Categories
Taxes

Congress Is Coming After Your 401(K)

75% of Americans disapprove of the job our representatives are doing. It’s things like this that explain why:

Whilst only about 13% of U.S. employees nationwide enjoy a retirement fund that assures stable, lifelong income, all 535 members of Congress do… courtesy of Uncle Sam.

Members of Congress participate in the Federal Employees Retirement System, which provides pension benefits of which most American workers can only dream.

Private retirement savers often pay management fees that can exceed 1% annually on lousy investment choices. Members of Congress pay a maximum of 0.039% for funds guaranteed to match the market.

A proposal floating around in Republican circles in Washington would add insult to injury: They want to end the tax-deductibility of your pension contributions so they can give a $1.5 billion tax break to U.S. corporations.

Oops.

Give and Take

Congress is reportedly considering whether to reduce the benefits of contributing to a 401(k) and similar retirement plans.

That’s because it wants to reform corporate taxes, cutting the rate from 35% to 15%. That blasts a meteor-sized hole in the federal budget.

Cue the pension police.

According to the latest report from the Joint Committee on Taxation, the exclusion of contributions to and earnings of defined contribution plans will cost the federal government more than $584 billion over the next five years.

The new proposal would treat all 401(k) and traditional IRA contributions as if they were Roth IRA contributions. You’d lose the tax exclusion of those contributions, but your future 401(k)/IRA earnings and appreciation would be tax-free. Some think this could raise $1.5 trillion in additional tax revenue over the next decade, making the corporate tax slash feasible.

Unless they decide to tax retirement earnings and appreciation too.

End of the Roth?

Right now, any income and gains your 401(k) and/or traditional IRA generate don’t get taxed until you make withdrawals.

But a new proposal would impose a 15% tax on those annual gains, raising another $1.5 trillion over the next decade. That would be even worse than ordinary taxable investment accounts, however, where one can defer capital gains tax simply by not selling shares.

“It’s not really a question of whether retirement plans will get a haircut, but of how much,” said Bradford Campbell, former assistant secretary of labor for employee benefits under President George W. Bush. Replacing revenue lost to tax cuts, he said, is “a game of winners and losers, and the retirement system is poised to be one of the losers.”

My sources in Washington tell me that the Trump team is definitely planning to push a tax reform like President Ronald Reagan’s in 1986 – closing loopholes as well as cutting rates. It won’t be just a tax cut, as had been rumored.

Like the retirement contribution exclusion, the proposals also do away with the state and local income tax deductions. If you live in a place such as New York or California, that’s a very big deal indeed.

Who Cares?

There is no more-contested issue in U.S. politics than federal tax reform. So who is likely to win and lose if tax reform follows President Donald Trump’s proposals?

First, his administration can’t count on unqualified support from the base of voters who put Trump in the White House.

Although low-income voters would probably come out neutral since they tend not to have 401(k) or IRA plans, households earning $50,000 or more – most of which voted for the president – would take a serious hit if retirement contributions were subject to tax upfront.

High-income families probably won’t care one way or another since they tend to hit their retirement contribution limits fairly quickly anyway.

Second, the corporate side of the proposals are fraught. Although Trump’s plan cuts the corporate rate from 35% to 15%, many U.S. corporations already pay less than 15% thanks to loopholes – especially in energy, utilities and heavy industry.

They will probably oppose the plan since it closes those loopholes. That makes passage uncertain.

How to Prepare

Uncertainty surrounding something we’ve come to take for granted – tax-advantaged retirement plans – means you need to look at alternatives as a matter of urgency.

One is to explore the benefits of investing in the stock market directly. Long-term buy-and-hold strategies may become more attractive than retirement funds, depending on how capital gains are treated under any tax reform plan.

Another alternative is to consider the advantages of life insurance.

Certain types of whole life policies are much better than traditional retirement vehicles. That’s because the IRS currently treats “distributions” from such policies as nontaxable loans against the policy, which are retired when it pays out at your passing.

Life insurance trusts, on the other hand, might become much more attractive vehicles for passing money on to your heirs if the relative returns to heritable IRS accounts take a nosedive.

Whatever happens, I’ll be keeping a close eye on developments… and offering you solutions.

Categories
Mortgage

Mortgage Lenders Come Under Congress Home Loan Scanner

Will the Congress come to the rescue of consumers to initiate reform of home loan mortgage lenders? It may. The Democrat-led Congress may submit legislation to place stringent measures to curb abuses within the mortgage industry.

The mortgage industry includes not only mortgage lenders, mortgage brokers, but also home builders who own mortgage companies, Wall Street, and other mortgage security investors. If stringent measures are implemented by Congress, it will protect future consumers from being exploited. However, it may have an ancillary effect in that it may protect purchasers of mortgage backed securities. The recent past has seen unmitigated mayhem in the market. Countrywide Financial's second quarter profits dropped, leading to a fall in share prices to a 52 week low on July 24, 2007. Its second-quarter net income dropped to $ 485.1 million from $ 722.2 million, a year ago with revenue falling 15% to $ 2.55 billion .

This week American Home Mortgage, a large national mortgage lender announced that it may not be able to fund current inventory of home loans in excess of $ 300 million dollars, sending its stock value plummeting by 90%. But the subprime mortgage disaster is affecting even prime loan lenders and borrowers.

Wall Street is also reeling from the rise in foreclosures, oversupply of homes, subprime mortgages, defaults, and more. Nevertheless, Wall Street is complicit along with home builders and mortgage lenders in creating this problem.

Beazer Homes, one of the many homebuilders that started or increased their mortgage lending business to facilitate the buying of their homes. However, allegations are now surfacing from former homeowners who have defaulted on their mortgages that some builders inflated their income or altered some material facts on the mortgage applications in order to get them approved. In order to get homes sold many financially unqualified people were approved for mortgages and other home loans such as mortgage refinancing.

The housing market boom of the recent five years was due to many diverse factors. Banks, mortgage companies, and homebuilders relaxed their lending standards and flooded the market with mortgage loans, along with loans to people with questionable credit. Unlike before adjustable rate mortgages were doled to increase their bottom line. The folks on Wall Street stimulated this reckless mortgage lending behavior by continuing to buy huge quantities of home loans for repackaging as securities. Many of these mortgage backed securities contained risky subprime mortgages.

Now that the housing bubble has burst, rising foreclosure rates, oversupply of homes, increasing mortgage rates, less home buying demand, and the negative residual effects upon the economy is leading to closer examination by government into the role of mortgage lenders, home builders, and Wall Street.

The Congress wants to reign in the Wild West lending tactics by imposing strict lending guidelines. But that may not be required if the Federal Reserve recommends new consumer protection rules this year. So, the Congress may not have to act if the Fed constraints misleading loan practices among all lenders. Hopefully, national lending standards need to replace the various state rules because the mortgage investment market is a national one.

Categories
World

Detroit Democrat John Conyers, long-standing fixture in Congress, dies at 90

 

Detroit Democrat John Conyers, long-standing fixture in Congress, dies at 90

By
Patrick Martin

30 October 2019

Longtime Democratic Congressman John Conyers Jr. died October 27 at his home in Detroit at the age of 90. With 53 years in the House of Representatives, Conyers was one of the most durable and consistent opponents of revolutionary politics in the working class.

It is this record that accounts for the plaudits that followed his death, not only from fellow Democrats, but also from General Motors CEO Mary Barra, the corporate media, the trade union bureaucracy and the pseudo-left. While somewhat toned down due to the abrupt end of Conyers’ political career—he was the first prominent Democrat to be purged, in December 2017, as part of the #MeToo witch hunt—the praise was a reward for services rendered to American capitalism.

Conyers’ entire political career was devoted to preventing the working class from breaking with the Democratic Party and fighting the capitalist system, in a city and state that have been a longtime center of working class militancy. For several decades, one of his major concerns was fighting the influence of the Workers League, forerunner of the Socialist Equality Party, and its newspaper the Bulletinat factories and in working class neighborhoods throughout his district, which comprised the western half of the city of Detroit.

In a file photo from Friday, May 30, 2014, Rep. John Conyers, D-Mich., walks down the steps of the House of Representatives after final votes, at the Capitol in Washington. Conyers, the longest-serving African-American member of Congress and founder of the Congressional Black Caucus, died Sunday at age 90 at his Detroit home, two years after leaving the U.S. House. (AP Photo/J. Scott Applewhite, file)

This district included what were then huge General Motors factories on the southwest side of the city (the Cadillac and Fleetwood plants), as well as neighboring GM parts plants and the giant Ford Rouge complex, which sat on the western edge of his district and employed tens of thousands of black workers who lived in Detroit.

The congressman’s political career was rooted in the auto plants. His father, John Conyers Sr., served as chief UAW steward at the Chrysler Jefferson Avenue plant on the city’s east side, then as a top organizer at Ford Rouge in the 1940-1941 drive that resulted in unionization. The elder Conyers retired as an international UAW representative while the UAW was still a powerful trade union, which, despite its pro-capitalist leadership, still retained militant traditions. He died in 1986, just as the UAW was completing its transformation into the corporatist monstrosity it is today.

John Conyers Jr. began his political career, after military service during the Korean War and Wayne State University law school, working as a top aide to Democratic Representative John Dingell, Jr. He then went into private practice and allied himself with civil rights leaders like Martin Luther King Jr., working in the Mississippi voting rights campaign and participating in the 1963 March on Washington. In 1964, when the First Congressional District seat fell vacant, Conyers won the Democratic primary by a narrow 108 votes, aided by King’s endorsement.

In Congress, he co-sponsored the Voting Rights Act, opposed the expulsion of Adam Clayton Powell, the congressman from Harlem, and began to speak out against the Vietnam War. He was prominent enough a critic to gain a place on President Nixon’s “enemies list.”

In 1967, as Detroit erupted in a massive urban rebellion that was centered in his congressional district—12th Street, the flashpoint, was then the main commercial strip on the near west side of Detroit—Conyers sought unsuccessfully to defuse the upheaval. He went out, along with other Democratic politicians and black preachers, armed with bullhorns, but their appeals were ignored. National Guard units and then Army troops, fresh from the Vietnam killing fields, were rushed to Detroit to suppress the rebellion at the cost of 43 dead.

With financial backing from Ford Motor Company, John Conyers Sr. and his sons Nathan and John Jr. established Conyers Ford in 1970 just east of downtown Detroit, making the Conyers family certified members of the black bourgeoisie. Nathan Conyers closed the Ford dealership in 2003, but by then had moved upscale, opening Jaguar of Novi, which he finally sold in 2007 on his retirement from the auto business.

Like his father and much of the black Detroit political establishment, Conyers received his political education in one of the worst of schools, American Stalinism. He was a longtime fellow traveler of the Communist Party USA, appearing at conferences of the National Alliance Against Racism and Political Repression, one of innumerable front groups set up by the CPUSA. He also promoted the All Peoples Congress, another popular front formation backed by the Stalinists, other “left” radicals and a section of the trade union bureaucracy, to pressure the Democratic Party. He was a longtime member of the Democratic Socialists of America.

The political function of such activities was to give the Democratic Party a left cover and provide a rationale for working people to continue voting for the Democrats in the 1980s, 1990s and into the new century, even as the Democratic Party moved further and further to the right, abandoning any association with the promotion of social and economic reforms that would raise living standards and expand public services.

Conyers became associated with entirely symbolic political efforts that did nothing to actually improve the conditions of life for the people of his district or for working people as a whole: a 15-year campaign to establish a national holiday honoring Dr. King; sit-in protests at South African embassies and trade missions to protest apartheid and demand the freedom of Nelson Mandela; and legislation on reparations for slavery, which he introduced every year from 1989 on.

In the meantime, Conyers vehemently opposed and sought to block every actual struggle of the working class against the capitalist system, particularly when these struggles came into conflict with the trade union bureaucracy, the black political establishment in Detroit and the Democratic Party.

It would be possible without much difficulty to write Conyers’ political history in the decades after 1967 entirely by quoting from the pages of the Bulletin, a forerunner of the World Socialist Web Site. The Bulletin first mentions him in its first analysis of the Detroit riot, pointing out that in the wake of the great rebellion, which we called “an important and heroic chapter in the struggles of the American working class… Black Democrats, even so-called militants like Conyers in Detroit, were quick to demonstrate their loyalty to capitalism.”

In May 1971, we criticized him by name in an editorial for not protesting witch hunting of the antiwar movement by the House Internal Security Committee, then under the chairmanship of right-wing Democrat Richard Ichord. In 1974, we reported his alignment with Angela Davis and other Stalinists in a “reactionary alliance of all those forces who want to hold back the working class from an independent revolutionary struggle against the government.” In October 1976, we noted his failure to attend a rally to defend the Washington Post pressmen, framed up and victimized by the owners of the most powerful media voice in the US capital, one aligned then and now with the Democratic Party.

After the Workers League moved its headquarters to Detroit in 1978 and began publishing the Bulletin there, Conyers became a more frequent target of political exposure. In November 1979, as auto workers fought against Chrysler’s closure of its Dodge Main plant, we noted how Conyers introduced federal legislation to block the plant closure that had zero chance of passage but gave the UAW leadership a means of diverting the struggle away from the mobilization of the working class and into impotent appeals to big business politicians in Washington.

When a wave of union-busting targeted smaller union locals and auto parts plants in the Detroit area in 1982, we reported that these efforts had the tacit consent of the UAW and AFL-CIO, and that “Congressmen John Conyers, George Crockett and John Dingell have said nothing about the union-busting in their own districts.”

The Workers League/SEP ran candidates against Conyers on three occasions: Eddie Benjamin in 1982, D’Artagnan Collier in 1992 and Helen Halyard in 1996. In the first campaign, we described Conyers as a representative of the black petty-bourgeoisie and characterized his political role as follows:

Within the Democratic Party, Conyers has played a special role, making the most radical-sounding demagogic speeches in order to put a “left” face on this reactionary capitalist political party. This has won Conyers the undying support of the Stalinist Communist Party, which is devoting all its efforts to prop up the Democratic Party and keep the working class trapped within the framework of capitalist politics.

Conyers on occasion refers to himself as a socialist, but his real class role was most clearly revealed during the recent Detroit Federation of Teachers strike. Conyers and his top aide Walter Colter were at the heart of the coalition of union bureaucrats and Democratic politicians that called itself the Citizens’ Committee and devised the binding arbitration scheme that was imposed on the teachers.

Conyers was well aware of our political criticism and of all the party’s activities in Detroit. He made numerous attempts to win our support, even endorsing an investigation into the murder of Workers League leader Tom Henehan, one of only a handful of bourgeois political figures to do so, and the only sitting US congressman. He seemed puzzled that he could not establish the same opportunist relations that he did with pro-Stalinist groups like the Workers World Party.

This was a period when large sections of workers still looked to the unions to fight back against corporate America and they were receptive to the demand, with which the Workers League was most prominently identified, for the building of a Labor Party based on the unions to fight for a socialist program.

Conyers was acutely aware of these popular sentiments and did his best to head them off. In October 1985, when congressional Democrats joined with the Republican Reagan administration to impose new cuts on social programs, several members of the Congressional Black Caucus held a press conference to denounce the agreement. Conyers declared that he and others were “beginning to reassess their relationship with the Democratic Party.”

Nothing ever came of this, or of the legislation introduced by Conyers to cut the requirements for third parties to gain ballot status, which are set at onerous levels in many major states, including Michigan. But he was clearly aware of the potential for challenges to the Democratic Party from the left.

On November 18, 1986, the Bulletin published a comment on the impending closure of the Fleetwood and Cadillac assembly plants headlined, “Conyers, Marcyites Stage Jobs Stunt.” While the Workers League was organizing workers to demonstrate at the plant, demanding the UAW fight the closures, Conyers and the Workers World Party held a protest at the General Motors building appealing to corporate management to “Remember Detroit.” We wrote:

Due to the right-wing policies of the UAW bureaucracy, who have assisted General Motors in its cost-cutting policies, capitalist politicians like Conyers and Jesse Jackson have been able to pose as more “left.” But this section of the Democratic Party, centered around the Black Congressional Caucus, is just as loyal in its defense of the capitalist profit system as the rightwing Democrats and Republicans.

Conyers specifically opposed any challenge to the private ownership of the auto companies and the nationalization of industry under workers’ control without compensation to the billionaire auto bosses. He told the Bulletin that he had never been an “advocate” of nationalization and that his program to defend jobs was to fight for Congress to pass laws against plant shutdowns. He then echoed the UAW bureaucracy and his fellow Democrats by calling for trade warfare against Japanese automakers.

News clipping from the Bulletin

There is little to say about the final three decades of Conyers’ congressional career. In September 1988, he participated in a unanimous vote of the House to break a strike by workers at the Chicago & Northwestern Railroad. In 1991, in the wake of the first Bush administration’s bloodbath in the Persian Gulf War, with tens of thousands of Iraqi troops incinerated by US tanks and warplanes, he declared at a congressional hearing, “We have liberated Kuwait but are in danger of losing New York, Philadelphia, Detroit and other cities.”

In 1992, after facing the Workers League candidate at an initial campaign debate, Conyers stopped going to such open events, sending representatives instead. At one of these forums, his aide “denied that the profit system had failed and said that blacks and other minorities should have a bigger piece of the pie, rather than doing away with the system.”

As the corporate controlled two-party system moved further and further to the right, “left” demagogues like Conyers found their roles less and less in demand. After the Republicans won control of Congress in 1994, he lost his chairmanship of the Government Operations Committee and could no longer convene the hearings for which he had won a national reputation as an opponent of police violence—everywhere except in Detroit, where he was a firm ally of the Coleman Young administration and the brutal Detroit Police Department.

Conyers briefly played a more prominent role in Washington after the Democrats won control of Congress in 2006. He chaired the Judiciary Committee, where he obeyed instructions from Speaker Nancy Pelosi to block efforts to impeach President George W. Bush for the Iraq War and the campaign of lies used to justify it. From 2010 on, the Democrats were again in the minority, and Conyers, now in his 80s, was scarcely heard from.

Then came the degrading spectacle of #MeToo. Following the massively publicized accusations against leading Hollywood figures like producer Harvey Weinstein, Conyers was one of the first Washington politicians to be targeted and the first to be forced out. It was revealed that a former staffer had been paid $27,000 in 2015 to settle a complaint involving unwanted sexual advances. Within days, his Democratic colleagues, including leaders of the Congressional Black Caucus, threw him to the wolves.

Nothing in our long record of intransigent opposition to Conyers’ politics stopped the World Socialist Web Site from denouncing the methods used to bring about his demise. We described him as “the most prominent congressional victim of the accelerating media hysteria over charges of sexual misconduct… The longtime Detroit Democratic congressman saw his 53-year political career terminated in only 16 days…”

Republican Governor Rick Snyder refused to call a special election to fill the vacancy left by Conyers’ resignation, leaving the seat empty for nearly a year. Former state representative Rashida Tlaib won a narrow victory in the Democratic primary and now holds the seat. She declared, after Conyers’ death, that he was “our congressman forever.”

Detroit political consultant Sam Riddle was quoted in press obituaries claiming, “The streets of impoverished Detroit mourn John Conyers.” Actually, by the time of his death, and likely many years before, impoverished Detroiters had little use for John Conyers. He was one more political representative of corporate America, more “radical” in his rhetoric than most, but a diehard defender of the capitalist system that is the root cause of poverty, social inequality, racial discrimination and war.

 

The author also recommends:

John Conyers forced to resign from Congress as sex witch-hunt escalates

[6 December 2017]