Category: Public Finance

Return of the IRS Scandal

Mary Pat Campbell

Link: https://www.wsj.com/amp/articles/return-of-the-irs-scandal-11623191964

Excerpt:

 Less than half a year into the Biden Presidency, the Internal Revenue Service is already at the center of an abuse-of-power scandal. That news broke Tuesday when ProPublica, a website whose journalism promotes progressive causes, published information from what it said are 15 years of the tax returns of Jeff Bezos, Warren Buffett and other rich Americans.

Leaking such information is a crime, since under federal law tax returns are confidential. ProPublica says it received the files from “an anonymous source” and doesn’t know who provided them, how they were obtained, or what the source’s motives are.

Allow us to fill in that last blank. The story arrives amid the Biden Administration’s effort to pass the largest tax increase as a share of the economy since 1968. The main Democratic argument for a tax hike is that the rich should pay their “fair share.” The ProPublica story is a long argument that somehow the rich don’t pay enough. The timing here is no coincidence, comrade.

….

This still leaves the real scandal, which is that someone leaked confidential IRS information about individuals to serve a political agenda. This is the same tax agency that pursued a vendetta against conservative nonprofit groups during the Obama Administration. Remember Lois Lerner?

This is also the same IRS that Democrats now want to infuse with $80 billion more to chase a fanciful amount of uncollected taxes. As part of this effort, Mr. Biden wants the IRS to collect “gross inflows and outflows on all business and personal accounts from financial institutions.” Why? So the information can be leaked to ProPublica?

Author(s): Editorial board of WSJ

Publication Date: 8 June 2021

Publication Site: Wall Street Journal

‘Full funding’ for pensions – two ways to skin a cat

Mary Pat Campbell

Link: https://www.truthinaccounting.org/news/detail/full-funding-for-pensions-two-ways-to-skin-a-cat#new_tab

Excerpt:

Spending plans that “fully fund” pension obligations by making statutorily required contributions — amounts required by legislators, by law — do not necessarily fully fund pensions. In fact, Illinois has a sad history of passing laws with funding that falls far short of actuarial requirements — the amounts necessary to keep pension (and related retirement health care) debt from rising over time.

For an example, take a peek at the Illinois Teachers’ Retirement System (TRS). Their annual report for 2020 is available here. The table on pdf page 2 shows that the system has accumulated more than $50 billion in invested assets, but this massive amount actually falls far short of the nearly $140 billion in present value obligation for future pension payments, leading to a nearly $90 billion unfunded liability.

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The practice of distributing unfunded promises to pay money in the future has been a key of the tool chest that politicians have employed in misleading the citizenry that Illinois has lived up to constitutional balanced budget requirements, when in truth it has done anything but.

Author(s): Bill Bergman

Publication Date: 8 June 2021

Publication Site: Truth in Accounting

New CT budget has an unprecedented built-in surplus of $2.3 billion

Mary Pat Campbell
New CT budget has an unprecedented built-in surplus of $2.3 billion

Excerpt:

Question: When was the last time a Connecticut legislature was poised to adopt a state budget with a $2.3 billion surplus built into it?

Answer: Never, until now.

Democrats and Republicans alike were expected to vote for the $46.4 billion, two-year package when it goes before the House of Representatives on Tuesday. But even though about 5% of the funds appears to be left unspent, the anticipated surplus would become a payment into the state’s pension accounts.

That’s because the budget, which boosts spending 2.6% in the fiscal year beginning July 1 and by 3.9% in 2022-23, really is the first of its kind under a new system designed to bring stability to state finances.

Connecticut is four years into a savings program that limits spending of income tax receipts tied to capital gains and other investment earnings, but this is the first time since 2017 that analysts are projecting big revenues from Wall Street before legislators actually approve a budget.

Author(s): Keith Phaneuf

Publication Date: 8 June 2021

Publication Site: CT Mirror

The Secret IRS Files: Trove of Never-Before-Seen Records Reveal How the Wealthiest Avoid Income Tax

Mary Pat Campbell

Link: https://www.propublica.org/article/the-secret-irs-files-trove-of-never-before-seen-records-reveal-how-the-wealthiest-avoid-income-tax

Methodology: https://www.propublica.org/article/how-we-calculated-the-true-tax-rates-of-the-wealthiest

On legality etc: https://www.propublica.org/article/why-we-are-publishing-the-tax-secrets-of-the-001

Graphic:

Excerpt:

ProPublica has obtained a vast cache of IRS information showing how billionaires like Jeff Bezos, Elon Musk and Warren Buffett pay little in income tax compared to their massive wealth — sometimes, even nothing.

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In 2011, a year in which his wealth held roughly steady at $18 billion, Bezos filed a tax return reporting he lost money — his income that year was more than offset by investment losses. What’s more, because, according to the tax law, he made so little, he even claimed and received a $4,000 tax credit for his children.

His tax avoidance is even more striking if you examine 2006 to 2018, a period for which ProPublica has complete data. Bezos’ wealth increased by $127 billion, according to Forbes, but he reported a total of $6.5 billion in income. The $1.4 billion he paid in personal federal taxes is a massive number — yet it amounts to a 1.1% true tax rate on the rise in his fortune.

Author(s): Jesse Eisinger, Jeff Ernsthausen, Paul Kiel

Publication Date: 8 June 2021

Publication Site: ProPublica

Illinois Budget Leaves Billions in Federal Rescue Funds on the Table

Mary Pat Campbell

Link: https://www.centerforilpolitics.org/articles/illinois-budget-leaves-billions-in-federal-rescue-funds-on-the-table#new_tab

Excerpt:

The federal government will soon give the cash-strapped state of Illinois $8.1 billion to cope with the fallout from the COVID-19 pandemic, but next year state officials plan to use less than a third of the windfall.

That means that some $5.5 billion in unspent federal cash will remain in state accounts until lawmakers figure out how they want to use it. The state treasurer’s office will invest the money, along with the $38 billion it is already responsible for investing. 

Ironically, Illinois is supposed to get its money faster than many other states because of its urgent need. Most states will get their money from the American Rescue Plan Act in two payments, a year apart. But Illinois is expected to get its full share all at once in the coming months, because it has a high unemployment rate. 

The fact that Illinois is letting so much money sit in the bank, even when it has a long list of pressing financial needs, has a lot to do with the rules the federal government wrote for how states can use the Rescue Act money. 

Author(s): Daniel C. Vock

Publication Date: 6 June 2021

Publication Site: Center for Illinois Politics

2021 Update: Public Plan Funding Improves as Workforce Declines

Mary Pat Campbell
2021 Update: Public Plan Funding Improves as Workforce Declines

Full Report: https://crr.bc.edu/wp-content/uploads/2021/06/SLP78.pdf

Graphic:

Excerpt:

The aggregate funded ratio improved from 73 to 75 percent from FY 2020 to 2021. At the same time, contribution rates rose from 21 to 22 percent of payrolls.

While initial expectations for public pensions were low due to COVID, financial markets rebounded and municipal tax revenues were quite resilient.

Yet one other COVID-related factor – cuts to the state and local workforce – impacted public pension finances in FY 2021.

These cuts had little impact on funded status and required contribution amounts, but they do explain the rise in contribution rates, which are expressed as a share of lower payrolls.

Author(s): Jean-Pierre Aubry, Kevin Wandrei

Publication Date: June 2021

Publication Site: Center for Retirement Research at Boston College

Sovereign Defaults Hit Record in 2020; More Are Possible

Mary Pat Campbell

Link: https://www.fitchratings.com/research/sovereigns/sovereign-defaults-hit-record-in-2020-more-are-possible-08-06-2021

Graphic:

Excerpt:

The sovereign issuer-based default rate rose to a record high in 2020 against a backdrop of weakened sovereign credit profiles due to the Covid-19 pandemic, Fitch Ratings says. Downgrade pressures have eased this year, but our ratings indicate that more defaults are possible.

Fitch’s recent Sovereign 2020 Transition and Default Study shows that five Fitch-rated sovereigns defaulted in 2020, up from only one in the previous year. As a result, the sovereign default rate rose more than threefold to 4.2% from 0.9% in 2019. The previous high was 1.8% in both 2016 and 2017.

Publication Date: 8 June 2021

Publication Site: Fitch Ratings

A G-7 Deal on a Global Minimum Tax for Companies Faces Hurdles

Mary Pat Campbell

Link: https://www.wsj.com/articles/a-g-7-deal-on-a-global-minimum-tax-for-companies-faces-hurdles-11623016756

Excerpt:

An agreement by wealthy countries to impose minimum taxes on multinational companies faces a rocky path to implementation, with many governments likely to wait to see what others, especially a divided U.S. Congress, will do.

Treasury Secretary Janet Yellen hailed the deal, reached by finance ministers of the Group of Seven leading rich nations over the weekend in London, calling it a return to multilateralism and a sign countries can tighten the tax net on profitable firms to fund their governments.

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In countries with parliamentary systems, governments can quickly deliver on pledges, turning them into local laws and regulations. In the U.S., however, a slim Democratic majority in the House, an evenly split Senate, antitax Republicans and procedural hurdles complicate passage.

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Buy-in will also have to come from a broader group of 135 countries in what is known as the Inclusive Framework. Some countries with very low tax rates — such as Ireland, with a 12.5% charge on profit — are reluctant to sign up. The U.S. has proposed tax changes that would penalize companies from countries that don’t impose the minimum taxes.

Author(s): Richard Rubin, Paul Hannon, Sam Schechner

Publication Date: 6 June 2021

Publication Site: Wall Street Journal

Illinois Comptroller says state’s finances heading in the right direction

Mary Pat Campbell

Link: https://www.thecentersquare.com/illinois/illinois-comptroller-says-state-s-finances-heading-in-the-right-direction/article_71e04696-c56e-11eb-a0f7-8f7ebd2412e4.html#new_tab

Excerpt:

 Illinois Comptroller Susana Mendoza said the state’s financial condition is moving in the right direction despite a structural deficit, multi-billion dollar backlog of bills and one of the highest unfunded pension liabilities in the nation. 

During a virtual conversation Friday with Southern Illinois University’s Paul Simon Public Policy Institute, Mendoza said that wasn’t the case last year when things looked dire when the COVID-19 pandemic caused a delay in tax collections.

“That is why we had to rely on borrowing from the Federal Reserve at a lower rate just to get us through April and May, which typically would be our best months,” Mendoza said.

Author(s): Kevin Bessler

Publication Date: 4 June 2021

Publication Site: The Center Square

Unprecedented federal borrowing floods state budgets

Mary Pat Campbell

Link: https://thehill.com/opinion/finance/556660-unprecedented-federal-borrowing-floods-state-budgets

Graphic:

Excerpt:

Once per calendar quarter, the state of Michigan conducts a Consensus Revenue Estimating Conference that provides updates on both the national and state economies and the state’s fiscal outlook. The May conference each year is especially significant because it sets the official revenue targets for the next fiscal year’s state budget. 

The May meeting packet contained a broad range of data points, but a few jumped out.

….

Another chart broke down the components of personal income. Over the previous four quarters, personal income was nearly $3,000 higher than pre-pandemic forecasts had expected. However, employee compensation actually declined by about half that amount. The entire increase is the result of the 53 percent increase in federal transfer payments that have floated U.S. households over the past year.

Author(s): DAVID GUENTHNER

Publication Date: 5 June 2021

Publication Site: The Hill

Illinois 2022 budget: The state’s financial cliff will be waiting after the federal largesse runs out – Wirepoints

Mary Pat Campbell
Illinois 2022 budget: The state’s financial cliff will be waiting after the federal largesse runs out – Wirepoints

Graphic:

Excerpt:

Wirepoints calculates that retirement costs will consume 26 percent of the 2022 budget. The state is set to contribute $9.4 billion in General Funds to pensions, pay $777 million in pension bond costs, and pay an estimated $1 billion in retiree health costs.

In total, that’s $11.2 billion of the $42.3 billion budget consumed by retirement expenditures.

On top of the payments from the General Fund, another $1.2 billion in pension payments will come from other budget funds, meaning the state’s total retirement costs will be an estimated $12.4 billion in 2022.

Author(s): Ted Dabrowski, John Klingner

Publication Date: 2 June 2021

Publication Site: Wirepoints

Cut Spending For The Rich Before Raising Their Taxes

Mary Pat Campbell

Link: https://www.manhattan-institute.org/cut-spending-rich-raising-their-taxes

Graphic:

Excerpt:

Members of Congress have increasingly demanded large tax hikes on upper-income families to finance large spending increases on top of soaring baseline deficits. But even the most aggressive tax hikes on the rich would make only a small dent in the long-term budget deficits, and they would significantly harm the economy. Before considering any new taxes, lawmakers should first reduce federal spending benefits for high-income families. This bipartisan strategy would achieve both the redistributive goals of the left and the spending restraint goals of the right.

Such upper-income spending cuts have several advantages over new taxes: 1) they will not harm economic growth, 2) they increase future policy flexibility, 3) they are better targeted, and 4) they promote political compromise.

Several programs target spending to wealthy Americans. This report focuses on three of the largest: Social Security, Medicare, and farm subsidies, where basic reforms could save upward of $1 trillion in the first decade, and substantially more in future decades.

Author(s): Brian Riedl

Publication Date: 20 May 2021

Publication Site: Manhattan Institute