker

Mary Pat Campbell

Link: https://www.chicagotribune.com/opinion/commentary/ct-opinion-ken-griffin-illinois-pension-jb-pritzker-desantis-20220809-jnrzlzbpvbfcnjauz522qcvi4m-story.html?utm_source=Wirepoints+Newsletter&utm_campaign=24f39fc2e0-RSS_EMAIL_CAMPAIGN&utm_medium=email&utm_term=0_895ee9abf9-24f39fc2e0-22956053

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Ken Griffin, founder and CEO of Citadel, spoke in his Chicago office to Editorial Page Editor Chris Jones on Aug. 2. This transcript has been edited for length.

Gov. J.B. Pritzker has said you and he met privately and that you agreed to drop your opposition to his graduated tax proposal if he took on pension reform in Illinois. True?

The Illinois pension crisis is rooted in the issue that politicians of the moment are able to make promises to the public sector workers, where the cost of those promises are borne by taxpayers, far into the future. So we have an intrinsic lack of accountability within the state when it comes to that dynamic between the leaders in Springfield and the public sector unions. (Former Gov.) Bruce Rauner and I actually would speak about this problem from time to time because it’s pretty well known that Bruce felt the state should move to a defined contribution program for the state employees.

And there are elements of that I think are attractive, but because the state employees do not participate in Social Security, a strictly defined contribution proposal leaves the state employee, in my opinion, at undue risk of adverse events if they do not invest their money successfully. … And there’s another issue, which is that the costs of the promises made by cities and counties are not borne by the cities and counties directly, they’re socialized across the entire taxpayer base of the state. So it’s pretty easy for the behavior of a number of Illinois cities to offer incredible increases in pay in final years to boost pension benefits, and that cost comes back to all Illinois taxpayers.

So these are some of the areas in which the average man in the street is really being handed a very significant bill. And the most tragic part of this whole story is that when the state hires people early in their careers, they’re not even placing that much value on these pension plans.

Twenty-two-year-olds don’t make lifetime career decisions on pension benefits. So, from my perspective, as a state we’re much better off having higher starting salaries to attract really good people to serve in the public sector. And, as with Bruce, my advice to the governor was consistently that either the state should mirror the benefits of Social Security as a baseline or, even better, go back to the federal government and get into Social Security again. We should reverse our opt-out from decades ago. And then to the extent that a city wants to offer benefits in excess of the Social Security baseline amount, that’s pay-as-you-go through a 401(k)-equivalent program. …

The proposal that I gave to J.B. to solve the state’s pension problems is exactly what I just shared with you. … It would, in all likelihood, require us to amend the constitution for the state to head in this direction. It might be for new employees only. I’m very sensitive to a promise made and earned. That’s your benefit. That’s a very different talking point than you’re 22 years old and it’s your first day working for the state.

But, big picture, we get the state into a program that looks like what I just described. And it’s gonna accelerate, in all likelihood, the costs of the current system. It may require revenue increases.

And like many of the business leaders in this city, I was very direct. I said, “If you’re willing to engage in pension reform, I’m willing to publicly support you in a tax increase.” It wasn’t graduated versus not graduated. It was just a tax increase.

I would’ve assumed that this meeting would’ve been private for the rest of my life until J.B. decided to open the door and talk about this. What he did talk about in terms of fiscal reform for the state was to restructure the state’s (information technology) budget.

And he felt he could achieve $50 million in budget savings for the state of Illinois by taking an ax toward our IT budget for the state, and that was going to be his victory lap for fiscal discipline in the state of Illinois. Here we have a multibillion-dollar problem on the left and 50 million (dollars) on the right. I was like, “J.B., we’re not having the same conversation here.”

To be clear, that was a fracturing moment between the two of us. … He does not want to use his political capital for good. He wants to maintain that capital to maintain the certainty of staying in power.

Author(s): Chris Jones

Publication Date: 10 Aug 2022

Publication Site: Chicago Tribune

What is the State of Pensions in 2022?

Mary Pat Campbell

Link: https://www.truthinaccounting.org/news/detail/what-is-the-state-of-pensions-in-2022

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State retirement systems in America are still Fragile. 

….

Despite state and local plans reporting disappointing preliminary investment returns averaging -10.4% in 2022 , there has been a net positive funded ratio trend on net over the past three years. 

Funded status in 2022 for state and local retirement systems has declined considerably from last year, the sharpest single-year decline since the Great Recession and financial crisis. Investment return volatility is contributing to some significant swings in funded levels, which has been compounded by rising inflation and geopolitical turmoil. 

Author(s): Anthony Randazzo, Jonathan Moody

Publication Date: 26 July 2022

Publication Site: Truth in Accounting

Report: CT’s pension debt remains high despite residents’ personal wealth

Mary Pat Campbell

Link: https://ctmirror.org/2022/08/02/report-ct-pension-debt-personal-income-high-eighth-worst-us/

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When Connecticut deposits roughly $4.1 billion into its pension funds this fall, it will mark the third consecutive year the state used its budget surplus to whittle down the massive pension debt accrued over more than seven decades.

But a recent analysis from The Pew Charitable Trusts provided a sobering reminder of just how far Connecticut still has to go — even considering its great wealth — to overcome decades of fiscal irresponsibility.

Connecticut had reported more than $41 billion in combined debt among its pensions for state employees and for teachers following the 2019 fiscal year. According to Pew, that represented 14.8% of Connecticut’s personal income at the time — more than double the national average of 6.8%.

Connecticut was one of just 10 states that topped the 10% mark, and ranked eighth-worst overall. New Jersey finished at the bottom with pension debt equal to 20.2% of statewide personal income.

Author(s): Keith Phaneuf

Publication Date: 2 Aug 2022

Publication Site: CT Mirror

Pension Plunge Puts Eric Adams in Future Financial Squeeze

Mary Pat Campbell

Link: https://www.thecity.nyc/2022/8/1/23287828/pension-plunge-eric-adams

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New York City’s pension funds lost 8.65% of their value for the fiscal year that ended June 30, according to a release Friday from city Comptroller Brad Lander. 

While more detailed information won’t be released until September, the losses reduced the pension funds to about $240 billion.

While the S&P 500 stock index fell 14% in the first six months of 2022, Lander said that all is well with the pension funds “Despite market declines on a scale that hasn’t been seen in decades, the New York City retirement system outperformed our benchmarks and are well positioned to weather market volatility in the long run,” he said in a statement.

But the city budget — currently $101 billion — will still take a hit.

Author(s): Greg David

Publication Date: 1 Aug 2022

Publication Site: The City

Fortifying Main Street: The Economic Benefit of Public Pension Dollars in Small Towns and Rural America

Mary Pat Campbell

Link: https://www.nirsonline.org/reports/mainstreet2022/

PDF: https://www.nirsonline.org/wp-content/uploads/2022/07/FINAL-compresses-fortifyingmainstreet2022_small-compressed.pdf

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The report’s key findings are as follows:

  • Public pension benefit dollars represent between one and three percent of GDP on average in the 2,922 counties studied.
  • Rural counties have the highest percentages of their populations receiving public pension benefits.
  • Small town counties experience a greater relative impact in terms of both GDP and total personal income from pension benefit dollars than rural or metropolitan counties.
  • Rural counties see more of an impact in terms of personal income than metropolitan counties, while metropolitan counties and rural counties see an equivalent impact in terms of GDP.
  • Counties that contain state capitals are outliers from other metropolitan counties, likely because there is a greater density of public employees in these counties, most of whom remain in these counties in retirement.
  • On average, rural counties have lost population while small town counties and metropolitan counties have gained population in the period between 2000 and 2018, but the connection between population change and the relative impact of public pension benefit dollars is weak.

Author(s): Dan Doonan and Tyler Bond from NIRS, Nathan Chobo from Linea Solutions Inc.

Publication Date: July 2022

Publication Site: National Institute on Retirement Security