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.
• 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
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.