While the deficits of public pension plans have been widely discussed, much less attention has been given to the obligations of US local governments to supply healthcare for their retired employees.
The unfunded liabilities for retiree healthcare for the 30 largest US cities exceeds $100bn, according to the Pew Charitable Trusts, a Philadelphia-based non-profit organisation. The unfunded liabilities for the 50 US states exceeds $500bn, according to Standard & Poor’s, the rating agency.
Retiree healthcare plans are uniquely American. They exist because the US has never offered universal healthcare before Medicare, the national social insurance programme, at age 65.
Many employees of cities and states retire between 50 and 55, so local governments usually provide them with highly subsidised healthcare between retirement and Medicare, and sometimes beyond.
Yet retiree healthcare plans of local governments, on average, have less than 10 per cent of the funding they need to meet their future obligations. By contrast, if a public pension plan were less than 60 per cent advance funded, it would be considered to be in dire straits.
Read the rest at brookings.edu…
The growing costs of health care benefits for retired public employees—known as OPEB (other post-employment benefits)—pose a serious challenge to many city governments. In this paper, we analyze the retiree health care systems of six American cities: Boston, Minneapolis, Pittsburgh, San Francisco, San Antonia, and Tampa, Florida. Without major reforms, most of these cities will have to devote a much larger share of tax revenues to OPEB benefits and consequently less to essential functions like schools and police. We outline a broad variety of reasonable measures that cities could adopt to materially reduce their long-term OPEB liabilities.
Read the rest at hoover.org…
Whether Microsoft’s $26.2 billion purchase of LinkedIn makes sense might depend on where you look. Glancing at LinkedIn’s press release for the full year 2015, you will see a prominent projection for “adjusted” earnings this year of $950 million.
Yet if you closely read the press release and its appendix, you can figure out that the company’s projected 2016 earnings under GAAP, the generally accepted accounting principles required in securities filings, are minus $240 million.
What accounts for that enormous difference? Like many companies, LinkedIn reports one set of figures to the Securities and Exchange Commission but touts adjusted figures elsewhere. LinkedIn’s adjusted projection excludes large expenses: $630 million for stock awards to executives and $560 million for depreciation and amortization.
Read the rest at wsj.com…
Last year, China’s stock market took a tumble, which sent shock waves through the global securities markets. Now, money market funds are booming in China and could present the next systemic risk. While Chinese regulators have taken steps to reduce that risk, the question is whether they have gone far enough.
Assets of Chinese money market funds have doubled in the last year – from approximately $350 billion at the end of 2014 to over $700 billion at the end of 2015. These funds are primarily sold online to individual investors by Internet giants like Alibaba and Baidu.
Money market funds have become so popular in China because they offer higher interest rates than retail bank deposits. But these funds achieve higher rates by investing in a much riskier array of debt securities than U.S. money market funds – and the average Chinese investor may not be aware of the level of risk involved. If there were significant defaults in the debt securities held by
Chinese money market funds, investors would likely run for the exits, just as they did last summer in the Chinese stock market.
To prevent these potential problems, the Chinese Securities Regulatory Commission has adopted rules, which became effective in February of this year. These rules are designed to decrease the riskiness and increase the liquidity of Chinese money market funds, although the rules are still looser than the regulations for U.S. money market funds.
Read the rest at realclearmarkets.com…
It’s true for everyone: despite our best intentions, we often fail to accomplish what we set out to do. When it comes to retirement investing, millions of Americans do not meet their own declared saving goals for retirement.
As a result, almost one-third of the U.S. population has no retirement savings at all, while many others will fall well short of what they will need for their Golden Years.
A solution can be found in the field of behavioral economics, which suggests ways to help Americans start saving. It seems that saving is a lot like dieting — small changes can help you reach your goal.
Read the rest at marketwatch.com…
Senator Hatch, chairman of the Senate Finance Committee, is focusing on an important aspect of the agenda for corporate tax reform—allowing U.S. corporations to receive a deduction for dividends paid to their shareholders. That deduction would eliminate double taxation of corporate profits distributed as dividends; instead, these profits would be taxed only to shareholders, not at both the shareholder and corporate levels.
Although Senator Hatch has not disclosed the details of his proposal, a corporate deduction for dividends paid has several advantages. But such a proposal would raise financial and political challenges that would have to be addressed.
Read the rest at brookings.edu…
Almost everyone would agree that large banks like JPMorgan and Citigroup should be classified as Sifis — the melodious acronym for systemically important financial institutions, whose failure would produce widespread shocks to the financial system.
To reduce the chances of failure, regulators have imposed a broad array of extra requirements for capital, liquidity and risk controls on these Sifis.
The need for these requirements is less clear for two other categories of financial institutions currently labelled as Sifis: midsize regional banks and large insurance companies. Both types of institutions have been unsuccessful in getting their Sifi label dropped by regulators or legislators.
However, activist hedge funds have taken a more fruitful tack, pushing for structural changes to avoid the label at some midsize banks and large insurers.
In the Dodd-Frank Act of 2010 that sought to prevent systemic risks building in markets, Congress effectively applied the label to any banking institution with more than $50bn in assets.
But size is not a good indicator of potential adverse effects on the financial system. For instance, the dozen or so US bank holding companies with between $50bn and $100bn in assets are primarily regional institutions with low profiles in the global financial system.
Read the rest at brookings.edu…
As voters in Idaho, Michigan, Mississippi and Hawaii head to the polls on Tuesday for the GOP primary, they should take a closer look at the frontrunner’s tax plan and what that could mean for their wallets.
Donald Trump’s plan would sharply reduce the top tax rate on individual income from 39.6% to 25% and broadly reduce rates for individuals with lower incomes. His plan would also lower the tax rate on corporate income from 35% to 15%, and apply this 15% to other “business income.”
While his plan limits certain tax preferences and deductions, it does not include any reductions in federal spending. As a result, the Trump plan increases the federal deficit over the next decade by $10 trillion or $12 trillion, according to several estimates that do not include macroeconomic changes in GDP, investment and employment. Of course, these so-called “static” estimates do not reflect the potential tax revenue from the economic growth resulting from lower tax rates. However, even under “dynamic” scoring, which takes into account a broad range of macroeconomic effects of tax proposals, his tax cuts would still expand the federal deficit over the next decade by $10 trillion — on top of the $10 trillion increase in the federal deficit already projected under current law.
Let’s consider two prominent analyses of the Trump tax plan — one by the Tax Foundation and the other by the Tax Policy Center. Despite their different methodologies, they both estimate that the Trump plan would cut tax revenues by over $10 trillion in the next decade.
Read the rest at fortune.com…