Tuesday, May 6, 2014

Legislative Winners and Losers

The Connecticut State legislature is nearing the end of the 2013/14 session and, as usual, is giving an example of how one-party government works. Connecticut is a heavily Democrat or Blue State with a Democrat Governor as well as a lop-sided majority in both its Senate and House of Representatives. Ordinary citizens should always beware such a concentration of authority.

Last week I reported on how the Governor won easy approval of a number of appointees to the State Judiciary, a number of whom were current or former State legislators. All of these judges would get excellent compensation packages as well as incredible pension benefits. For example, two sixty-six year old appointees would be eligible for $100000 pensions after only four years service on the bench.

As the session winds down, there is even more bad news for Connecticut taxpayers. Early this year Governor Dannell Malloy proposed exempting part of the income of a privileged class of people from State income taxation. Initially, he proposed allowing retired teachers to exempt 25% of their pension income from taxation this year, and then 50% in future years. In other words, if a teacher’s pension was $50000 per year, they would have had to only pay taxes on $40000 this year, and then $25000 in future years.

Even though it was estimated that this special interest tax relief would cost over 20 Million in lost tax revenue, the Governor must have felt it wouldn’t matter since he was expecting a large surplus from his tax increases of previous years.

 Unfortunately, the projected surplus did not materialize but the Governor is still trying to push through the legislature a modified tax relief for retired teachers. Now, the tax exemption has been put off until the next tax year and teachers will only be able to exempt 10% of their pension income in 2015. In succeeding years it will eventually go up to the full 50% exemption. Interestingly, the lack of a surplus has forced the Governor to withdraw his plan for a tax rebate for all citizens but so far he is still pushing for relief for teachers whose pensions are among the best in the country.

Also, the Legislature is still considering a plan to require private employers in the State to provide a State run retirement plan for their employees. Apparently, statistics show that many people in the State have no formal retirement plan. This reminds me of the scare tactics used to support the adoption of the Affordable Care Act (Obamacare) a few years ago. Remember, there were 30 million Americans without medical insurance. Now, five years later it turns out that only 7 or 8 million have signed up for Obamacare, and many of those were people who had lost their insurance despite the President’s promises. So, where are the other 23 million?

Is there a retirement crisis in Connecticut that would force the State government to get involved. In this day and age it is hard to believe that anyone has not heard of an IRA, traditional or Roth, that is available to everyone not covered by an employer sponsored plan.  You can walk into any bank, or go on line to set one up with a minimum of cost or effort.

Proponents of the Connecticut plan want to force all employers to adopt a plan that would be administered by the State. Employees could contribute up to 5% of their pay into the plan that would require no matching contribution from the employer. A person making $40000 per year would be able to contribute a maximum of $2000 to the plan each year. The plan is not supposed to cost the employer anything accept the effort needed to process payroll deductions.

Even though employers might be required to offer this plan to their employees, I don’t think there will be many takers. The impetus for this plan is not coming from the millions of people who are without retirement plans but from those in politics and the media who have a deep and abiding distrust of those in the financial services industry who have tried for years to convince the uneducated and the unwilling to save a portion of their income rather than consume it all. When I was in the financial service business, I knew that my competition was not rival companies but the local shopping mall.

Anyone who thinks that people will wait on line to sign up for this State run retirement plan, has never had to try to convince people to buy insurance to protect their family from the catastrophic effects of death or disability; to save for their children’s college education; or to set aside money for a retirement in the distant future.


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