Relevant and even prescient commentary on news, politics and the economy.

House’s SECURE Act and the Senate’s RESA Act

Congress has been busily working on a much-needed way to improve Middle Class savings and growth over the span of their employment to boost their retirement.

Dueling bills to restructure IRAs and 401ks appear to be redundant. Better known as the “Setting Every Community Up for Retirement Act” (SECURE Act) H.R.1994 and the Senate has a similar bill, the “Retirement Enhancements and Savings Act” S.792 (RESA). Both bills were passed with bipartisan support.

For the ultra rich? A major outcome of the Trump tax bill were tax breaks for the wealthy and corporations. Besides much of the resulting income increases going to 1% of the household taxpayers, the same 1% were given the ability to shelter large amounts of income in gifts to their heirs. It is a great time to be rich in income and have the ability to shelter it by making gifts of it to your heirs’ tax free!

A little history on why Congress might take this up

From 1979 to 2017, the average annual income for the 1% of the household taxpayers has increased 156%, the top 1 hundredth of 1% income increased 343%, and the average American’s income did not increase at all. In spite of increased education from 1970 when half of Americans 25 years and older had a high school degree compared to today when the proportion of Americans having a college degree tripled, income has been stagnant for much of America. Even with the increased education, as Nick Hanauer in a recent Atlantic on this topic stated, the “Education is Not Enough” or was not enough to build, to build a vibrant middle class. Nick is also reiterating what Tom Hertz said in 2006 in his article; “Understanding Mobility in America.”

“The first aspect is the question of intergenerational mobility, or the degree to which the economic success of children is independent of the economic status of their parents. The second aspect is the short-term question of the amount by which family incomes change from year to year. One very clear conclusion is children from low-income families have only a 1 percent chance of reaching the top 5 percent of the income distribution versus children of the rich who have about a 22 percent chance.”

All the education in the world may not make a bit of difference in upward mobility as Nick and Tom Hertz concluded unless the income and the status is already there. A successful middle class with good income has to be present.

What Congress is doing.

The House passed the SECURE Act with an almost unanimous bipartisan 2nd vote. Prior to the first vote, Republican NC Representative Patrick McHenry made a motion for an affirmative vote (page H4147) stating they stand together against the anti-Semitic BDS movement. How this applies to the average citizen’s IRA is beyond me. It is a tagalong to the SECURE Act with the hope it would pass. It lost with 222 in opposition.

A few things about the House “Setting Every Community Up for Retirement Act (SECURE).

• It lengthens the amount of time a person can contribute to an IRA beyond 70.5 years of age.
• Raised the required minimum distribution (RMD) age to 72 from 70 1/2 years old.
• Increased the Safe Harbor percent from 10 to 15%.
• Allowed long-term, part-time employees to contribute.
• Put in place an small employer tax credit for enrollment.
• Revised how benefits are paid out to a non spousal from 5 to 10 years (page H4234).
• Allowed automatic enrollment.
• Etc.

“The House SECURE Act would eliminate the current rules allowing non-spousal IRA beneficiaries to use (stretch IRA) minimum distributions (RMDs) from an inherited account over their own lifetime (and potentially allow the funds to grow for decades). With the SECURE Act, all funds from an inherited IRA would have to be distributed to non spousal beneficiaries within 10 years of the IRA owner’s death (The rule would apply to inherited funds in a 401(k) account or other defined contribution plan, too.).”

Other than the elimination of the Stretch IRA, these changes were needed and they will improve the amounts accumulated for retirement. As I mentioned earlier, much of America has not incurred the same income increases as the 1% or the 1 tenth of 1% of the household taxpayers. Pre-inflation YOY income growth for non supervisory Labor has been ~3%. Subtract out inflation of 2% and income has grown by 1% for much of America not leaving a lot to put into a 401k. I am waiting for the next shoe to drop of increasing the age of when people can take SS.

The Senate RESA bill is similar in content except for a provision buried in it taking aim at the Middle Class. The Senate’s RESA Act shortens the time period for non-spousal beneficiary withdrawal who have inherited an IRA with greater than $400,000 (IRA, Roth IRA or 401k). RESA exempts the first $400,000 inherited to a life time of RMD withdrawals and then it forces beneficiaries to cash out over a 5-year period any amount greater than $400,000. It could have tax implications if the amount over $400,000 was large or one’s income tax bracket was high.

As one reader pointed out, many people with 401Ks have less than $400,000 in their accounts when they retire. Then too with little growth in income occurring (mentioned earlier), one can see why people are not saving for retirement and why there is less in their 401ks.

Under today’s Stretch IRA rules, heirs of IRA owners were allowed to extend the taxable distributions of an inherited IRA over their lifetime, hence being called “stretch IRAs.” The proposed Senate bill labeled RESA—allows $400,000 of aggregated IRAs to stretch per beneficiary, but chops the cash-out period down to five years for the balance greater than $400,000.

What are the implications in the Senate bill? As I said it affects non spousal beneficiaries of the heads of families who have accumulated money greater than $400,000 over their lifetime to pass on as inheritance to their families. Non-spousal beneficiaries on inheriting sums of money greater than $400,000 could have a substance portion of the inheritance taxed by Uncle Sam and also end up in a higher tax bracket as a result. Ok, I said it enough times.

Similar would hold true for the House bill which eliminates the stretch IRA, does not have an exemption for 400,000 of inheritance, and forces a beneficiary to use up inheritance funds in 10 years rather than a lifetime or RESA’s 5 years. The proposed Acts do not impact spousal beneficiaries or minor children named as beneficiaries until pf a majority age, children with disabilities, etc.

The forced 5 year annual distribution of these savings and retirement plans by beneficiaries is the primary revenue vehicle (taxes) of RESA. Senate Finance Committee Chairman Chuck Grassley, (R-Iowa), who proposed the bill, said on the Senate floor recently that the RESA bill “is paid for” by this provision (as he takes his agricultural benefits resulting from tariffs).

No worries for the 1 percenters.

Back to the 1-percenters, Trump’s Tax Overhaul law doubles the estate-tax exemption to $22 million a couple and possibly avoiding taxes in dynasty trusts. The new law doubles the amount that can be passed to heirs without worrying about estate and gift taxes, to about $22 million for a married couple (redundant, I know). But the thresholds are in place only until 2025, and the ultra-rich are turning to a key tool — the dynasty trust — to secure the financial futures of their children, grandchildren, great-grandchildren, and beyond.

Assured wealth and income giving descendants a place on the ladder of mobility as being necessary to move upwards on that same ladder by Tom Hertz and Nick Hanaeur.

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A Half Century Since Apollo 11 Launched To The Moon

A Half Century Since Apollo 11 Launched To The Moon

On July 16, 1969, a half century ago today, a Saturn 5 rocket launched from Cape Kennedy on its way to the moon, where Neil Armstrong and Buzz Aldrin would land on the moon on July 20 before returning successfully to earth.  Recent books have made clear just how close a call it was with many things nearly going wrong that would have doomed them, including such oddities as Aldrin using a felt tipped pen to adjust a minor switch that was needed for them to return.  My late father played an important role in that event, which I have posted about here before.  At that time he and I had many disagreements, but on this matter we were in agreement, and I was pleased to watch the famous landing with him.

The recent book, _One Giant Leap_ by Charles Fishman, argues that JFK was motivated to push the project out of Cold War competition with the USSR.  My late father agreed that this was a motive that provided the support for it.  This does raise the question whether it was really worth it.  I mean, nobody has gone back since 1972, although there is much noise now about maybe going back.

A curious way of looking at this in perspective is to think about what we thought the future would look like from that time period as compared with what has happened.  One way of looking at that is to think about how the moon and human presence there was depicted in the movie “2001: A Space Odyssey,” which came out in 1968, the year before Apollo 11.  I well remember taking very seriously the forecast in that movie, which depicted fairly substantial and established US and Soviet moon bases for 20001, now 18 years in the past.  That certainly did not remotely happen, although some other things shown in that movie have come to pass, such as people being able to see each other while communicating with each other over distances (thank you, Skype!).

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Protecting The Fed

Mark Thoma has a post up on Facebook. Apparently, Trump intends to nominate Dr. Judy Shelton to the Fed. I knew Trump was bat-sh*t crazy and now he has confirmed he is bat-sh*t stupid too (if you did not already know this). It is hard to know which is worse as they come in a daily stream of excesses.

I do not necessarily agree with my former Econ Prof (not Mark) from time to time; but, he does have a deeper knowledge on the topic than I, to which I listen even though the politics of it may differ from mine. I do get the impression he is deeply concerned as is Mark Thoma and disappointed with the present administration and their impact on the nation, its financial status, and the economy.

Dr. Judy: “How can a dozen … people meeting eight times a year decide what the cost of capital should be versus some kind of organically, market supply determined rate? The Fed is not omniscient. They don’t know what the right rate should be. How could anyone?

Given the alternatives of Congress or the President determining national economic policy, I would stick with the dozen. I can figure out what they are doing. Crazy and/or political people are off the books. I will not get too deep into this as you can read the article “Protecting the Federal Reserve” at Money Banking yourself. Some of Judge Judy (first thought which came to mind), er Dr. Judy’s thoughts:

– “Following the 2007-2009 recession, during the weakest post-WWII recovery on record, with inflation below the Federal Reserve’s stated target, she argued against ‘suppression of interest rates’ (see quote above). By contrast, despite the lowest unemployment rate since the 1960s, in recent weeks she has argued for cutting rates ‘as expeditiously as possible.‘ This apparent willingness to pander to President Trump’s preferences, rather than setting policy to meet the Federal Reserve’s longer-term goals of stable prices and maximum sustainable employment, would diminish the Fed’s independence,”

No comment on my part as either action has a negative reaction given the environment.

– Dr. Judy “argued for replacing the Federal Reserve’s inflation-targeting regime with a gold standard, along with a global fixed-exchange rate regime. In our view, this too would seriously undermine the welfare of nearly all Americans.”

– “Should Dr. Shelton become a member of the Board, and should President Trump win re-election in 2020, there is a chance that she could become the Chair of the Federal Reserve when Chairman Powell’s term ends in 2021. Given her unsuitability for the Board, making her Chair would seriously undermine Fed independence.”

– Dr. Shelton has proposed eliminating the Fed’s key tool (in a world of abundant reserves) for controlling interest rates—the payment of interest on reserves (for a description of the Fed’s current operating regime, see here). She argues that the Fed doesn’t know what the correct interest rate is (see citation). But that ignores the constant learning process—based on observations about the state of the economy and financial conditions—that allows the Fed to make rapid policy corrections to achieve price and economic stability. U.S. central bankers are credibly committed to their legal mandate to promote “maximum employment, stable prices, and moderate long-term interest rates.”

I do not Tweet, I do not read Tweets as they are the lowest form of communication outside of a belch. Trump tweeted his intention to nominate Dr. Judy Shelton to the Board of Governors of the Federal Reserve System.

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Why Doesn’t Donald Trump go back to his own country ?

He can choose Scotland or Germany (although neither want him — I wonder where he is hated more — Scots tend to be lefty and very good at hating). I won’t go back to my own country — Hungary — because I can’t stand Viktor Orban and can’t learn the language (I have never felt as foreign as I did when looking for my grandmother’s old apartment).

But he directed his go back to their own country racist xenophobic attack at, among others, Alexandria Ocasio-Cortez and Ayanna Pressly. Ocasio-Cortez’s family came to New York from Puerto Rico so her country of last detectable origin is … the USA (I know Donald Trump doesn’t accept that as he defines American as anglo white but it is still true).

Ayanna Pressly is African American. Most African Americans are descended from people who were in the USA when it was founded (and long before any ancestors of Donald Trump or Robert Waldmann). Now it is true that some very prominent African Americans aren’t — Barack Obama, Kamala Harris, Colin Powell and Eric Holder come to mind. I will now google (I already checked to be sure that Ocasio-Cortez’s family came from Puerto Rico). OK no hint of any immigration at all in the Pressley family history. Note the USA is not a country of immigrants. Immigration is a voluntary act and most African Americans are descended from people kidnapped and brought here in chains. What is her own country if it isn’t the USA. Even she doesn’t know (and it sure wasn’t organized as a country when her ancestors were kidnapped).

It is clear, as it always has been, that Trump’s nationalism is racism. A woman whose ancestors were in the USA when it was founded should go back to her own country which can’t be America because the genuine US population is white, white, and white.

Sorry for stating the obvious and proving what has been clear for decades.

Also of course, Pelosi said it better

Pelosi stood up for the congresswomen.

“When @realDonaldTrump tells four American Congresswomen to go back to their countries, he reaffirms his plan to ‘Make America Great Again’ has always been about making America white again,” Pelosi tweeted. “Our diversity is our strength and our unity is our power.”

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WARNING: another “debt ceiling debacle” is looming, and could cause nearly immediate recession

WARNING: another “debt ceiling debacle” is looming, and could cause nearly immediate recession

It’s time to start to get seriously worried about another “debt ceiling debacle.” In 2011, the GOP refused to authorize a “clean” debt ceiling hike. The hike in the debt ceiling, for those who may not know, is necessary for the US government to pay debts that *it has already incurred.*

In 2011, as a result of the impasse, US creditworthiness was downgraded from AAA to AA. Consumer confidence plummeted:

Note the next largest spike downward occurred during the government shutdown at the beginning of this year.

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Pence’s Potemkin Village on the Mexican Border

Pence’s Potemkin Village on the Mexican Border

Merriam Webster defines a Potemkin Village as:

an impressive facade or show designed to hide an undesirable fact or condition

Mike Pence visited a Potemkin Village in Donna, Texas:

Pence also visited a tent-like temporary detention facility in Donna, Texas, that holds unaccompanied children and immigrant families. The new and mostly clean facility stood in stark contrast to the McAllen station Pence later visited.

While the Buzzfeed story focused on the McAllen station, which depicted horrific conditions, I’m sure Trump’s favorite “news” outlets will highlight the facility in Donna, Texas. In other words, part of Pence’s visit to the border was designed to con the American people that immigrants are being treated well. Leon Panetta is right:

Trump treats Americans like we’re chumps

Since Pence is a Christian, we have to wonder how he can still support Trump’s racist immigration policies after seeing how God’s children are being horribly abused. Here’s a little challenge for Mr. Pence – how many of the Ten Commandments are you violating? Certainly the first two with your idol worship of Donald Trump:

1. You shall have no other gods before Me. 2.You shall make no idols.

This abuse of God’s has led to many deaths, which of course violates the Commandment not to murder. OK – Mike Pence has not committed adultery even if his idol has many times. But cheating on one’s wife is sort of routine for powerful politicians. The serial abuse of innocent people solely based on their race and mainly for partisan purchases is not only unAmerican but also against everything Pence’s religion stands for.

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Does Turkish Lira Decline Mean Turkey Leaves NATO?

Does Turkish Lira Decline Mean Turkey Leaves NATO?

Probably not, but Turkey is about to receive Russian S-400 missiles against US demands.  More signifigantly the US will kill high level US F-35 agreements, and will not fly US planes over Turkey if it uses the Russian systems.  This threatens Turkish membership in NATO.

The immediate result of this in financial markets has been a substantial decline of the Turkish lira over the last several weeks.  While pushing off the US has costs, there will be gains from favoring Russia, from Russian tourist business to other economic deals, as well as cooperation with Russia not only in Syria, but also with respect to Iran, where both Turkey and Russia disagree with US policy to pull out of the JCPOA nuclear agreement with Iran, which has led to a very bad state.

More deeply we see the limits of the weltenschaaung that Trump put forward last September at the UN GA to massive laughter by many other  national leaders, a moment not known to most Americans while unprecedented, the idea of super nationalism. Now he is facing the outcome of his folly on these matters: both Putin and Turkish leader Erdogan agree with him on this nationalist baloney, but now they are allying against him and the US. This shows that the end of this approach is not international cooperation through international organizations like the UN.  It is nationalist competition and rivalries leading to warfare.

Oh, and Erdogan seems to be imitating Trump also on economic policy, although he is playing a weaker hand, with the Turkish economy’s problems one of the reasons the US Fed is looking at lowering interest rates, not only a supposed ally, but one of the G20 nations whose economic problems are serious enough to draw the attention of the US Fed.

Barkley Rosser

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The Condition Of North Korean Conventional Weapons

The Condition Of North Korean Conventional Weapons

This is based on essentially gossip, or if you prefer, a rumor.  I have been dining in Washington again and someone there who is in fact both well known and very well informed, but whom I shall not name, made a comment about the state of conventional weapons in DPRK and also said that this has not been publicly known.  According to this person their condition is much worse than publicly believed.  So out of date and out of condition are they  that supposedly North Korea can no longer  seriously threaten Seoul with a conventional attack (as has long been taken for granted as being possible and looming over the situation there).

The supposed implication of this, if indeed it is true (which it may not be, and this is simply not easily checked on), would be that the DPRK needs its nuclear weapons more than we have thought and will be even less willing to give them up than has been thought, not that many of us have taken too seriously the idea that they would be willing to give them up.  Indeed, there have been recent rumblings out of Washington, denied by the administration, that Trump may be willing to return to the position of earlier administrations and cease trying to get DPRK to give up those weapons while trying to put some limits on the program instead.  Needless to say, Trump has had nothing but ridicule for this position when it seemed to be that of Obama, but if he does it, well, this will sort of be like calling NAFTA the worst trade deal ever and then negotiation a new NAFTA that is only slightly different from it and proclaiming it to be the best trade deal ever.

Barkley Rosser

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The Mutt Speech

One Mutt’s Speech for You to think about after celebrating the long Weekend from the nationalistic holiday called the Forth of July while others are fleeing terror and violence.

John Winger: “Cut it out! Cut it out! Cut it out! The hell’s the matter with you? Stupid! We’re all very different people. We’re not Watusi. We’re not Spartans. We’re Americans, with a capital ‘A’, huh? You know what that means? Do ya? That means that our forefathers were kicked out of every decent country in the world. We are the wretched refuse. We’re the underdog. We’re mutts! Here’s proof: his nose is cold! But there’s no animal that’s more faithful, that’s more loyal, more loveable than the mutt. Who saw ‘Old Yeller?’ Who cried when Old Yeller got shot at the end?

Nobody cried when Old Yeller got shot? I’m sure.

I cried my eyes out. So we’re all dogfaces, we’re all very, very different, but there is one thing that we all have in common: we were all stupid enough to enlist in the Army. We’re mutants. There’s something wrong with us, something very, very wrong with us. Something seriously wrong with us – we’re soldiers. But we’re American soldiers! We’ve been kicking ass for 200 years! We’re ten and one!”

“Stripes” Bill Murray the Mutt Speech

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Destroying Social Security to Save It

Connecticut Representative John Larson Proposes Plan To Destroy Social Security In Order To Save It, by Dale Coberly

Connecticut Congressman John Larson introduces H. R. 860, Social Security 2100 Act which will cuts taxes, strengthen benefits, prevents anyone from retiring into poverty, and ensure Social Security remains strong for generations. larson.house.gov

It sounds good, but of course he wants it to sound good. In the past we have had to be worried mostly about plans from the “Right,” the crazy people who want to Save Social Security in order to destroy it. Their plans sounded good, too.

To make it easier on myself, I am going to just list Larson’s points and offer a few words about them in the hope you will think twice.

Larson: The Social Security 2100 Act Expands Benefits

There is a benefit bump for current and new beneficiaries — Provides an increase of 2%.

Me: A 2% increase in benefits would mean nothing to beneficiaries. Unlike the reduced inflation indexing the bad guys were proposing, this increase will not accumulate over time.

What Social Security faces is a potential 20% cut in benefits if the payroll tax is not increased to keep up with increases in life expectancy. The increase needed would be about 2% of payroll. 2% of payroll becomes 20% of benefits because the 2% you pay is matched by 2% your employer pays for. That extra 4% over 40 years of working becomes 8% over 20 years of life expectancy, and that 8% becomes roughly 20% due to the effective interest that arises automatically from pay as you go financing.

Larson: Protection against inflation. Increases the COLA formula to better reflect costs incurred by seniors.

Me: Probably a good idea. But the “normal” inflation adjustment, if paid for by that 2% increase in the payroll tax, will provide increased benefits that may be adequate. The question is how are we going to pay for a higher COLA? My suggestion is that a tiny bit larger increase in the payroll tax would not be felt, and would avoid the politically suicidal “make the rich pay” part of Larson’s plan unnecessary.

Larson: Protect low income workers. A new minimum benefit will be set at 25% above the poverty line.

Me: Again, probably a good idea. But not if it changes the “worker paid” feature which is so important to Social Security’s political future.

If the workers want to pay more for a higher benefit dedicated to those who paid for the insurance against ending among the poorest, then that’s fine. It’s not so fine if the increase is paid for by “the rich,” because the rich will not pay for it. And it’s not so fine if it becomes subject to increased hiding of income to free-ride on others paying the tax. Not to mention the costs of managing the means testing that this implies.

Larson: Cut taxes for beneficiaries.

Me: Social Security is supposed to be insurance against ending up poor. Currently no one pays taxes on their Social Security income unless they have other income over $25.000 per year. Combined with their SS income this would suggest an income in retirement of about $45,000. This is not poverty.

There are other ways to jiggle around the SS ‘break points” or taxing of benefits. The tax on part of SS income for those with enough other income to stay out of poverty turns out to be the simplest and fairest. Might be important to remember that SS is not only “what you paid in,” but is about double what you paid in because of the effective interest of pay as you go.

You pay taxes on gains from every other investment. So there is nothing immoral or counterproductive about taxing part of SS benefits for those who otherwise have sufficient income. This tax is returned to the Social Security trust fund and is part of what helps pay those increased benefits for the poor.

Larson: Strengthens the Trust Fund

Have millionaires pay the same rate as everyone else.

Me: This is the bit that destroys Social Security. Currently millionaires pay the same rate as everyone else: 12.4% of the first $130 thousand per year. This is enough for them to pay for what they get from Social Security… an effective real interest of around 1 or 2 percent, plus the insurance value in case their millions of dollars disappear before they retire, or when they become disabled or die leaving dependents.

They only get that 1 or 2% compared to your 2 or 3% and the poorest up to 10% or more because the money they would get if everyone got paid the same interest is what enables SS to pay the bigger “interest” needed to pay for basic needs of the poorest.

“Making” them pay 12% on ALL of their income would be a huge tax increase they would get nothing out of. They would fight it forever.

It would be like having a cop watch the check-out line at the grocery and demanding every customer show their tax returns and “making” anyone with “too much” income pay for the groceries of the next ten people in line.

This sounds fair to some people who think that the “rich” stole their money from the “poor.”
Maybe some did, but this is not the way to fix that problem. If you want to tax the rich more, fine. If you want more welfare, fine. But don’t do it to Social Security, which works, and has worked for eighty years exactly because it is NOT welfare. NOT “soak the rich.”

Larson: 50 cent per week to keep the system solvent. Gradually phase in an increase in the tax by an average of 50 cents per week.

Me: Sounds familiar. Question is why stop at 50 cents when a dollar will keep the system solvent forever without the political dangers of “make the rich pay”?

Do we think an extra 50 cents per week out of an income of 50k per year is going to be felt? Note that for the poorest people making 20K per year, the “dollar per week” turns out to be 20 cents per week (The increase needed to keep SS solvent forever is one tenth of one percent of income per year.)

This is mindless greed. Greed so stupid it defeats itself.

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