Posted 1:33 AM by Robert

Double Taxation And Pension Fund Failure

One of the most pernicious aspects of "double taxation" of dividends is that it encourages companies to take on too much debt because interest payments are deductible where dividend payments are not.

Too much debt obviously leads to too many bankruptcies.

And now this:

The U.S. agency that insures pensions for about 44 million Americans has seen its $8 billion surplus wiped out in one year by growing pension fund failures, and has fallen into deficit, The New York Times reported on Saturday. The Pension Benefit Guaranty Corp. will disclose a deficit of $1 to $2 billion in its 2002 annual report, expected to be released at the end of next week, the newspaper said.

Large-scale pension fund failures in the past few years, in particular from steel companies such as LTV Corp. and Bethlehem Steel Corp., have drained the agency's surplus, the Times said.

While the paper said the agency could make its current payments, things are only likely to get worse in the coming months, as more bankrupt companies are likely to have their pension obligations assumed by the PBGC.

But, of course, Senator Daschle and House Minority Leader Pelosi say that only the rich would benefit from abolishing taxes on dividends.

UPDATE: An astute reader reminds me that Paul Krugman argues:

Twenty years ago most workers were in "defined benefit" plans — that is, their employers promised them a fixed pension. Today most workers have "defined contribution" plans: they invest money for their retirement, and accept the risk that those investments might go bad. Retirement contributions are normally subsidized by the employer, and receive special tax treatment; but all this is to no avail if, as happened at Enron, the assets workers have bought lose most of their value.

It seems to be Professor Krugman's opinion that a threat to the nation's "defined benefits" plans can be no real crisis because most workers today don't have defined benefit plans. Does the Times know this?

But it is also Professor Krugman's opinion that workers should have defined benefit plans, which are undermined by excess corporate debt, which is encouraged by "double taxation," which he opposes abolishing.

Ah, yes, Herr Doktorprofessor Krugman shares the latest, refined extensions of his Weltanschauung from the highest reaches of Ostelfenbeinturm!

The people tremble to receive the noble wisdom lest their seer be abducted to Guantanamo Bay before he can flee to the safety of das Vaterland!

Hurry, Paul, hurry! THEY MAY BE COMING FOR YOU NOW!