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BusinessWeek: October 31, 1994 |
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Economic Viewpoint
PRIVATE NEST EGGS DON'T MAKE PUBLIC SAFETY NETS President Clinton installed Alicia H. Munnell, a vociferous advocate of pension taxation, as Assistant Treasury Secretary for Economic Policy. She wants to invest pension funds in public infrastructure and public education to "increase the resources available for future generations." To achieve her goal, she devised a plan that requires taxpayers to report as taxable income the contributions that they and their employers make to pension plans, along with the earnings on the pension investments known as the "inside buildup." To make up for not taxing pensions in the past, she wants to confiscate 15% of all pension fund assets. Munnell's plan was too much even for zealous income redistributionists among Democrats on the Hill. When details of her proposal leaked out, it was quietly shelved. SLICK MOVE. Desperate for money, Clinton has revived the redistribution goal of Munnell's pension tax, although in a different wrapper. The means: subversion of the Employee Retirement Income Security Act (ERISA), which requires that pension funds be invested solely in the interest of participants and beneficiaries. Labor Secretary Robert B. Reich has issued new interpretive regulations that permit pension fund managers to siphon our pension funds into so-called economically targeted investments (ETIs). ETIs are socially useful public projects that are deemed by the Secretaries of Housing & Urban Development and Labor to yield collateral benefits over and above the private uelfare of the pension fund owner. A "socially useful" investment with "collateral benefits" defined by public officials is also, of course, a politically useful investment--such as public housing. The Administration plans first to divert some share of our pensions into the financing of public housing and go on from there. With ERISA subverted, the scheme's next step is to amend the Community Reinvestment Act (CRA) so that its expansively interpreted "fairness" requirements can be applied to pension and mutual funds--indeed, to all financial institutions. The CRA, as originally construed, requires banks to service the communities from which they collect deposits. The act is now used to enforce racial quotas in lending, often at below-market interest rates to favored minorities. Flocks of federal financial regulators are lobbying for CRA authority over their domains, with support from the Treasury Dept. and the American Bankers Assn. Treasury Under Secretary for Domestic Finance Frank N. Newman wants a percentage of mutual-fund assets invested in community projects, and the ABA, whose members are being forced into risky loans and an unlevel playing field, wants company for its members' misery. HANDSOME TAKE. When left-wingers realized that taxpayer revolt limited the monies that they could squeeze out of the tax system for their redistributionist schemes, they set their sights on the stocks of assets held by pension funds, banks, and insurance companies. As the assets of the pension funds and the banking system total some $7 trillion, "fairness" requirements on its allocation would put enormous sums of money at the government's discretion. With blacks and Hispanics comprising about 20% of the population, the government can claim allocation powers over $1.4 trillion. If white women--also a protected minority--are included, the government can widen its fairness net over the stock of pension and bank assets to 60%, or $4.2 trillion. Senator Barbara Boxer (D-Calif.) supports Clinton's plan to grab our pensions. She disingenuously claims pension investments in ETIs will earn returns competitive with investments in profit-making private companies. If this were true, the Kansas Public Employee Retirement System would not have had to write off $200 million in failed ETI investments in public housing, and Clinton would not be maneuvering to establish allocatory powers over the assets of the financial system. In an irony of fate, the week that Reich threw our ERISA protections to the wind, Superior Court Judge Steffen W. Graae ordered Mayor Sharon Pratt Kelly to surrender the District of Columbia's public housing to an outside receiver. If the Clintonistas get their way, a big chunk of our pension assets could be headed in the same direction. | |
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