Category: Public Finance

Individual Income Tax Payments on Pace to Reach Record Level

Mary Pat Campbell

Link: https://www.wsj.com/articles/individual-income-tax-payments-on-pace-to-reach-record-level-11654421400

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Excerpt:

An unprecedented gush of income-tax revenue is flowing into the federal government, driven in part by investors and business owners, and the size and speed of the increase has surprised even the nation’s fiscal-policy experts.

Individual income tax collections are poised to reach $2.6 trillion, or 10.6% of the economy in the fiscal year that ends Sept. 30, according to the Congressional Budget Office. That is up from 9.1% in 2021 and would mark a record in the 109-year history of the tax, topping the war-tax receipts of 1944 and the dot-com boom of 2000.

The surge has been particularly notable in taxes outside paycheck withholding, a signal that capital gains and business income are driving the trend. The Penn Wharton Budget Model estimates collections of non-withheld taxes reached an inflation-adjusted $522 billion in April 2022, compared with just over $300 billion in 2018 and 2019, before the pandemic.

Author(s): Richard Rubin, Amara Omeokwe

Publication Date: 5 June 2022

Publication Site: WSJ

Sanders’ Social Security Bill Would Extend Payroll Tax to Capital Gains for High Earners

Mary Pat Campbell

Link:https://www.thinkadvisor.com/2022/06/10/bernie-sanders-new-social-security-bill-would-extend-payroll-tax-to-capital-gains-for-high-earners/

Excerpt:

Sen. Bernie Sanders, I-Vt., and Rep. Peter DeFazio, D-Ore., introduced Thursday the Social Security Expansion Act (SSEA), which would, among other measures, boost benefits, adopt the Consumer Price Index for the Elderly, or CPI-E, for benefit increases, and subject all income above $250,000 — including capital gains — to the Social Security payroll tax.

Dan Adcock, Director of Government Relations and Policy at the National Committee to Preserve Social Security and Medicare, told ThinkAdvisor Friday in an email that the DeFazio-Sanders bill, like the Social Security 2100: A Sacred Trust, introduced by Rep. John Larson, D-Conn., “both extend solvency and improve benefits.”

The Larson bill, however, “is consistent with President Biden’s pledge not to raise taxes on Americans earning less than $400,000 per year,” Adcock said, while “the Sanders-DeFazio bill is not.”

A Sacred Trust adopts the consumer price index for the elderly as the basis of the annual cost-of-living adjustment (COLA) and applies the payroll tax to annual wages above $400,000.

Author(s): Melanie Waddell

Publication Date: 10 June 2022

Publication Site: Think Advisor

Debtor Nation

Mary Pat Campbell

Link: https://reason.org/debtor-nation/

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Organizations incur long-term financial obligations in forms other than bonds and the U.S. federal government is no exception. Some common types of financial obligations include pension and retiree health care costs for veterans, civilian federal employees, and the general public (through Social Security and Medicare benefit commitments). Looking at the federal government’s balance sheet as of 2021, public holdings of U.S. Treasury securities make up less than one-quarter of total federal liabilities. Unfunded entitlements, like Medicare and Social Security, account for the most at 59% of obligations.

Overall federal obligations have now surpassed $300,000 per American. While substantial in their own right, the debt obligations of state and local governments across the country are dwarfed by the various categories of federal debt.

Author(s): Jordan Campbell, Marc Joffe

Publication Date: 16 May 2022

Publication Site: Reason

Flood-Prone Homes Could Lose Federal Insurance Under FEMA Plan

Mary Pat Campbell

Link: https://www.wsj.com/articles/fema-urges-congress-to-drop-flood-insurance-for-highest-risk-areas-11655384400

Excerpt:

Mr. Toomey asked Jerry Theodorou of the R Street Institute, a conservative-leaning Washington-based think tank, how seriously Congress should look at paying repetitive loss claims. “Indeed, this is a very serious problem,” Mr. Theodorou said. “The numbers speak for themselves, to have such a small percentage of policyholders accounting for close to 40% of the claims dollars paid.”

The flood insurance program — which is the main provider of flood coverage in the U.S. and has issued more than five million policies — has paid out more money to property owners and other expenses than it has collected in premiums from policyholders since Congress created it in 1968. It collects about $4.6 billion in annual revenue from policyholders in premiums, fees and other charges, according to the Congressional Research Service.

Flooding ranks as the country’s most common natural disaster. Scientists predict floods will happen more frequently in neighborhoods that face new risk from rising sea levels and extreme rainstorms due to climate change.

Author(s): Katy Stech Ferek

Publication Date: 16 June 2022

Publication Site: Wall Street Journal

New Illinois Law Authorizes $1 Billion in Pension Obligation Bonds and Extends Buyout Option

Mary Pat Campbell

Link: https://www.ai-cio.com/news/new-illinois-law-authorizes-1-billion-in-pension-obligation-bonds-and-extends-buyout-option/

Excerpt:

Illinois Governor J. B. Pritzker signed into law House Bill 4292 last Thursday [May 5]. The bill extends state employees’ ability to exercise pension buyout options to June 2026, as opposed to the previous deadline of 2024. Buyout options allow pension recipients to take a lump sum of money now as opposed to waiting to retirement to receive the pension. The hope is that doing so could decrease the state’s struggling pensions’ unfunded future liabilities.

Illinois’ state budget for fiscal year 2023 also authorized an additional $500 million in payments to the state pension fund and $1 billion in pension obligation bonds. 

…..

Illinois’ pension funds are among the worst funded in the country. As of fiscal year 2021, the state’s pension plans were 46.5% funded, significantly lower than the national average of 72.8%, according to the National Association of State Retirement Administrators.

Author(s): Anna Gordon

Publication Date: 9 May 2022

Publication Site: ai-CIO

Biden Administration Sues a City Over “Rampant Overspending on Teacher Salaries”

Mary Pat Campbell

Link: https://www.educationnext.org/biden-administration-sues-a-city-over-rampant-overspending-on-teacher-salaries/

Excerpt:

The Biden administration’s Securities and Exchange Commission is suing the city of Rochester, New York, contending that “rampant overspending on teacher salaries” plunged the Rochester school district into “extreme financial distress,” misleading investors who bought municipal bonds.

The legal action is unusual. Sure, the federal government’s interaction with K-12 education has often extended beyond the bounds of the U.S. Department of Education. The Department of Agriculture administers the school lunch program, and the Department of Defense operates schools serving military-connected children. Under George W. Bush, the Justice Department toyed with the idea of using antitrust law to support charter schools. And in the waning days of the Trump administration, President Trump issued an executive order authorizing “emergency learning scholarships” to be provided via the Secretary of Health and Human Services.

But, notwithstanding Bloomberg columnist Matt Levine’s theory that
“everything is securities fraud,” in practice, the K-12 education beat hasn’t intersected greatly with the fraud provisions of federal securities laws. At least until now.

….

How much has Rochester been “overspending?” The website Seethroughny.com, a project of the Empire Center for Public Policy, lists 717 Rochester City School District Employees who earned more than $100,000 in 2019. The district has about 25,000 K-12 public school students, according to the state of New York. Spending runs about $20,000, a little below the statewide average. Whether that amounts to “overspending” probably depends on one’s view of how much the children are learning, and also one’s view of whether the students could learn more, and how much more, if more money were spent.

….

In practice, the legal aspects of the case will probably turn more on considerations about disclosure to potential bond buyers than about the details of the spending on teacher salaries.

Even so, the mere mention of securities law and bondholders as potential tools to curb school district “overspending” is intriguing, especially when the action comes under a president who campaigned promising to increase school spending so as to pay teachers “competitive salaries.” For years, reformers have complained that teachers unions capture school boards and run school systems for the benefit of adults rather than children. Now a different set of influential adults—bondholders—is, in a way, asserting, via the SEC, its own claim that could be a countervailing force.

Author(s): Ira Stoll

Publication Date: 15 June 2022

Publication Site: Education Next

With higher rates, total 2022 issuance projections keep falling

Mary Pat Campbell

Link: https://fixedincome.fidelity.com/ftgw/fi/FINewsArticle?id=202206101515SM______BNDBUYER_00000181-4ebf-d2a2-a9ab-dffffeab0000_110.1

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Excerpt:

Market participants are revising their supply projections downward as rising interest rates have stymied refunding and taxable volumes and overall market volatility has held some issuers to the sidelines.

The pace of issuance so far in 2022 makes it less likely the market will hit previous records seen in 2020 and 2021.

BofA Securities was the latest shop to revise expectations downward because of the dearth of refundings, with strategists Yingchen Li and Ian Rogow forecasting total volume in 2022 to be $50 billion less than the $550 billion assumption they made at the end of 2021.

Author(s): Gabriel Rivera

Publication Date: 10 June 2022

Publication Site: Fidelity Fixed Income

Munis sit on sidelines while USTs rally post-Fed rate hike

Mary Pat Campbell

Link: https://fixedincome.fidelity.com/ftgw/fi/FINewsArticle?id=202206151637SM______BNDBUYER_00000181-67cc-d98e-a5fb-efcf1bfc0001_110.1

Excerpt:

Municipals took a backseat as the Federal Open Market Committee announced its decision to implement a three-quarter point rate hike while U.S. Treasuries rallied into late afternoon following the news. Equities rallied.

The move, prompted partly by hotter-than-expected inflation data Friday, is the largest rate hike since 1994.

?Investors appear encouraged that the FOMC is willing to take forceful action to try and get inflation under control,” Wilmington Trust Chief Economist Luke Tilley said.

By front loading rate hikes, he said, the FOMC will have ?more optionality as the year unfolds,? and will be able to accelerate hikes if inflation persists, ?but if any cracks appear in the economic recovery they?ll have the option to slow down while still having rates below their estimate of neutral.?

Triple-A muni yields were cut a basis point or were little changed while UST yields fell up to 23 basis points on the short end.

Author(s): Christine Albano

Publication Date: 15 June 2022

Publication Site: Fidelity Fixed Income

As our entitlements crisis gets closer, a solution moved farther away

Mary Pat Campbell

Link: https://www.washingtonpost.com/opinions/2022/06/09/social-security-medicare-crisis-approaching/

Excerpt:

The annual Social Security trustees report is once again upon us, and this year it actually bears some good news: The projections give us an extra year before the trust fund is exhausted in 2035.

At least, this sounded like good news when I first heard it. Then I remembered that I have been writing about these trustees reports for more than 15 years. When I started, all these projections sounded comfortably far off — we had decades to fix the problem! Now we have 13 years. And in all that time, we have done nothing at all, except watch the date of insolvency advance.

In 2008, it was 2040, and the people likely to be worst affected — those who would be eligible to retire just as the trust fund was exhausted — were 35. Now, the people facing the most disruption are 54, much closer to retirement than to their college graduation.

In the meantime, the politics of fixing America’s old-age entitlements has gotten considerably worse.

Author(s): Megan McArdle

Publication Date: 9 June 2022

Publication Site: Washington Post

Providence Voters Approve of $515 Million in Pension Obligation Bonds

Mary Pat Campbell

Link: https://www.ai-cio.com/news/providence-voters-approve-of-515-million-in-pension-obligation-bonds/

Excerpt:

The city of Providence’s pension fund, which is among the most underfunded in the country, just got one step closer to approving $515 million in pension obligation bonds. A majority of voters cast ballots in favor of the mayor’s proposal to issue $515 million in bonds in a non-binding referendum. While the results do not give Mayor Jorge Elorza the authority to issue the bonds, they do help build his case to the state, whose approval he needs to issue the bonds.

…..

Pension obligation bonds are essentially loans that the pension takes out with a fixed interest rate. The hope is that investment returns exceed the interest rate on the bonds, thus allowing the pension fund to increase its funded ratio. However, a recession or investment downturn could lead to the pension losing money on the bonds. Such was the case in Puerto Rico when it issued pension obligation bonds in 2008. While a total collapse like what occurred in Puerto Rico is unlikely to happen in Providence, according to experts,

Public pensions have more than doubled their borrowing this past year, according to S&P Global. In 2020, the S&P rated $3 billion in public pension bond issuances. In contrast, the S&P rated $6.3 billion in public pension bond issuances between January 1 and September 15, 2021. However, as interest rates begin to rise again, bond issuances will likely decrease again.  

Author(s): Anna Gordon

Publication Date: 9 June 2022

Publication Site: ai-CIO

EXECUTIVE EXCESS 2022

Mary Pat Campbell

Link: https://ips-dc.org/report-executive-excess-2022/

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Excerpt:

  • Taxpayer dollars are fueling corporations with extreme CEO-worker pay gaps.
    • Of the 300 companies in our sample, 40 percent received federal contracts between October 1, 2019 and May 1, 2022. The combined value of these contracts was $37.2 billion.
    • At these low-wage contractors, the average CEO-worker pay ratio hit 571 to 1 in 2021. Only 6 of the 119 contractors had pay gaps of less than 100 to 1.
  • Policy solutions for runaway CEO pay do exist — and enjoy broad support.
    • Some 62 percent of Republicans and 75 percent of Democrats support an outright cap on CEO pay relative to worker pay.
    • While a hard cap is unlikely, other CEO pay reforms have also gained traction in recent years. These reforms focus on three key areas:
      • CEO pay ratio incentives for federal contractors
      • Excessive CEO pay taxes
      • Stock buyback restrictions and taxes

Author(s): SARAH ANDERSON | SAM PIZZIGATI | BRIAN WAKAMO

Publication Date: Accessed 10 June 2022

Publication Site: Institute for Policy Studies

Fewer than 4000 people just approved boosting Providence Rhode Island liabilities by $515 million

Mary Pat Campbell

Link: https://marypatcampbell.substack.com/p/fewer-than-4000-people-just-approved?s=w

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Excerpt:

Yes, for over five years now, they’ve been contribution more than 50% of payroll to the pension plan as the full contribution to the pensions.

In the past, they mostly contributed the full requirement, though in some years they didn’t. The requirement used to be less than 50%, but when you short the fund, and when you underperform on investments (which we will see in a bit), that’s expected, right?

So let’s see how the funded ratio has been doing — for all these full payments, the funded ratio must be healthy, correct? [if you didn’t read my excerpts above]

Author(s): Mary Pat Campbell

Publication Date: 10 June 2022

Publication Site: STUMP at substack