Equality in Retirement
Sarah Anderson and Scott Klinger of the Institute of Policy Studies released “Tale of Two Retirements”, a study discussing how well CEOs will retire in comparison to the low and middle income citizens who only have 401ks and Social Security to retire on in the US and what President-Elect Trump’s actions will do to CEO retirement.
One hundred CEOs have company retirement funds worth approximately $4.7 billion or a sum equal to the entire retirement savings of 41 percent of U.S. families with the smallest nest eggs.
The $4.7 billion total is equal to the entire retirement savings of:
• 59 percent of African-American families
• 75 percent of Latino families
• 55 percent of female-headed households
• 44 percent of white working class households
The average of the top 100 executives is enough to generate an ~$253,000/month life time check.
In comparison:
• Ordinary workers have ~$18,000 of 401K savings or enough for ~$100 in a monthly payout.
• 39% of workers 51 to 61 years of age have no employer sponsored retirement plan and will be mostly dependent upon an ~$1200/month Social Security check.
Many CEOs have tax-deferred accounts totally with ~$3 billion in deferred payout. If President-Elect Trump cuts the marginal tax rate, they will also gain in retirement funding.
• Cutting the top marginal tax rate to 33 percent, Fortune 500 CEOs would save $196 million on their income taxes.
• These deferred payout accounts are also exempt from 401k contribution limitations
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Mirroring the same racial and gender gap exiting today in business, white male CEOs have done better than their minority male and their female counterparts.
• The top 10 white male CEOs have a combined $1.4 billion in the tax deferred compensation accounts
• Eight times more than the top ten minority male counterparts and five times more than the top ten female counterparts.
Top 10 White Male CEOs
I want to take a moment and dwell on this topic a bit more. While some readers are distracted by immigration and its impact on the economy, they ignore the crop-picking, laboring, and housekeeping jobs where many of these immigrants end up. We are losing sight of some real issues plaguing the middle income bracket making less than $100,000 annually which comprises most of the population.
“Just” 50% of the American Labor Force are offered a 401K in which to set aside money in for retirement. The maximum contribution to date for most who have a 401k is $18,000 annually with an exception for older workers who get bumps up to $24,000 annually, if . . . if you are making enough to be able to set aside the initial amount and more if older. It is a tease from the beginning and worse now with stagnant incomes. If I do not set a minimum aside, I am in deeper trouble when I am older. If I do set this aside now and I have a college loan, can I have a life, married life, and a family? Which would you choose if the potential was there to set this aside now? The choices are not easy and we are seeing the results as more people go on SS with college loans still outstanding and have their SS garnished to pay them off.
(Clink on the chart to make it larger and for clarity.)
As the report details, CEOs have few if any limits to set aside taxable retirement income and more have the income to set aside. As a perk, many CEOs are given tax deferred accounts in which companies do not pay taxes until the funds are withdrawn. In the mean time the executives benefit from tax free compounding investment returns. As proposed if President Trump decides to do so, a reduction in the maximum income tax bracket from 39% to 33% because it might (laughing) create jobs, the very same executives stand to make an unearned jump in income. “At a 39.6 percent income tax rate, they would owe $1.2 billion to the IRS and at a 33 percent rate, they would owe $979 million, for a combined savings of $196 million.”
Whether $1.2 billion or 979 million, $millions in taxes are lost yearly to states and the federal government due to Tax-Deferred accounts.
• In 2007, the Senate passed a minimum wage bill that would have limited annual executive pay deferrals to $1 million, but the provision was dropped in the conference committee. According to the Joint Tax Committee, the measure would’ve saved taxpayers $806 million over 10 years.
• In 2015 alone, 215 Fortune 500 CEOs invested a combined $227 million more of their pre-tax income in these plans than they would have been able to invest if they’d been subject to the maximum $24,000 cap that applies to ordinary workers. If they had been subject to this limit, they would’ve owed the U.S. Treasury $90 million more in income taxes last year.
What is surprising is how many are willing to defend this type of compensation calling it theft if taxed. Yet this type of compensation is limited to 1% of the population and numbering less than 1 million people. At the same time, the same people defending huge salaries will decry the loss of jobs in the US going overseas or automated which many executives are handsomely compensated for in the name of cutting cost and increased profits. We also have a president today who is promoting a populist agenda and telling people he will bring back the jobs whether automated out of existence or resourced out of the country by the executives of companies. While there may be a few jobs saved over the next 4 years, most will still be quietly moved or automated.
I am sure you have noticed the all star team for promoting the well being of the nation beyond what Sarah Anderson and Scott Klinger of the Institute of Policy Studies has reported on is being assembled in Washington DC by President D. Trump. Beyond the scapegoating and misdirection promulgated by President Trump in his inaugural speech, this team is just another example of chutzpah beyond Trump’s absolutely, awesome, and amazing (it will be great) standards expressed during the runup to a momentous inaugural day. As identified, there is a group of people who have been sucking up the economic gains that should be going to the middle class and President Trump has surrounded himself with them . . . the billionaires and multi-millionaires in his cabinet. No other populist administration has gone to this extreme in selecting a group so dedicated to their own well being.
I am stealing this comment from the Washington Monthly, Gilad Edelman’s “Trump’s Biggest Inaugural Lie”
FDR’s “re-nomination for Democratic presidential candidate in 1936 and defending his New Deal. You can not say it much better than this in reinforcing Sara and Scott’s discussion.
Run
and yet you can’t motivate the people to demand the Congress let them pay an extra dollar a week to save Social Security.
This would not cure the evils of great concentrations of wealth in too few hands. But it would prevent desperate poverty in old age or incase of disability or the death of the family provider.
I do not think we are going to shame the rich into sharing. But most of them, I think, could be persuaded to see the fairness of letting us protect our own savings through Social Security.
Perhaps rather than a minimum guaranteed income and/or minimum retirement income, we need a maximum retirement income limit. Tax at 100% any amount over the maximum.
Jerry
please read this again:
“As proposed if President Trump decides to do so, a reduction in the maximum income tax bracket from 39% to 33% because it might (laughing) create jobs, the very same executives stand to make an unearned jump in income. “At a 39.6 percent income tax rate, they would owe $1.2 billion to the IRS and at a 33 percent rate, they would owe $979 million, for a combined savings of $196 million.”
that $196 million works out to about a dollar per taxpayer.
i am all for taxing the rich to pay for the country’s needs…. including welfare. but taxing the rich just because you want to hurt them doesn’t make much economic sense… there are so few of them and so many of us… and it is political suicide.
i am not sure it is possible to get the people to understand policy, but if we have to resort to the politics of envy how do we differ from them resorting to the politics of race hatred?
coberly,
People have limited mindshare. If they are busy protesting that Trump is planing to reduce women’s rights to that of a Middle Eastern nation, where the only freedom they have is choice of hijab and how much to denounce the Zionist enemy, then what is currently occupying the minds of many Americans makes sense.
mike
i agree about the limitd mindshare. i can’t see where it makes sense.
Trump is quite dangerous on several fronts. But I don’t think turning America into a radial Islamist state is on the cards.
and i don’t see how it helps to go around threatening “the rich” that we are going to take away all their money.
and no, this does not make me a shill for the rich.
You are missing something here. Money put into a SERP is not deductible, so the company has already paid taxes on it. Contributions to 401(k) plans are deductible to both the employee and the company.
Furthermore, the assets in those plans are owned by the company, not the employee. As such, they are subject to total loss if the company is sued or goes bankrupt. On the flip side of that, when payments are made to the (former) employee, the company can deduct those payments.
“[Yet] you can’t motivate the people to demand the Congress let them pay an extra dollar a week to save Social Security.”
LET THEM? FICA taxes are VOLUNTARY? Who knew?
Warren please don’t make me give you another lesson on usage, semantics, and pragmatics.
“voluntary” is your inference. Infer that Dale is thinking “willingly and “let ” makes sense.
But your comment was all bullshit “gotcha” from the git-go. Certainly not a policy response.. We are not counting coup on usage here.
Then don’t misuse the language. The government does not LET people pay FICA taxes.
Warren
Your comments were trashed as not being relevant.
Dale,
Keep in mind that a subsidiary rationale to a progressive tax policy is to set the highest brackets at a taxable rate that discourages the kind of excessive pay scales that exist in our economy. Yes, that’s spelled out as a negative incentive to play the system in order to extort an unfqir share of the results of economic activity.
The very rich will not, and they have demonstrated this repeatedly, acquiesce to allow the peons their minimal amounts earned over a life time of labor. The rich leave no dollar on the table. Regardless of need, more is the goal.
Not only the posh retirement funds, they are the lucky few who can buy $3 million survivalist apartments in refurbished missle silos, complete with private security, a heliopad, etc.
Or move to New Zealand to their own private enclave. The New Yorker has a very interesting article on how the lucky duckies are providing for themselves in case the inequality gets so bad they find themselves in actual danger………..The piece focuses on hedge fund managers and Silicon Valley moguls, but I’m sure they’d let any fellow billionaires in, except maybe George Soros.
http://www.newyorker.com/magazine/2017/01/30/doomsday-prep-for-the-super-rich?mbid=nl_170123_Daily&CNDID=9282826&spMailingID=10283944&spUserID=MTMzMTg1NTgwNTgwS0&spJobID=1081896973&spReportId=MTA4MTg5Njk3MwS2
You provide a great case for ending social security… inflows and outflows. According to your definition of wealth in the comparative statistics above, the net present value of accrued social security benefits due is $0. Of the 12% in FICA taxes withheld from worker pay checks to fund this $0 asset (your estimate) at least 1 penny would be saved, which is greater than your valuation of accrued social security benefits due.
Jay:
Lets understand something right now. You are advocating something Delisle, interest rates do not matter Akers and Chingos promote called Fair Market Value. I do Capital Allocation on assets. I would not apply Present Value to Student Loans or Social Security because both are relatively risk free. It is a BS argument meant to imply there is risk when there is none.
I really do not understand, Run. Why do you say Social Security and Student Loans are “relatively risk free”?
Warren:
You can not escape a student loan. There is no bankruptcy. If you apply for social security, they will garnish it. If you apply for a federal program, they will deny it to you. If you do Unemployment, it will be denied. It is one of the few loans which makes more money in default. The only way out is to die, become disabled, do work (teaching in an inner city, etc.) in an area approved by the Government.
Social Security is funded ton the 2030s and backed by Special Treasuries which can be rolled over. If the nation goes bankrupt than those treasuries would go bad and we would have a lot more to worry about than those. If the TF is gone, they can either reduce bennies to 79% of whatever the benefit is at that time or increase taxes. The cost of paygo is relatively cheap at #1/week as Coberly would tell you. It was never intended for there to be a TF. The economic boom and other factors created much of the TF. Read Coberly and Bruce’s words, they write about this stuff all the time.
Your comments are akin to Republic talking points.
You would be far better off to worry about getting people back to work than these two topics.
So, my son has a private student loan. If he does not pay, can the woman who lent him the money take it out of his Social Security?
If you were her accountant, how would you account for that loan in her Net Worth statement?
Warren:
We are not doing this.