I had been under the impression after speaking with an IBM Benefits coordinator a few years ago that I should be able to access the FHA after reaching the 30 years of service (and retirement eligibility). My FHA balance will be rather pathetic ($25k) and I expect that it should last about 3 years.
What I have learned the last few days is that even though I will be eligible to retire based on years of service, I will have NO medical coverage or assistance from IBM unless I stay working for the company until I am 55 years old (an additional 2.5 years beyond retirement eligibility).
I must say that I am aghast. Thirty years of service and NO medical coverage whatsoever?? In fact, there is absolutely no benefit that I can see to staying until retirement eligibility unless I plan to work that additional 2.5 years for the meager FHA. I have the Personal Pension and 401k, neither of which are dependent on meeting retirement criteria. Am I missing anything?
The IBM Benefits coordinator that I recently spoke to said that I could lodge an appeal to the Plan Administrator. Has anyone on this board ever done this and if so, what was the outcome?
This ain't your father's IBM, that's for sure.
From what you have stated, it sounds like you just missed being in this group by several months. That puts you in the group that must work until age 55 to qualify for the FHA account.
You can try an appeal, but I don't think you will be successful. The age 40 cutoff is a rather difficult hurdle to overcome.
Near the bottom of the page you will find "Future Health Account Details" if you are eligible for the FHA.
Click on that link and it will tell you the dates that you qualify for the benefits and the amount you have.
It sounds like you are in the same place as a coworker of mine that was laid off earlier this year - he had 30 years of service and is now collecting his pension but he was unable to get anything from the FHA account whatsoever or get any health insurance from IBM. The good news for him was that his wife is still employed and he can get on to her employers coverage.
I think the key date is the "Access only" date - on mine - it coincides with my 55th birthday which is the only good thing about being over 55 to me.
For employees with a balance in their FHA account, I believe the date that matters most is the Withdrawal Eligibility date.
You could have been in my boat, where I missed the OLD Original Retirement plan by 1 month and ended up in the FHA. Not much, but better than nothing.
Sorry for you circumstance. It will probably take a miracle for you to make it to eligibility, with the 2015 headcount targets. Basically, stand in lines 5 across and only 1 in the line will be left by 2015 in the USA.
Cons: Challenges to meeting the looming 2015 plan communicated to Wall Street. Management constantly rotates through assignments, every 12-24 months, leaving individual contributors to continually re-establish their perceived contribution and reputations. Lack of managerial awareness of employee contributions results in significant lack of developmental opportunities and promotions. The availability of multiple back-end systems and resources available to manage processes and track performance is a two-edged sword. Adoption and training on systems is not universal, resulting in inconsistent reporting not meeting raised expectations in terms of capability to analyze and understand the business.
Advice to Senior Management: Consider menial cost of retaining talent and maintaining working teams of professionals, by simply keeping up with inflation, in terms of compensation. Outsourcing could be a viable cost-saving approach, however quality remains questionable.
Cons: By 2010 I could no longer stand the environment at IBM. I volunteered for a package because of the negative and toxic environment. There was a constant focus on improving numbers not improving processes and means for making numbers. This drove unhealthy behaviors because when numbers were bad you could count on layoffs. There became a pervasive fear that permeated the environment and as a result most people slowed down, extended work out to make it go further and take longer in order to boost utilization numbers. There was no interest in improving anything only to protect your job.
My projection for the business outlook is down, which may not be the case in actual numbers, but they play numbers games, what you see is not reality.
Advice to Senior Management: Global Services in particular needs a LEAN transformation. GBS has a Six Sigma practice, but I never saw any of the principles applied internally to IBM. What shame and a waste. IBM will not be able to compete effectively until the management stops reacting to the VPs and presents real innovation in working strategies that eliminates the fear based mentality. There's a lot of talent that is being snuffed out because people are tired. IBM is killing the goose.
Retirement experts now say there’s no way to calculate the true number. Nevertheless, everyone assumes there is a significant gap. After all, Americans generally are lousy at saving, with a rate approaching zero today. The financial crisis undoubtedly made their situation worse. And the risks of assuming that people are saving enough are much worse than the risks of overplaying the problem. ...
In any case, even when the numbers are relatively accurate they are interpreted too negatively, according to Utkus. For instance, he says that gloom-mongers pounce on studies that say only half of Americans have saved enough for retirement. However, “it’s not that the other half of Americans are completely unprepared,” he continues. “There’s 30 or 35 percent of them that are doing something. Maybe they’ve saved almost enough.”
Yet if the pension world is too pessimistic on the savings side, it is too optimistic regarding expenses, warns Jack VanDerhei, research director of the Employee Benefit Research Institute. Most important, he says, most models ignore nursing-home costs, which average nearly $75,000 a year. About 69 percent of people who live past 65 will need nursing homes or other long-term care, according to VanDerhei, yet only 10 percent have private long-term care insurance.
When these teams were first "invited" to join the Boulder GDF, everyone on these teams (including the first few layers of management) warned that the highly specialized work these teams do, would not fit into the GDF model. Those warnings were ignored, and the GDF model was forced onto these teams. Over the past three years, there's been a huge problem with attrition. IBM lost the majority of the talented, high-performing, very highly-experienced personnel on these teams. The cost of that has manifested itself via Extreme backlogs in project work 40 to 100 percent overtime for personnel on these teams. IBM regulars are all salaried and were given no compensation for all of the extra time they had to work. Sub-Contractors are paid hourly and were very strictly limited to a maximum of 40 hours per week and were only granted exceptions to work overtime in very rare occasions.
An internal hosting environment that was becoming increasingly unstable due to the extreme burden which had been placed on personnel.
The restriction that GDF imposed which stated that any personnel on these teams must physically be on site in Boulder daily, made it so that any candidates which may have been considering joining IBM to backfill openings from attrition were not interested. Nobody in their right mind wants to move to Boulder as a sub-contractor, work in a sweatshop-type environment and be drastically under-compensated compared to market salaries.
It's unclear still whether or not these teams will now be granted sufficient staffing to handle the workload. Even if staffing levels are increased, it is highly unlikely that it will be done with IBMers instead of sub-contractors.
Until now, IBM had never reversed a decision to move a team into GDF, even when it was very clearly evident that the model did not fit and was breaking the business. This decision to back out these two mission-critical teams validates what any sound-minded individual already knew to be true; the GDF model is not the end-all be-all magic wand that it was touted as at it's inception.
As it has since 2010, the average monthly premium is projected to hover around $30, the federal Department of Health and Human Services has announced. Last year, the actual amount came in a few cents lower, at $29.67. And the dread doughnut hole, which this year suspends coverage once spending hits $2,930, will kick in a few dollars later, at $2,970.
More important is that the discounts applied to drug costs once a beneficiary hits this coverage gap will continue to rise, courtesy of the Affordable Care Act. This year, beneficiaries in the hole received a 50 percent discount on brand-name drugs and 14 percent for generics. Next year, those discounts climb a bit, to 52.5 percent and 21 percent. By 2020, the hole is scheduled to close completely.
All without the slightest hint of how that supposed reform or strengthening would take place, regarding that program and many others. “We will not duck the tough issues; we will lead,” said Representative Paul Ryan, in his speech accepting the vice-presidential nomination. “We will not spend four years blaming others; we will take responsibility.”
Sounds great, except that the speech ducked the tough issues and blamed others for the problems.
Mr. Ryan, who rose to prominence on the Republican barricades with a plan to turn Medicare into a voucher system, never uttered the word “voucher” to the convention. He said Medicare was there for his grandmother and mother, but neglected to say that he considers it too generous to be there in the same form for future grandmothers (while firmly opposing the higher taxes on the rich that could keep it strong). He never mentioned his plan to abandon Medicaid on the doorstep of the states, or that his budget wouldn’t come close to a balance for 28 years.
"But dependency on government has never been bad for the rich. The pretense of the laissez-faire people is that only the poor are dependent on government, while the rich take care of themselves. This argument manages to ignore all of modern history, which shows a consistent record of laissez-faire for the poor, but enormous government intervention for the rich." From Economic Justice: The American Class System, from the book Declarations of Independence by Howard Zinn.
Not only was it a matter of social justice, Ford wrote, but paying high wages was also smart business. When wages are low, uncertainty dogs the marketplace and growth is weak. But when pay is high and steady, Ford asserted, business is more secure because workers earn enough to become good customers. They can afford to buy Model Ts. ...
Riding the dynamics of the virtuous circle, America enjoyed its best period of sustained growth in the decades after World War II, from 1945 to 1973, even though income tax rates were far higher than today. It created not only unprecedented middle-class prosperity but also far greater economic equality than today.
The chief executives of the long postwar boom believed that business success and workers’ well-being ran in tandem. Frank W. Abrams, chairman of Standard Oil of New Jersey, voiced the corporate mantra of “stakeholder capitalism”: the need to balance the interests of all the stakeholders in the corporate family. “The job of management,” he wrote, “is to maintain an equitable and working balance among the claims of the various directly affected interest groups,” which he defined as “stockholders, employees, customers and the public at large.” ...
From 1948 to 1973, the productivity of all nonfarm workers nearly doubled, as did average hourly compensation. But things changed dramatically starting in the late 1970s. Although productivity increased by 80.1 percent from 1973 to 2011, average wages rose only 4.2 percent and hourly compensation (wages plus benefits) rose only 10 percent over that time, according to government data analyzed by the Economic Policy Institute.
Today the prevailing cut-to-the-bone business ethos means that a company like Caterpillar demands a wage freeze and lower health benefits from its workers, while posting record profits. ...
In Germany, still a manufacturing and export powerhouse, average hourly pay has risen five times faster since 1985 than in the United States. The secret of Germany’s success, says Klaus Kleinfeld, who ran the German electrical giant Siemens before taking over the American aluminum company Alcoa in 2008, is “the social contract: the willingness of business, labor and political leaders to put aside some of their differences and make agreements in the national interest.”
In short, German leaders have practiced stakeholder capitalism and followed the century-old wisdom of Henry Ford, while American business and political leaders have dismantled the dynamics of the “virtuous circle” in pursuit of downsizing, offshoring and short-term profit and big dividends for their investors.
Today, we are all paying the price for this shift. As Ford recognized, if average Americans do not have secure jobs with steady and rising pay, the economy will be sluggish. Since the early 1990s, we have been mired three times in “jobless recoveries.” It’s time for America’s business elites to step beyond political rhetoric about protecting wealthy “job creators” and grasp Ford’s insight: Give the middle class a better share of the nation’s economic gains, and the economy will grow faster. Our history shows that.
Costco provides health benefits to full- and part-time employees, pays relatively high wages and has a partially unionized workforce. The company has remained profitable in spite of these policies, though some analysts have criticized it in the past for prioritizing workers over shareholders.
The groups being investigated by New York’s attorney-general, Eric Schneiderman, a Democrat, include Bain Capital – formerly led by Barack Obama’s Republican presidential challenger, Mitt Romney – KKR and Apollo Group, a person familiar with the investigation said.
“This is shamelessly political, but it’s to be expected and I’m surprised it hasn’t happened sooner,” said one private equity executive. “You have a right to privacy, but you don’t have a right to be president. If Bain and Mr Romney saved themselves tens of millions of dollars in taxes, then you would expect that to be examined.” ...
Mr Schneiderman has issued subpoenas as part of an investigation into the “fee-waiver” strategy, in which executives invested management fees paid by investors back into one of the investment funds. Any profits on those fees would be taxed at the capital gains rate – a much lower tax rate than if it were treated as ordinary income. There is debate over whether the strategy is legal, aggressive or illegal. The strategy was risky and could have resulted in losses for the manager if the investment funds were not profitable. ...
Private equity firms have faced increased scrutiny at the federal level, too. The Securities and Exchange Commission is investigating several firms for dealings with sovereign wealth funds. Other private equity firms, including Carlyle, previously settled with the state attorney-general for their involvement in a “pay to play” scheme where middlemen were paid fees to gain access to state pension plans. ...
Critics of the tax treatment of private equity maintain that fees paid to firms for investment management do not represent true capital at risk, and so should be taxed as normal income in the same way as bonuses paid to investment bankers, or lawyers working on a “no win, no fee” basis.
The attorney general, Eric T. Schneiderman, has in recent weeks subpoenaed more than a dozen firms seeking documents that would reveal whether they converted certain management fees collected from their investors into fund investments, which are taxed at a far lower rate than ordinary income.
Among the firms to receive subpoenas are Kohlberg Kravis Roberts & Company, TPG Capital, Sun Capital Partners, Apollo Global Management, Silver Lake Partners and Bain Capital, which was founded by Mitt Romney, the Republican nominee for president. Representatives for the firms declined to comment on the inquiry. ...
The tax strategy — which is viewed as perfectly legal by some tax experts, aggressive by others and potentially illegal by some — came to light last month when hundreds of pages of Bain’s internal financial documents were made available online. The financial statements show that at least $1 billion in accumulated fees that otherwise would have been taxed as ordinary income for Bain executives had been converted into investments producing capital gains, which are subject to a federal tax of 15 percent, versus a top rate of 35 percent for ordinary income. That means the Bain partners saved more than $200 million in federal income taxes and more than $20 million in Medicare taxes. ...
As a retired partner, Mr. Romney continues to receive profits from Bain Capital and has had investments in some of the funds that documents show used the tax strategy. ...
The tax strategy used by Bain and other firms to convert management fees — the compensation normally taxed as ordinary income — into capital gains is known as a “management fee waiver.” The strategy is widely used within the industry: 40 percent of the 35 buyout firms based in the United States surveyed in 2009 by Dow Jones said their partners used at least some of the firm’s fees to make investments in their funds.
But some prominent firms appear to avoid the practice. The Carlyle Group and Blackstone Group have stated in regulatory filings that their partners have not diverted management fees into investments in their funds.
Like a fox.
Take that "we built it" theme. Sure, they're lying about a selectively-edited phrase for political advantage. But why this particular phrase? Because the President was defending government's role in building America's infrastructure, educating its children, and improving its technology.
They don't want those things anymore. The argument fell on deaf ears because GOP isn't really the "party of business." It's the the party of mega-business, of globalized multinational corporations. Those corporations don't need America any more. They don't need its roads, they don't need its technology, and they certainly don't need its educated middle-class workforce. ...
Money Source: Bankers. The rapid rise in the abuse of (c)(4) organization has allowed corporations and the mega-wealthy to inject hundreds of millions of dollars into election campaigns without revealing their identity. The Romney campaign has refused to follow Obama's lead by revealing the names of its "bundlers." But thanks to the efforts of the Sunlight Foundation, USA Today and others we know that 25 percent of them are Wall Street types who include...
Money Source: Billionaires. Non-banking billionaires contributed to the war-chest too. New GOP-backed bills -- and more importantly, GOP-appointed judges - have allowed billionaires to keep on giving enormous sums of money to their cause once they've reached the official limit for campaign contributions. So far SuperPACs have raised nearly a quarter of a billion dollars from wealthy individuals for this year's election. And nearly 60 percent of that money came from just 47 people.
It's the finest election money can buy. ...
Money Source: Big Corporations. In addition, every big corporation in the country has one, as do most corporate special interests, and SuperPACs collect from a variety of high-income sources. High-dollar bankrollers for the GOP include the defense industry (surprisingly exempt from its supposed "hawkish" anti-spending stance), drug companies, and outsourcing corporations.
In the months after Obama’s speech, the American Petroleum Institute, an oil industry trade association that represents hundreds of multinational oil and gas companies, would demonstrate just how prescient the president’s warning was. ...
But as the 2010 midterm elections loomed, Citizens United handed API an additional arrow for its quiver. The group could now funnel undisclosed corporate donations directly to campaign entities. Among the oil executives leading API at the time—and still to this day—was Tofiq Al-Gabsani, a registered lobbyist for the Saudi government. Al-Gabsani is the chief executive of Saudi Refining Inc., a wholly owned subsidiary of the Saudi Arabian Oil Company, the government-owned Saudi oil giant better known as Aramco. ...
US law still bans foreign corporations from participating directly in elections. But after Citizens United, trade associations like API—whose influential members include foreign corporations—are free to spend as they wish, unburdened by disclosure requirements. And these groups have taken full advantage of their new freedoms. While other campaign committees, from labor unions to Super PACs, face strict transparency rules, trade associations enjoy unparalleled power to covertly manipulate elections using corporate money. ...
Before the advent of the Roberts Court, Saudi Aramco would have been prohibited from using corporate money to influence an American election. The company’s only option would have been to ask its US-based employees to make small donations to a transparent political action committee. ...
In his dissent, Justice John Paul Stevens warned that the Court’s logic, which put campaign spending by corporations on an equal footing with spending by individuals, would open the door to foreign influence on American elections. The decision affords “the same protection to multinational corporations controlled by foreigners as to individual Americans,” wrote Stevens.
The retiring justice, in the longest dissent of his career, mocked the majority’s claims that corporations are censored in American society. Had the decision been in place before World War II, he noted, Japanese propaganda broadcasts in the South Pacific would have been accorded First Amendment protections. And although Stevens continued to sound the alarm about foreign influence in speeches, lobbyists immediately recognized the ways that corporations could take advantage of the extraordinary decision. ...
The consequence is that API and other trade associations can cloak multinational and even foreign corporate election spending under an American flag. API no longer has to formally segregate its corporate dollars when seeking to influence federal elections, allowing companies like Aramco to pour money into campaign ads without detection. Federal law prevents Saudi lobbyist Al-Gabsani, as a foreign national, from leading a political action committee. But there’s nothing stopping him from leading a trade group that makes campaign expenditures just as a PAC would. ...
For its part, the pharmaceutical industry’s trade association, PhRMA, boasts many French and British firms with US subsidiaries as members. In 2010, after passage of the Affordable Care Act, PhRMA transferred millions of dollars to PACs to curry favor on both sides of the aisle: $4.5 million went to the American Action Network, a Republican group set up to run ads against Democrats (one famously claimed that convicted rapists would receive Viagra “paid for by the new health bill”), while $3.4 million went to a Democratic-aligned Super PAC called Citizens for Strength and Security.
PhRMA’s electioneering came at a time when the industry needed to cultivate political capital with both parties. The industry sought to reward the Democrats for expanding prescription-drug subsidies for seniors as well as protecting drug companies from generic competitors—both part of Obama’s healthcare reform package. On the other hand, PhRMA was counting on Republicans to block government studies that would pit drugs against each other in order to create cost-conscious treatment protocols that would eliminate waste—but put drug sales at risk. ...
The US Chamber of Commerce, like many large trade associations, is international in scope. As I reported in 2010, foreign businesses—many of which have little in the way of US operations, such as the Bahrain Financial Harbour Holding Company—contributed at least $885,000 to the Chamber’s 501(c)(6), the entity that pays for partisan attack ads. The Chamber acknowledged the foreign funds but claimed that the money was segregated from its domestic corporate dues. The American Petroleum Institute and the American Chemistry Council may also segregate their foreign funds from their domestic money—but no one knows for sure, because they aren’t required to say. ...
Labor unions, like trade associations, are organized under Section 501 of the Internal Revenue Code. But unions are forced to disclose all of their political spending; the LM forms that unions have to file with the Department of Labor list all of their spending in detail, making them uniquely transparent.
By contrast, information about trade associations’ campaign activities only gets out if corporations choose to disclose it—or do so by accident. Some companies, such as the drugmaker Merck, have adopted governance policies that require disclosure of contributions to trade associations. Then there are companies like Aetna, the health insurance giant, which accidentally revealed on a regulatory filing that it had given $4 million to the Chamber in 2011—far more than the $100,000 in Chamber dues it reported in 2010. ...
Last year, when President Obama publicly considered issuing an executive order that would force companies receiving government contracts to disclose their political spending—including spending done via trade associations—the Chamber reacted harshly. “We will fight it through all available means,” one Chamber lobbyist told the New York Times in April 2011. “To quote what they say every day on Libya, all options are on the table.”
More than 120 trade associations came together last year to reinforce the Chamber’s message, signing a letter endorsing legislation that would block President Obama from enacting such an executive order. And in July, when Senator Sheldon Whitehouse (D-R.I.) put forward the DISCLOSE Act, which would have required the trade associations to reveal their spending, dozens of trade groups joined together to denounce the bill before a Republican-led filibuster prevented it from coming up for debate. A letter from the groups blasting the bill, which placed no restrictions on trade associations but simply required disclosure, described it as a “purely partisan effort to silence one, and only one, group of speakers—the business community.”
Among the signers of both letters: Saudi Aramco’s trade association, the American Petroleum Institute.
Anyone listening to Rubio’s moving tale surely thought, “Yes! This is exactly what America is about!” But the stories were all we got. No Republican speakers offered any policies to renew upward mobility in the United States. In fact, nowhere did the Republicans acknowledge that upward mobility is now greater in many other countries with feudal or aristocratic histories.
When Republicans mentioned their policy plans at all, it was mostly to peddle standard bromides of tax cuts and smaller government, as if these are the answer to everything. Their ideas for school choice and “opportunity scholarships” for children stuck in failing schools sound appealing, but only for the tiny fraction of students to which they apply. With no serious ideas to renew upward mobility, and a budget plan that perversely undermines it by slashing preschool and college aid for poor youths, the entire pitch, on closer examination, seemed a hollow exercise in nostalgia. ...
While the president will talk a good game when it comes to improving college affordability, nothing he proposes will alter the fact that a year’s tuition at public college now consumes a quarter of median family income, while at private colleges the figure has jumped beyond 50 percent. And even as the president takes credit for modest increases in the maximum value of Pell Grants available to help defray these costs, he won’t point out that in 1976 this maximum grant covered 72 percent of costs at a typical public college, while today it covers only half that much. ...
A real agenda to restore the American dream would entail much bolder steps in these areas. Republicans, afflicted by the Rubio Paradox, don’t want to spend the money. In their hearts, Democrats want to, but they can’t figure out how — especially when they’re afraid to call for broader taxes, deeper defense cuts or slower growth in health and pension programs for seniors that increasingly crowd out funding for the young and vulnerable.
For all the nostalgia and soaring aspirations, in other words, it turns out that this country isn’t serious about renewing upward mobility at all. Something will need to shake up the boundaries of debate before Marco Rubio’s pretty words last week or Barack Obama’s this Thursday can change the odds for millions of luckless Americans born into poverty and chaos.
When the first President Bush really sucked it up and decided to do something about it by signing a bill the Democratic Congress passed to pay for things as you go along, and to have spending cuts and very modest tax increases, they made him apologize for it at the Republican convention. You remember that? At the time I was happy, because it helped me get elected. But it was sad because he did the right thing, and they made him apologize for it.
Then, I served for eight years, and we kept bringing the deficit down. We had four surplus budgets in a row. Then what happened? We put them [Republicans] back in -- or the Supreme Court did -- and they got rid of pay as you go, they [passed] the tax cuts and spent lots of money. ... We had a projected surplus of $5.7 trillion and turned it into a projected debt of $5.8 trillion over the next 10 years. We would have been out of debt by next year or the year after next. ...
The rules that we followed then that we should normally follow, do not apply now. The reason President Obama did that stimulus is, when interest rates are zero, and there is no private activity, if the government does not step in to put people to work and to help people get through the day, they won't make it.
So his contribution to that big ol' debt clock that you saw is the $800 billion stimulus. All those other trillions and trillions of dollars? He had nothing to do with that.
The solution, said Clinton, was to pass the recommendations by the Simpson-Bowles debt commission and "pass a 10-year plan to reduce the debt, starting the year after growth has clearly returned." He added that it was impossible to balance a budget without the presence of economic growth, adequate revenues and spending controls -- all of which do not currently exist.
The unemployment rate for workers age 55+ more than doubled to 7.6 percent in February 2010 from 3.1 percent in December 2007. As of July, nearly two million older workers –- 6.2 percent -– were seeking a job. ...
"A worker between ages 50 and 61 who has been unemployed for 17 months has only about a 9 percent chance of finding a new job in the next three months,” wrote economists Dean Baker and Kevin Hassett noted in a New York Times op-ed piece last spring.” A worker who is 62 or older and in the same situation has only about a 6 percent chance. As unemployment increases in duration, these slim chances drop steadily." ...
In a series of focus groups with the GAO, older workers said they experienced age discrimination, and at least one person interviewed said “local employers had asked her to screen out all applicants over the age of 40,” the report said. When older workers do find jobs, they typically suffered larger pay cuts than younger ones. The median earnings replacement rate for workers aged 55 to 64 who lost jobs from 2007 to 2009 was 85 percent, compared with about 95 percent for workers aged 25 to 54, the GAO found. ...
For a look at the ten best employers for people over 50, see the slideshow below.
Private equity companies like Bain Capital are not primarily about producing wealth. They profit largely by siphoning off wealth created elsewhere in the economy. There are many different ways in which this diversion of wealth is accomplished.
The simplest and most common trick is gaming the tax code. It is absolutely standard practice for private equity companies to immediately load up the companies they acquire with debt. This has two benefits for the PE company. First, it allows them to get most of their money back right away. They end up with a heavily leveraged company, where the PE company is still in control, but has little of its own money at risk.
The other benefit is that the interest on the debt, unlike dividends paid out to shareholders, is tax deductible. This means that even if the PE company does nothing to improve the operations of a company it acquires, it will increase its profitability by reducing its taxes. ...
It's not just the tax code that PE companies game. By loading the companies they acquire up with debt, PE firms like Bain make them much more vulnerable to bankruptcy. While the creditors who lent the acquired company money presumably understood the risk, there are often many inadvertent creditors such as suppliers, landlords, and even workers through their pension. (The debt is always held by the acquired company not by Bain, which carries no risk beyond its limited investment.) If a Bain-owned company goes under, these inadvertent creditors can take big losses. In the case of pensions, part of the loss will come back to the taxpayer through the Pension Benefit Guarantee Corporation. ...
In short, Bain Capital is not about producing wealth but rather about siphoning off wealth that was produced elsewhere in the economy. There is no doubt that one individual or one company can get enormously wealthy if they are able to do this successfully. However you cannot have an entire economy that is premised on the idea that it will siphon off wealth produced elsewhere. It is not clear that Mitt Romney understands that fact, but certainly the general public should when it goes to vote this fall.
Bill Moyers: The Republican Party now has the super rich and its corporate wing funding it and the religious right provides the ground troops. Why are so many everyday folks out there in the pews defending the prerogatives of the rich?
Mike Lofgren: That's something of a mystery. The Federal Reserve, in one of their recent reports, found that net household income fell about 40 percent since 2007. That's a tremendous drop. Yet, here we have as the nominee for one of the two major parties, we only have a binary choice in this country, is by all accounts the richest man ever to run for president and was a leverage buyout artist.
The party is really oriented towards the concerns of the rich. It's about cutting their taxes, reducing regulation on business, making things wide open for Wall Street. Now you're not going to get anybody to the polls and consciously pull the lever for the Republicans if they say, "Our agenda is to further entrench the rich and, oh by the way, your pension may take a hit."
So they use the culture wars quite cynically, as essentially rube bait to get people to the polls. And that explains why, for instance, the Koch brothers were early funders of Michele Bachmann, who is a darling of the religious right. They don't care particularly, I would assume, about her religious foibles. What they care about is the bottom line. And these religious right candidates, many of them believing in the health and wealth, name it and claim it prosperity gospel, believe that the rich are sanctified and the poor punished
It is possible to question one person’s “success” without being jealous of success (or rich people) in general. In fact, it is quite reasonable. The real issue is how someone became rich. ...
And this brings us to Bain Capital. As Taibbi puts it:
And this is where we get to the hypocrisy at the heart of Mitt Romney. Everyone knows that he is fantastically rich, having scored great success, the legend goes, as a “turnaround specialist,” a shrewd financial operator who revived moribund companies as a high-priced consultant for a storied Wall Street private equity firm. But what most voters don’t know is the way Mitt Romney actually made his fortune: by borrowing vast sums of money that other people were forced to pay back. This is the plain, stark reality that has somehow eluded America’s top political journalists for two consecutive presidential campaigns: Mitt Romney is one of the greatest and most irresponsible debt creators of all time. In the past few decades, in fact, Romney has piled more debt onto more unsuspecting companies, written more gigantic checks that other people have to cover, than perhaps all but a handful of people on planet Earth.
This is a double whammy to economic growth and recovery. Not only does this significantly lower tax bases of “source” countries — money that is supposed to pay for education, roads, water supplies, electrical grids, airports, and other infrastructure — but it also moves capital away from its source country into foreign tax havens, including places like the Cayman Islands and Switzerland (where Mitt Romney has stashed money). That capital is then not available in the source country to start or invest in businesses.
A similar problem is happening with corporate taxes. In July, a senior executive of Corning Inc. testified to the House Ways and Means Committee that America’s high corporate tax rate putting Corning at a disadvantage. She testified that Corning had an effective US tax rate of 36% in 2011, compared to an effective tax rate in foreign countries of 17%. Sounds terrible, doesn’t it!
There’s just one problem — it is a big lie. Between 2008 and 2011, Corning didn’t pay any US income taxes at all (even though they earned $3 billion during that time). In fact, they received $4 million dollars from the US government. Their effective US tax rate was actually negative 0.2 percent (compared to an 8.6% effective tax rate in foreign countries).
Ms Warren, who has been the most vociferous critic of the banking industry over the past four years and is running for Senate in Massachusetts, portrayed Barack Obama as the best last line of defence against a game that people believed was “rigged” against the middle class.
“Here’s the painful part: they’re right. The system is rigged,” she said. “Billionaires pay lower taxes than their secretaries.” ...
“Republicans say they don’t believe in government. Sure they do. They believe in government to help themselves and their powerful friends,” she said. “Mitt Romney’s the guy who said corporations are people. No Governor Romney, corporations are not people. People have hearts, they have kids . . . They live, they love, and they die. And that matters.”
At the Democratic National Convention on Wednesday night, he did not disappoint, boiling down Mitt Romney’s case to one sentence: “In Tampa,” Clinton said, “the Republican argument against the president’s reelection was actually pretty simple, pretty snappy. . . . ‘We left him a total mess, he hasn’t cleaned it up fast enough, so fire him and put us back in.’ ” He cast the philosophical differences between the parties just as crisply. Republicans, he said, believe in a “winner-take-all, you’re-on-your-own society,” while Democrats seek “a country of shared opportunities and shared responsibility — a we’re-all-in-this-together society.” ...
And there lay the other stark contrast between the Tampa Republicans and the Charlotte Democrats. Building their convention around an out-of-context quotation from Obama, Republicans offered a counter-theme, “We built it.” But the message of Tampa often came off more as: “We own it.” Working people and the dignity of labor receded into the shadows cast by the investors, entrepreneurs and business leaders.
First off, he’s (Taibbi is) quick to distinguish private equity from the last few generations of rich white folks who got fabulously wealthy off other people’s hard labor and then ran for president. These people, Taibbi says, at least left something in their wake.
“In the old days,” he writes, “making money required sharing the wealth: with assembly-line workers, with middle management, with schools and communities, with investors. Even the Gilded Age robber barons, despite their unapologetic efforts to keep workers from getting any rights at all, built America in spite of themselves, erecting railroads and oil wells and telegraph wires. And from the time the monopolists were reined in with antitrust laws through the days when men like Mitt Romney's dad exited center stage in our economy, the American social contract was pretty consistent: The rich got to stay rich, often filthy rich, but they paid taxes and a living wage and everyone else rose at least a little bit along with them.”
That’s not, however, the Romney business model. Instead, his involves borrowing money to buy a company, then transferring that debt to the newly acquired company, and then asking for some more money from the company before flying off to the Cayman Islands.
As Taibbi writes, “Here's how Romney would go about "liberating" a company: A private equity firm like Bain typically seeks out floundering businesses with good cash flows. It then puts down a relatively small amount of its own money and runs to a big bank like Goldman Sachs or Citigroup for the rest of the financing. (Most leveraged buyouts are financed with 60 to 90 percent borrowed cash.) The takeover firm then uses that borrowed money to buy a controlling stake in the target company, either with or without its consent. ... But here's the catch. When Bain borrows all of that money from the bank, it's the target company that ends up on the hook for all of the debt.”
But what’s in it for Romney, one might ask? Well, as the new company is drowning in debt payments, Bain is luckily lurking around, instructing them how to cut costs--which usually involves restructuring, a fancy-pants word for firing a bunch of people. And in exchange for that golden advice, Bain charges the company a whole bunch of management and consulting fees. ...
Taibbi writes, “Obama ran on "change" in 2008, but Mitt Romney represents a far more real and seismic shift in the American landscape. Romney is the frontman and apostle of an economic revolution, in which transactions are manufactured instead of products, wealth is generated without accompanying prosperity, and Cayman Islands partnerships are lovingly erected and nurtured while American communities fall apart.... It's a vision of society that's crazy, vicious and almost unbelievably selfish, yet it's running for president, and it has a chance of winning.”
There are so many problems with the way we run elections in this country. Voter impersonation is not one of them. Indiana, one of the first states to pass a strict photo ID law, has never convicted anyone for it. Ditto Pennsylvania, which passed an even stricter law.
It’s an extremely rare crime — 10 cases nationwide over a 12-year period during which hundreds of millions of votes were cast — and for good reason. The penalty is severe — up to five years in prison and a $10,000 fine — and the perpetrator nets only one vote. If you’re going to steal an election, there are far better options. (Hire a 16-year-old to hack into the computer touch-screen voting system — the one without a paper trail — in use in about a third of American states.)
These laws are a solution in search of a problem. Why not a law criminalizing child abduction by space aliens? Well, can you prove it isn’t happening?
But even if these laws prevent only a tiny number of fraudulent votes, aren’t they worthwhile? No.
There are a lot of people who don’t have current government-issued photo ID — for example, more than 5 percent of registered voters in Texas. (Until now a bank statement or utility bill has sufficed.) The federal court that last week invalidated the new Texas photo ID law pointed out that more than one-quarter of the state’s counties lack an operational D.M.V. office, meaning some Texans would need to take a 250-mile round trip to get ID. Many prospective voters would have to pay $22 for the cheapest set of documents needed to obtain one (and that’s with Texas waiving the charge for the ID itself). The law imposes, the court wrote, “strict, unforgiving burdens on the poor.” These are the people who will be turned away from the polls (or thrown a sop in the form of a provisional ballot, which has about as much chance of being counted as a Ron Paul delegate at the Republican National Convention).
Seriously, that was an awesome speech. Clinton isn’t just an amazing political talent; he has the ability to make wonkery accessible and compelling. Of course, he had one major advantage over the supposed wonks on the other side (still shaking my head over the Ryan implosion), namely, the well-known liberal bias of the facts.
But — you knew there was going to be a but — Clinton did get one thing wrong, which he has persistently gotten wrong for years. He’s stuck on the notion that we have a big structural unemployment problem...
He did so, in part, the way millions of other Americans do — with the tax benefits of an individual retirement account. But he was able to turbocharge the impact of those advantages and other tax breaks in his severance package from Bain in a way that few but the country’s super-rich can ever hope to do.
As a result, his IRA could be worth as much as $87 million, according to his estimates, and he can continue to earn tax-advantaged income from Bain more than a decade after he formally left the firm. ...
Details of Romney’s retirement assets are somewhat vague because he has released only one year of full tax returns and declined to provide additional specifics about his personal finances. But interviews with Bain executives and accounting professionals show that he was able to take advantage of tax benefits in innovative ways open only to a narrow slice of extremely affluent people — mostly those who work in private-equity firms and other investment partnerships.
His severance package, for instance, allowed him to continue sharing in the profits of the company as if he were still a partner managing it, according to his 2010 tax return and interviews with present and former Bain executives. And because he benefited from the firm’s investments as if he were an active Bain partner, he paid taxes at a lower rate on these earnings than if they were treated as ordinary retirement income. Romney negotiated the package when he was leaving the firm, Bain executives said, while he set up his IRA long before.
IRAs were established by Congress nearly 40 years ago to help people save for their retirement. Under the law today, individuals may contribute up to $5,000 per year and employers may contribute up to $50,000 a year to an employer-sponsored IRA. The money is invested, and the investments grow tax-free until retirement. There is no limit on how much money an IRA can earn tax-free. ...
Romney’s IRA growth could be dramatic, in part, because he, like other Bain employees, was given access to a type of shares in Bain-backed companies that were often private and low-valued when the employees bought in and then were managed by Bain for growth and an eventual sale or public share offering that would maximize shareholder value.
These “A-shares” were priced by Bain at a fraction of another category of stock known as “L-shares,” which functioned like preferred stock, paying dividends and getting priority for payouts. The A-shares, or common shares, were riskier and thus priced lower, so it was possible that a relatively small IRA investment could buy significant amounts of the A-shares in some companies. The use of a dual-share structure is not unusual in the financial industry, and under financial accounting rules the A-shares must reflect a true market value of the underlying assets. Often, the value of these initially cheap A-shares soared, along with the company’s value. ...
By leveraging a series of successful A-share investments, taking profits and reinvesting the money into new A-shares, a Bain IRA fund could easily accumulate millions of dollars without any tax penalty. On the disclosure statements Romney files as a candidate for federal office, he reports his financial holdings and values them by assigning a dollar range to each one. By adding these values together, The Washington Post calculated that the holdings in his IRA were worth between $20 million and $102 million in 2011. The total range shifted downward this year, with Romney valuing the holdings in his IRA at between $17 million and $87 million. ...
Michael Graetz, who served in the Treasury Department under President George H.W. Bush, said massive IRAs such as Romney’s do not reflect the intent of the laws that created the accounts as a way to help working Americans reach financial security.
“One need not have $100 million in an IRA in order to accomplish retirement security,” said Graetz, who teaches tax and retirement policy at Columbia Law School. “The law deliberately set limits in order to restrict the revenue losses to the Treasury.”
Another tax expert, Edward Kleinbard of the University of Southern California, who reviewed the prices of some A- and L-shares, said Bain may have undervalued the A-shares, providing a benefit to insiders. Kleinbard, a Democrat and former chief of staff of the Congressional Joint Tax Committee, said the valuation of such shares should reflect real market prices. ...
Another way in which tax rules have favored Romney’s post-Bain financial situation is through the treatment of his severance package from Bain. Again, he benefited from a tax break in a way that is available to very few. His retirement earnings receive what is called the “carried interest” deduction. That’s an accounting classification that treats certain income from private-equity firms and other partnerships as capital gains and taxes it at a rate of 15 percent, rather than as ordinary income at 35 percent. ...
Romney’s 1999 severance package was structured to take advantage of the carried-interest treatment. It took nearly a year of negotiations to arrange that package after he left Bain in 1999 to run the Salt Lake City Winter Olympics, Bain insiders say, and he did not formally resign as chief executive until he had negotiated the deal.
The result of the negotiations was a deal that allowed Romney to continue sharing in the profits of the company for 10 years in the same way that active managers received compensation. These carried-interest profits would be taxed at a 15 percent rate, less than half the rate that retirees might pay on other income, including payouts from pensions, IRAs and stock options. ...
Tax experts say Romney can legally share in the carried-interest profits and take the deduction if Bain has agreed to the arrangement. Critics of the carried-interest deduction say this example highlights how the tax break can be abused.
“Carried interest was intended to motivate managers going forward,” said Victor Fleischer, an expert in carried interest at the University of Colorado law school. “In cases like the Romneys, it just shows it is really all about fancy tax planning. It’s not motivating managers going forward. Not only is Mitt not providing any future services, Ann never did.”
In recent years, the carried-interest deduction has proved controversial on Capitol Hill. There have been several unsuccessful efforts to eliminate the tax break, which critics say improperly treats profits like capital gains, and tax these earnings as ordinary income at 35 percent.
Some tax experts worry that the arrangements Romney benefits from set a bad precedent for a president. “He looks for every tax angle to a degree that is unbecoming in someone who would be the executive in command of the administrative apparatus that enforces the tax law,” said Lee Sheppard, a tax lawyer and contributing editor for Tax Analysts, a publication for accounting and legal professionals.
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