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Taxes, Offshore Accounts and Corruption

12:44 pm in Uncategorized by Lee Saunders

Tax

(Photo: 401(K) 2012/flickr)

This week, the U.S. Senate passed legislation backed by President Obama extending tax cuts for the 98 percent of Americans who need it, while allowing the Bush-era tax cuts for the wealthiest Americans to expire on schedule at the end of this year. These cuts benefit the working men and women who are struggling during the worst economic crisis since the Great Depression. Yet, Mitt Romney and the right-wing politicians who control the U.S. House of Representatives stand in the way of enacting these cuts. They are holding hostage middle-class tax cuts in their pursuit of additional cuts in taxes for the wealthiest people in America. In fact, the tax plan released by Romney in March of this year would cut taxes for the top 1 percent by nearly $150,000 per year, while the bottom 20 percent of working Americans would have their taxes increased. That makes no sense, but it is the plan pushed by Romney and his backers.

Romney is among the right-winger ideologues who claim that the wealthy need tax cuts to invest in jobs. They ignore the historic fact that tax cuts for the top 1 percent have never produced jobs. We tried that experiment in the Bush years and got the worst job creation record in the history of the American presidency. While it has never worked in the past and won’t work now, it would also greatly increase the deficit, unlike the legislation supported by President Obama and the Senate. According to the Tax Policy Center, Romney’s plan would add $900 billion to the deficit in 2015, when the changes would go into full effect.

But Romney has other problems on taxes. Romney has only released one year of his tax returns. His father, George Romney, released 12 years of tax returns when he ran for president in 1968. President Obama has released every tax return of his since 2000. Romney’s determination to hide his returns suggests that there is something in them that he does not want the American people to see. We know from the one year return that he has released that Romney may have sheltered millions of dollars from taxes in places like Switzerland, Bermuda and the Cayman Islands. He claims that he didn’t save a dollar in taxes, which seems absurd. Equally troubling, however, is Mitt Romney’s response to the demands that he release his tax returns to give the American public a clearer picture of his financial holdings and obligations. He says he’s given us enough, most recently in an interview on the NBC Nightly News with Brian Williams which aired on Wednesday night.

Why is this important? Who cares that a man we know is wealthy put money in overseas accounts and created shell companies overseas with hidden assets? All of us should care. A study released earlier this week by the Tax Justice Network calls the fight against tax havens “one of the great challenges of our age.” The Tax Justice Network is an independent organization launched in the British Houses of Parliament in March 2003. Their report estimates “the amount of funds held offshore by individuals is about $11.5 trillion – with a resulting annual loss of tax revenue on the income from these assets of about 250 billion dollars.” Mitt Romney and Bain Capital have helped to create and sustain this international system where the rich can hide their wealth, while everyone else plays by a different set of rules. Needless to say, at a time when federal, state and local budgets are squeezed here at home, Romney’s off-shore financing may be hiding assets that are not taxed, thereby increasing the taxes of everyone else who pays for vital public services.

According to the Tax Justice Network, companies and individuals like Bain and Romney who benefit from off-shore accounts avoid paying their fair share for things like infrastructure, education and the rule of law here at home. “The rest of us shoulder the burden,” they report. “As a result, tax havens are heightening inequality and poverty, corroding democracy, distorting markets, undermining financial and other regulation and curbing economic growth, accelerating capital flight from poor countries, and promoting corruption and crime around the world.” We need to see Mitt Romney’s tax returns to get a clear picture of the extent he has been involved in these corrupt practices.

Questions also need to be answered about Romney’s extraordinary IRA account, which grew to more than $100 million in value even though contributions are limited by law. How did he amass such wealth in his IRA? Steve Rattner, another hedge fund manager, has spoken with other financiers to see if they had IRAs with similar growth. “None of us had even known this was a possible trick,” Rattner says, although he doesn’t know exactly what Romney did. “He has pushed the envelope all the way to the edge, to his benefit, and I think Americans would find that pretty distasteful.”

Romney says he has abided by the letter of the law. But his tax return for 2010 revealed – for the first time – that he has participated in a corrupt international investment and banking system where the rich are able to hide their wealth while nurses, corrections officers, school workers and others pay their fair share of taxes. We will only know the extent of Mitt Romney’s involvement in these activities when he releases his tax returns for the past 10 years. He needs to do so before the American people can make an informed decision about is candidacy. More than 100 years ago, Justice Oliver Wendell Holmes, Jr. noted that “taxes are what we pay for a civilized society.” We need to see Mitt Romney’s returns to determine if he has met his responsibilities. Until he provides us with these records, questions will remain unanswered and concerns will remain strong that there is something serious being hidden from the people of the United States.

Revive the Dream

12:33 pm in Uncategorized by Lee Saunders

"Martin Luther King Jr. - I Have A Dream Speech by e-strategyblog.com, on Flickr"

Martin Luther King Jr. - I Have A Dream Speech by e-strategyblog.com on Flickr

Hundreds of thousands of Americans are expected to gather this weekend in Washington, DC, for the dedication of the Martin Luther King Jr. Memorial.  Few can doubt that this is an extraordinary and historic moment.  Only four other Americans – George Washington, Thomas Jefferson, Abraham Lincoln and Franklin Delano Roosevelt – have been given this honor: a national memorial on the hallowed grounds of our National Mall.  As the first memorial to honor an African American, and the first to honor an individual who was never elected to high office, the memorial for Dr. King stands as a symbol of progress and purpose, dedicated to a man whose vision and courage transformed our nation and gave hope to the world.

The dedication this weekend also coincides with the 48th anniversary of the 1963 March on Washington for Jobs and Freedom.  It was at that march where Dr. King delivered the speech that proclaimed his vision of an America that would live up to the words of our founders and the ideals of the Declaration of Independence.

“I have a dream,” he said, “it is a dream deeply rooted in the American Dream.”  On that August day, Dr. King also challenged the economic injustices that existed in America. He spoke of Americans living “in a lonely island of poverty in the midst of a vast ocean of material prosperity,” and of those who languish “in the corners of American society,” living as “an exile in his own land.” Read the rest of this entry →

America’s Failed 401(k) Experiment

3:07 pm in Uncategorized by Lee Saunders

While the unfunded pension liabilities in many public retirement funds have received an inordinate amount of attention, the larger retirement deficit of most Americans is not generating the level of concern that it deserves. Individuals who have been left on their own to save for retirement in 401(k) accounts face challenges that are not being met. As a result of the financial crash that led to the worst economic crisis since the Great Depression, the retirement savings of most baby boomers — which were already inadequate — were reduced to levels that may create genuine impoverishment as the boomers retire and enter their 70s.

Because 401(k) accounts are rarely professionally managed, individuals are often exposed to excessive risk. When the market goes bad, individual investors are hit the hardest. Many Americans with 401(k) accounts lost one-third to one-half of their "nest-egg" when the equity markets collapsed in 2008 and 2009. Because most boomers are now well over 50 years of age, they have little time to accumulate adequate retirement savings.

Rather than focusing on the real problems facing most future retirees, much of the media has been focusing instead on problems facing public retirement funds. While the funding levels of some of these plans will present real challenges in the future, the problems can be resolved over a period of 30 years under generally accepted accounting rules. What’s more, the combined deficit in our major state and local government retirement systems represents less than 2 percent of total state and local government spending over the coming 30-year period. When we consider that many state and local government budgets have been cut by 10 percent to 40 percent over the past three fiscal years, it’s not too difficult to see how governments can rebuild their pension funds once the economy recovers and tax revenues return to more normal levels.

Most government pension funds have 70 to 75 percent of the assets necessary to provide promised benefits. On the other hand, the median 401(k) balance for workers who have had consistent access to such an account was just $43,700 at the end of 2008. But, most employers do not offer such access, and many workers do not have the ability to consistently save. So, the median account balance of all 401(k) accounts is less than $13,000, barely a fraction of what is needed for a secure retirement. In aggregate, the gap between what Americans have saved and what they will need in retirement has been calculated at $6.6 trillion.

The contrast is clear: While public pensions have decades to cover their relatively small deficit, many individuals must accumulate sufficient savings in little more than a decade. Given our current financial straights, this may be impossible.

The public policy implications of these facts are real – and severe. The longer we delay addressing this issue, the more intractable the problem will become. Ironically, at the very time our retirement savings crisis is demanding attention, some politicians think a reduction in Social Security benefits is essential. Republican Leader John Boehner, for example, supports an extension of the retirement age to 70. This may sound like a good solution to our problems for him, but it simply makes retirement less secure for most Americans.

So, what can be done? First, we need to recognize that our current retirement programs, based on individual accounts such as 401(k) plans, are a failed experiment. Enacted during the late 1970s and early 1980s, we now have the experience of a generation to clearly demonstrate that individual investors do not have the skills, time or interest to properly mange their retirement investment portfolios. Indeed, a study by the National Institute on Retirement Security found that professionally managed pensions can deliver the same level of retirement benefits at half the cost of a 401(k)-style plan. This means we must investigate policy options that combine the portability features of 401(k) plans with the professional investment management, long terms asset growth strategies, shared risk and guaranteed income streams that make traditional pension plans so efficient.

Second, we need to stop inflicting unnecessary damage to our fragile retirement systems. Attacks on Social Security and traditional public and private sector pension plans only make our problems worse. We need to provide our pension systems with sufficient time to recover from the aftershocks of the implosion of our economy. No one is seeking a "bailout." Rather, we simply need to allow pension plans to function as intended, with a reliance on long-term growth strategies to weather the ups and downs of an increasingly volatile investment environment.

At the end of the day, our traditional pension systems will remain strong and will continue to be the cornerstone of retirement security for those Americans fortunate enough to participate in such programs. For these and other Americans, Social Security will almost always be the bedrock of a secure retirement. But, for the tens of millions who must rely on Social Security alone, more must be done to help them save in order to live out their elder years in dignity. The sooner we have a serious conversation about this issue, the better.