By Paul Buchheit
But the American workers who have paid all their lives for retirement security are being cheated by wealthy individuals and corporations who refuse to meet their tax obligations, and who have found other ways to keep expanding their wealth at the expense of the middle class.
1. Federal Tax Avoidance is the Biggest Threat to Social Security
Conservatives say that Social Security is too expensive, and thatÂ cutbacksÂ and a laterÂ retirement ageÂ are necessary. But they refuse to acknowledge the facts about missing revenue. AnnualÂ tax avoidanceÂ by wealthy individuals and corporations is in theÂ trillionsÂ of dollars, overÂ double the costÂ of Social Security.
Big corporations are the worst offenders. The numbers are startling. For every dollar they paid relative to payroll tax in the 1950s, theyÂ now payÂ ten cents. In just the past ten years they’ve cut their tax rateÂ in half.
The sum total of tax underpayments, tax haven losses, corporate tax avoidance, and tax expenditures (most of which benefit the very rich) isÂ over $2 trillion. Although Social Security costsÂ less than halfÂ of that, Congress is targeting Americans who have paid into it at the highest rate, while tax avoiders are left undisturbed.
From whom does Congress propose to take retirement benefits? From people whose average retirement account is under $30,000, and for whom Social Security is theÂ largest sourceÂ of retirement income. From those who have already experiencedÂ Social Security cutsÂ through delayed cost-of-living adjustments and higher taxes. From the half of the middle class whose food budget, by oneÂ estimate, will be $5 a day in their retirement years.
2. State Tax Avoidance Defunds Pensions
In whatÂ David Cay JohnstonÂ calls “nothing short of theft,” states are reneging on pensions that workers have been paying into for years. Illinois, Michigan, California and a slew of otherÂ statesÂ haveÂ mismanaged and squanderedÂ funds that belong to their employees, and then, in effect, have blamed those employees for the mess by penalizing them with pension cuts.
Once again, one of the reasons for the shortfall is corporate irresponsibility. In 2011 and 2012, 155 of the largest companies paid justÂ 1.8 percentÂ of their total income in state taxes (3.6 percent of their declared U.S. income). The averageÂ required rate for the 50 states was 6.56 percent in 2011. Similar results were found in a Citizens for Tax Justice (CTJ)Â reportÂ on 2008-10 state taxes, which found that 265 large companies paid an average of 3 percent in state taxes, less than half the average state tax rate. The results are summarized atÂ Pay Up Now.
How much money is this? The missing 3% tax on overÂ $2 trillionÂ in profits is anywhere from $30 billion to $60 billion, depending on the true U.S. portion of total corporate income.
But instead of taking on the delinquent corporations, states have increasedÂ sales taxesÂ andÂ property taxes, while building up theirÂ regressiveÂ lottery systems to the point that eleven states collectedÂ more revenueÂ from their lotteries in 2009 than from corporate income tax.
3. Corporations Play One Underfunded State Against Another
The news from the states gets even worse. On the pretense that their presence enriches the people of their home states, and that subsidy-green pastures lie right across the border, companies have cunningly negotiated tax-cutting deals in return for the promise to stay. A Good Jobs FirstÂ reportÂ describes the process, which costs state and local governments up toÂ $80 billionÂ a year.
Dozens ofÂ dealsÂ have been contrived, at least ten each in Michigan, New York, Ohio, Texas, Louisiana, Tennessee, Alabama, Kentucky, and New Jersey. Sixteen states have enacted theÂ Private Income TaxÂ (PIT) diversion, by which EMPLOYERS rather than governments get to withhold state income taxes from employee paychecks and to keep all or some portion of the funds.
Illinois’ pension mess has itsÂ rootsÂ in corporate threats to bolt the state: $100 million to Motorola; $150 million to Sears; $56 million to Boeing to bring its headquarters to Chicago; and nearly $200 million toÂ Caterpillar, which paid onlyÂ 2 percentÂ of its U.S. income in state taxes in 2011-12, and whose CEOÂ calledÂ Illinois “unfriendly to business.” Meanwhile, other Illinois companies are trying to get in on the handouts. Agribusiness leaderÂ Archer Daniels MidlandÂ is threatening to leave the state. The Chicago Mercantile Exchange made a bigÂ fussÂ over its tax bill in 2011, even though its 2008-10 profit marginÂ wasÂ higher than any of the top 100 companiesÂ in the nation.
Washington is another state being victimized, at the hands ofÂ Boeing, which according to Citizens for Tax Justice paid nothingÂ in federal taxes over ten years andÂ nothingÂ to Washington in state taxes, despite $32 billion in pretax U.S. profits. Now, while engineering aÂ bidding warÂ among multiple states, the company has wangled the nation’s single biggest state tax breakÂ ($8.7 billion over 16 years) while informing its employees that their pension and benefits will be slashed.
In California, the tech giant Apple has its own way of dealing with state taxes, claiming residency in tax-freeÂ Nevada.
Ill-informed state leaders might heed the findings of a New York State Tax Commission, whichÂ said: “There is…no conclusive evidence from research studies conducted since the mid-1950s to show that business tax incentives have an impact on net economic gains to the states above and beyond the level that would have been attained absent the incentives.”
4. Banks Take a Big Chunk of Our Retirement Accounts
NearlyÂ $2 of every $5Â in potential 401(k) earnings is lost because of bank fees. An individual investingÂ $1,000 a yearÂ for 30 years (with theÂ historicalÂ 6% return) and then holding theÂ accumulated sumÂ for another 20 years would end up with $269,000 in a non-fee fund, but just $165,000 with theÂ industry average 1.3% fee.
In the individual states, banks have their fee-absorbing tentacles wrapped around employee pension plans. InÂ Rhode IslandÂ it is projected that $2.1 billion in fees will be paid to hedge funds, private-equity funds, and venture-capital funds over the next 20 years, about equal to the amount saved by freezing Cost of Living Adjustments for public workers. In Detroit, $250 million in bankruptcy expenses was doled out to firms that employ lawyers, accountants, financial analysts, and public-relations consultants. InÂ South Carolina, the plunge by pension managers into private equity and hedge funds has resulted in $1.2 billion in fees since 2008.
American workers and retirees are the victims, and their numbers are growing. According to theÂ National Institute on Retirement Security, almost half (45 percent) of working-age households do not own any retirement account assets. The average working household has virtually no retirement savings. But it doesn’t matter to business-happy privatization advocates, who don’t seem to recognize that this poorer half of America even exists.Î¦
Paul Buchheit teaches economic inequality at DePaul University. He is the founder and developer of the Web sites UsAgainstGreed.org, PayUpNow.orgÂ andÂ RappingHistory.org, and the editor and main author ofÂ American Wars: Illusions and Realities (Clarity Press). He can be reached at paul@UsAgainstGreed.org.