The fear of running out of money in retirement is America's greatest financial concern. It's a fear greater than death. But the American workers who have paid all their lives for retirement security are being cheated by wealthy individuals and corporations who refuse to meet their tax obligations, and who have found other ways to keep expanding their wealth at the expense of the middle class.
1. Federal Tax Avoidance is the Biggest Threat to Social
Security
Conservatives say that Social Security is too expensive, and
that cutbacks and a later retirement age are necessary. But they
refuse to acknowledge the facts about missing revenue. Annual tax
avoidance by wealthy individuals and corporations is in
the trillions of dollars, over double the cost of
Social Security.
Big corporations are the worst offenders. The numbers are
startling. For every dollar they paid relative to payroll tax in the 1950s, they now pay ten cents. In just the past
ten years they've cut their tax rate in
half.
The sum total of tax underpayments, tax haven losses,
corporate tax avoidance, and tax expenditures (most of which benefit the very
rich) is over $2 trillion. Although Social Security
costs less than half of that, Congress is
targeting Americans who have paid into it at the highest rate, while tax
avoiders are left undisturbed.
From whom does Congress propose to take retirement benefits?
From people whose average retirement account is under $30,000, and for whom Social Security is
the largest source of retirement income. From
those who have already experienced Social Security cuts through delayed
cost-of-living adjustments and higher taxes. From the half of the middle class
whose food budget, by one estimate, will be $5 a day in their retirement
years.
2. State Tax Avoidance Defunds Pensions
In what David Cay Johnston calls "nothing short
of theft," states are reneging on pensions that workers have been paying
into for years. Illinois, Michigan, California and a slew of other states have mismanaged and squandered funds that belong
to their employees, and then, in effect, have blamed those employees for the
mess by penalizing them with pension cuts.
Once again, one of the reasons for the shortfall is corporate
irresponsibility. In 2011 and 2012, 155 of the largest companies paid
just 1.8 percent of their total income in state
taxes (3.6 percent of their declared U.S. income). The average required rate for the 50 states was
6.56 percent in 2011. Similar results were found in a Citizens for Tax Justice
(CTJ) report on 2008-10 state taxes, which found
that 265 large companies paid an average of 3 percent in state taxes, less than
half the average state tax rate. The results are summarized at Pay Up Now.
How much money is this? The missing 3 percent tax on
over $2 trillion in profits is anywhere from $30
billion to $60 billion, depending on the true U.S. portion of total corporate
income. But instead of taking on the delinquent corporations, states have
increased sales taxes and property taxes, while building up their regressive lottery systems to the point that
eleven states collected more revenue from their lotteries in 2009
than from corporate income tax.
3. Corporations Play One Underfunded State Against Another
The news from the states gets even worse. On the pretense
that their presence enriches the people of their home states, and that
subsidy-green pastures lie right across the border, companies have cunningly
negotiated tax-cutting deals in return for the promise to stay.
A Good Jobs First report describes the process, which costs
state and local governments up to $80 billion a year. Dozens of deals have been contrived, at least ten each
in Michigan, New York, Ohio, Texas, Louisiana, Tennessee, Alabama, Kentucky,
and New Jersey. Sixteen states have enacted the Private Income Tax (PIT) diversion, by which EMPLOYERS
rather than governments get to withhold state income taxes from employee
paychecks and to keep all or some portion of the funds.
Illinois' pension mess has its roots in corporate threats to bolt the
state: $100 million to Motorola; $150 million to Sears; $56 million to Boeing
to bring its headquarters to Chicago; and nearly $200 million to Caterpillar, which paid only 2
percent of its U.S. income in state taxes in 2011-12, and whose
CEO called Illinois "unfriendly to
business." Meanwhile, other Illinois companies are trying to get in on the
handouts. Agribusiness leader Archer Daniels Midland is threatening to
leave the state. The Chicago Mercantile Exchange made a big fuss over its tax bill in 2011, even though
its 2008-10 profit margin was higher than any of
the top 100 companies in the nation.
Washington is another state being victimized, at the hands of Boeing, which according to Citizens for Tax Justice paid nothing in federal taxes over ten years and nothing to Washington in state taxes, despite $32 billion in pretax U.S. profits. Now, while engineering a bidding war among multiple states, the company has wangled the nation's single biggest state tax break ($8.7 billion over 16 years) while informing its employees that their pension and benefits will be slashed.
In California, the tech giant Apple has its own way of
dealing with state taxes, claiming residency in tax-free Nevada. Ill-informed state leaders might heed the
findings of a New York State Tax Commission, which said: "There is...no conclusive evidence
from research studies conducted since the mid-1950s to show that business tax
incentives have an impact on net economic gains to the states above and beyond
the level that would have been attained absent the incentives."
4. Banks Take a Big Chunk of Our Retirement Accounts
Nearly $2
of every $5 in potential 401(k) earnings is lost because of
bank fees. An individual investing $1,000 a year for 30 years (with the historical 6 percent return) and then
holding the accumulated sum for another 20 years would
end up with $269,000 in a non-fee fund, but just $165,000 with the industry average 1.3 percent fee.
In the individual states, banks have their fee-absorbing
tentacles wrapped around employee pension plans. In Rhode Island it is projected that $2.1
billion in fees will be paid to hedge funds, private-equity funds, and
venture-capital funds over the next 20 years, about equal to the amount saved
by freezing Cost of Living Adjustments for public workers. In Detroit, $250 million in bankruptcy expenses was
doled out to firms that employ lawyers, accountants, financial analysts, and
public-relations consultants.
In South Carolina, the plunge by pension managers
into private equity and hedge funds has resulted in $1.2 billion in fees since
2008. American workers and retirees are the victims, and their numbers are
growing. According to the National
Institute on Retirement Security, almost half (45 percent) of
working-age households do not own any retirement account assets. The average
working household has virtually no retirement savings. But it doesn't matter to
business-happy privatization advocates, who don't seem to recognize that this
poorer half of America even exists.
This article was originally published at NationofChange at: http://www.nationofchange.org/retirement-theft-four-despicable-steps-1389019806.
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