By James Kwak
Several weeks ago, I wrote a column criticizing the “Fix the Debt” CEOs for saying that we should raise taxes while not mentioning the one tax break that means the most to them as individuals—the preferential rate for capital gains—and, in many cases, giving money to the presidential candidate who promised to protect that tax break for them.
A friend pointed out another glaring example of these CEOs’ hypocrisy. Of the CEOs in Fix the Debt, 71 lead public companies; of those, 41 have employee pension funds. Of those, only two pensions are fully funded; the other pensions are underfunded by an average of $2.5 billion, according to the Institute for Policy Studies.
More generally, according to the same source (see full report), S&P 500 companies’ pensions are only 72 percent funded. Social Security, by contrast, will pay full benefits for the next twenty-some years, and will pay about 75 percent of scheduled benefits thereafter even if nothing is changed. And those company pension funds benefit from the lax standards of private pension accounting, which allow them to assume optimistic rates of return. Social Security’s funding estimates have much less risk because it is paid for by interest on Treasury bonds and by payroll taxes, which are much less volatile than the stock market.*
So when anyone tells you that we should listen to so-and-so because of his success in the business world, run far, far away. Luckily we learned that lesson in time for November 6.
*Someone is sure to point out that company pensions are underfunded relative to being pre-funded, while Social Security is a pay-as-you-go system. But that’s beside the point. The federal government has the power to collect payroll taxes, which is why we can count on future program revenues. Corporations do not have the power to unilaterally raise prices on their customers (without losing sales), so they can’t reliably increase revenues in the future; that’s why they are supposed to be setting aside money today.