Respectfully submitted by Lawrence E. Rafferty (rafflaw)- Guest Blogger
We have all heard the cries that so-called entitlement programs like Social Security need to be cut in order to “save” them from extinction. Now that I am 62 years of age, I have become more interested in the issue of Social Security’s solvency.
CEO’s have gotten involved in the process through the now infamous Fix the Debt campaign initiated and funded by Billionaire Pete Peterson and the parallel campaign started by the Business Roundtable. Both of these campaigns are supported by big business and CEO’s of large corporations with no concern where their retirement funds are going to come from.
“In the current budget debate, the loudest calls for Social Security cuts are coming from two lobby groups led by CEOs who will never have to worry about their own retirement security.
The report, titled Platinum-Plated Pensions: The Retirement Fortunes of CEOs Who Want to Cut Your Social Security,
points out that two organizations, Fix the Debt, a PR and lobby machine launched in 2012 and led by more than 135 CEOs of major corporations, and the Business Roundtable, a 40-year-old association made up of about 200 CEOs of Americas largest corporations, are involved in a protracted campaign aimed at cutting, and ultimately, gutting Social Security.
Platinum-Plated Pensions, written by Sarah Anderson, the Director of the Global Economy Project at the Institute for Policy Studies, and Scott Klinger, Director of Revenue and Spending Policies at the Center for Effective Government, found that the CEOs belonging to Fix the Debt and Business Roundtable are sitting on massive nest eggs of their own.” Bill Berkowitz
Maybe I am an exception, but I was amazed to read the report linked above to see just who is claiming that the only way that Social Security can be saved for us mere peons is by raising the retirement age and reducing benefits. Many of the CEO’s making this claim have millions in their own pension or retirement accounts.
“According to Platinum-Plated Pensions, The average Business Roundtable CEO has $14.5 million in his gilded nest egg, more than 1,200 times as much as the $12,000 median retirement savings of U.S. workers who are within 10 years of retirement.
Ten CEO members of the Business Roundtable (four of whom are also members of Fix the Debt) have corporate retirement plans valued at more than $50 million. Of these, three have retirement assets of more than $100 million.” Bill Berkowitz
Now, in all fairness, just because someone has no need for their Social Security benefits, it doesn’t automatically disqualify their opinions on the subject of improving Social Security for all of us. However, these CEO’s do not have a real stake in what happens to Social Security because if it exploded tomorrow, they still have millions in their own accounts.
The ideas that Fix the Debt and the Business Roundtable have offered do nothing to make it more equitable or make Social Security work better for all retirees. Their idea of a “fix” is to delay benefits and force poor and middle class workers to stay in the work force even longer.
They even claim that raising the minimum retirement age to 67 is necessary because we are all living longer. Even that claim is suspect. One economic expert has brought some sunlight to the living longer claim.
“Before I get there, however, let me briefly take on two bad arguments for cutting Social Security that you still hear a lot.
One is that we should raise the retirement age — currently 66, and scheduled to rise to 67 — because people are living longer. This sounds plausible until you look at exactly who is living longer. The rise in life expectancy, it turns out, is overwhelmingly a story about affluent, well-educated Americans. Those with lower incomes and less education have, at best, seen hardly any rise in life expectancy at age 65; in fact, those with less education have seen their life expectancy decline.
So this common argument amounts, in effect, to the notion that we can’t let janitors retire because lawyers are living longer. And lower-income Americans, in case you haven’t noticed, are the people who need Social Security most.” Paul Krugman
While I am hoping Mr. Krugman is correct that lawyers are living longer, his evidence seems to suggest that the Fix the Debt and Business Roundtable people are all wet. Could those millionaire and Billionaire CEO’s have some ulterior motive? Could the CEO’s efforts and money spent pushing their Fix actually be an attempt to prevent the country from taxing the wealthy on all of their income or reducing or eliminating many of their tax benefits that harm the economy and fatten their wallets?
I have often wondered why millionaires don’t have to pay Social Security taxes on all of their income like the rest of us who make less than the $113,700 maximum for 2013. When a CEO makes $20 million a year, that CEO pays Social Security taxes on the first $113,700. When someone makes $60,000 a year, they pay Social Security taxes on their entire income. Why shouldn’t Social Security taxes be paid on all income, no matter what the sources? Wouldn’t that be more equitable?
Mr. Krugman also suggests that part of the problem seniors are facing is that the 401k accounts that many of their employers intitiated have not earned what was necessary to retire on due to the market crash and employer greed and employees making poor financial decisions.
“Today, however, workers who have any retirement plan at all generally have defined-contribution plans — basically, 401(k)’s — in which employers put money into a tax-sheltered account that’s supposed to end up big enough to retire on. The trouble is that at this point it’s clear that the shift to 401(k)’s was a gigantic failure. Employers took advantage of the switch to surreptitiously cut benefits; investment returns have been far lower than workers were told to expect; and, to be fair, many people haven’t managed their money wisely.” New York Times
What do you think is needed to strengthen Social Security for all workers? Paul Krugman and many Senators like Sen. Elizabeth Warren agree that we should be talking about strengthening Social Security and not cutting it. Some of the CEO’s mentioned above who have millions in their own retirement accounts have actually run up deficits in their own employees retirement accounts, but yet they still claim cutting benefits and extending the minimum retirement age are the way to go.
“While gilding their personal pensions, many Roundtable CEOs have allowed massive deficits to grow in their employee retirement funds:
- Of the Business Roundtable CEOs whose firms provide pension funds for their workers, 10 have deficits in these funds of between $4.9 billion and $22.6 billion.
- The Roundtable CEO with the largest deficit in his companys worker pension fund is Jeffrey Immelt of General Electric, with $22.6 billion. Immelts personal retirement fund is worth more than $59 million, the sixth-largest among Roundtable CEOs.” Bill Berkowitz
Are these CEO’s merely doing an end run in an attempt to steer Social Security funds into the private sector? Are they trying to steer the discussion away from taxing more income to strengthen Social Security? What do you think and who do you believe?
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Trained these dogs are awesome to watch in action. Not that she could anyway.
Can we at least acknowledge their existence.
Paul Krugman remarks on the British experience with austerity with remarks that are specifically relevant to our own efforts to pay down the debt:
“But none of this political analysis should distract us from the economic point that claims that recent growth vindicates austerity are deeply stupid.”
Reductions in economic growth due to efforts to pay down deficits have cost this country literally trillions of dollars in lost production. This is output and income that will never come back. This is damage to real lives and families that can only be repaired by putting people back to work.
The damage done to this country by the intransigent right wing would give pleasure to any enemy sabateur.
That last comment was directed to Elaine!!
I hope you and Sen. Warren are right!!
rafflaw,
Take that, Paul Ryan! Elizabeth Warren beats back Social Security plot
The years-long campaign to slash Social Security benefits has finally met its match
MICHAEL LIND
12/15/13
http://www.salon.com/2013/12/15/take_that_paul_ryan_elizabeth_warren_beats_back_conservative_social_security_plot/
Just one small step in the recovery from mass hysteria and delusional thinking that somehow during the greatest economic downturn since the Great Depression of the 1930’s the single most important thing is to pay down government debt.
After the better part of a decade, even the most rabid politicians are beginning to realize that austerity during a recession makes the recession worse not better.
There is always hope. In a few more years, even the obtuse Mr Ryan may realize that cutting unemployment benefits will not put people back to work when there are three, count them…three, job candidates for every job opening.
The tragic part is that this learning experience for the affluent and powerful is paid for by the hunger and unemployment of middle class and lower middle class families – ready, willing and able to work but without jobs due to incompetent government policies and the excesses of crony capitalist.
My reply lost to WP. We will wait for a guest blogger with time to help.
Bron: When [options are] used properly, they are a form of bonus (compensation) that incentivizes employees to work hard, bring in new business, cut costs, and stay at the company rather than leave.
Perhaps in very small companies with under a hundred employees or so, where single employees have some significant leverage on the fortunes of a company. This just is not a true statement in a very large company, both psychologically and empirically and logically the stock price is far, far beyond the control of any employees. If the company does well it is a windfall, and if they waste some money or waste some time it is a drop in the ocean, it has so little influence on the stock price that the reward for the waste far exceeds any cash value received by the option.
In my twenties, I had stock options when working for a giant insurance company. Any given day, I could look at an inappropriately settled case (one we should have fought) in which we blew six figures we could have saved, because it was a bogus claim. I was not in control of that decision, and it was more than my year’s salary, and far more than my options would ever be worth. Why should I work my ass off to save $1000 upper management would just blow their nose with and toss in the trash, because (A) they are too lazy to litigate, and (B) they just set their premiums high enough to pay for their laziness?
This is a fantasy claim, options do not incentivize the vast majority of employees that have effectively zero control over the financial fate of their employer. The reality is that time wasting and money wasting by employees is a reward to them, and by the laws of economics 101, if that reward is worth more to them than the reward they would receive (in increased stock option value) by foregoing it, they will take the time wasting and money wasting reward, which is immediate. They don’t trust their fellow employees to do any differently, and as in my story above, they have the empirical, first hand observations to prove it.
Bron: When a company issues an option with a strike price above the current market price, it should cost them nothing because at that moment such an option is worth nothing.
I agree with that.
Bron: The process that back-dates options or changes the strike price of options should be allowed
I disagree with that completely and vehemently; I think it constitutes a lie and a fraud no matter how much disclosure is made.
Bron: Were there no income tax and no capital controls, almost all of this absurd behavior would disappear overnight.
Riiiight, and if there were no laws against theft or murder or rape, people would stop trying to conceal it! This is a ridiculous argument.
Bron: The current structure of most corporations gives too much power to management and not enough power to shareholders and the board.
I agree with that.
Bron: but these problems are caused by government taxes, government regulations
Bullshit. These problems are caused by greed, pure and simple. The government doesn’t mandate the management of the company have more power than the shareholders and board, I have formed multiple corporations and been on numerous boards and the company charter is up to the people that form the company. Talk to a lawyer, they will find a way to describe dang near any structure you want in there. Lots of companies have more democratic forms of government, heck even giving the employees significant power. The amount of power granted to the Board, and to Shareholders, and to employees is 100% entirely up to the drafters of the initial Articles of Incorporation and bylaws, which form the equivalent of a Constitution for the company.
Taxes and regulation have nothing to do with the imbalance of power; that is an artifact of the “Golden Rule of Business:” Those with the Gold, make the Rules. The founders of the company decided on that imbalance, it was not forced upon them by any government.
Bron: a company that could do much better than it is currently doing, if it were freed from much of the burden of regulation and taxation
Riiiight, again. I can say the same thing about Organized Crime, they could be so much more profitable in their Protection Business and Sex Slavery operations if the cops would just stop interfering with them. Companies are regulated to prevent them from profiting by harming others. Companies are taxed to pay for their fair share of the maintenance and operation of an infrastructure and legal environment that, unlike Somalia, allows them to operate and thrive. This is another bullshit ‘free market’ argument that ridiculously claims the richest should be allowed to be free riders in an expensive civilization making a profit, with all the expenses paid for by anybody but them.
Bettykath/Tony C:
My friend says the following:
“Some businesses engage in unethical and/or illegal behavior. You should Alert the Media! There are two issues here. First is the value of options. Since I paid for my house and car using money from options, I’m a pretty big fan. When used properly, they are a form of bonus (compensation) that incentivizes employees to work hard, bring in new business, cut costs, and stay at the company rather than leave. Every employee, *every single day*, is confronted with opportunities to waste the firm’s money. How do you incentivize them not to? You must create a situation where they get real rewards for saving the firm money or doing their jobs more efficiently. Vesting stock and options do this.
All companies inflate their stock, by describing, in their prospectus, the total amount of shares they are allowed to issue, which is always more than the number of shares they have issued. New shares issued dilute the ownership of exiting owners, but are the only way to bring in new capital when necessary. In firms where the brains of the employees are the most important form of capital, issuing new share to employees is an important form of extending ownership of the company to its most productive participants. Doing so is perfectly legal, and when done in the form of options, should be “free” to the company. The company is after all following strictly the rules laid down in its documents of incorporation and prospectus, which are available to every investor. When a company issues an option with a strike price above the current market price, it should cost them nothing because at that moment such an option is worth nothing. The law making them expense such an option as if it were a share of stock is ludicrous.
The process that back-dates options or changes the strike price of options should be allowed to a point, as long as everything is done above-board and openly, approved by the Board, and done in accordance with the articles of incorporation and prospectus. It becomes illegal (fraudulent) when done secretly or against the rules laid down in the articles or prospectus.
Companies engage in a myriad of seemingly destructive practices to get around the rules laid down by the IRS with regards to the income tax. Since they are taxed on the difference between revenue and cost, many businesses, especially small business, simply make sure their cost matches their revenue. Some companies engage in truly bizarre behavior and tie themselves into financial knots to avoid income taxes. All this irrational behavior is not the fault of the companies, but the fault of the income tax itself. Were there no income tax and no capital controls, almost all of this absurd behavior would disappear overnight. Would their still be fraudulent behavior? Sure, there always has been and their always will be, but that is a challenge for law enforcement, not a reason to continue the destructive income tax.
The second issue here is the principal/agent problem, in which the interests and incentives of the principals (the owners or shareholders of a company) diverge from the interests and incentives of the agents (the managers of a company). Managers have been known to loot companies of their cash and value, leaving the principals with nothing. This is true. It has happened. It is simply theft on a grand scale, no different from someone picking your pocket. CEO’s don’t react in the face of incentives to lie cheat and steal any better as a group than any other class of citizens. The problem, then, is to create a system that aligns the interests of the principals to those of the agents, and to have a law enforcement capability to thoroughly prosecute theft and fraud on the part of management. Guidelines such as an independent board of directors, bonuses to upper management consisting mostly of options (which encourage future stock price growth) rather than simply stock itself (which is just money), and rules for stockholders to be able to place items on the shareholder ballot with equal facility as management, all should be adopted to help align the incentives between owners and management. The current structure of most corporations gives too much power to management and not enough power to shareholders and the board. The reasons for this are part philosophical, and part structural, due to the nature of how stock is managed and beyond the scope of this discussion. So I agree that there are problems both structural and financial in today’s corporations, but these problems are caused by government taxes, government regulations (especially the Wagner Act), and the structure of Wall Street as the corporate arm of the Fed and the Treasury. Boeing is a great example of a company that could do much better than it is currently doing, if it were freed from much of the burden of regulation and taxation on the one hand, and then freed again from the supposed benefit (but actual burden) of being a crony with the government.”
What say you?