by: Neil George, By George! Daily, April 9.2004
The markets might be mostly closed today for the holiday, but that doesn't mean the world's events aren't affecting your portfolio.
The trouble is that, while we might have a holiday to look forward to, the masters of the market universe are still out there seeking to enrich themselves--often at our expense.
Let's take a gander at the battle to protect large and small US corporations' pension funds. For the last many months, a debate has raged over how to deal with underfunded pension fund liabilities at an enormous amount of companies--amounting to billions of dollars.
Here's the problem: While regulations should force companies to top-up pension funds, many of the lobbyists for those same companies have been spending that same money working on Capitol Hill in order to keep the rules from being enforced.
Last night the Senate concluded its work on a resolution to help out their corporate pals, all at the potential expense of pension beneficiaries and, of course, taxpayers.
The deal is this: Companies will be enabled to use new mathematical formulae to both exaggerate pension investment returns and artificially reduce the true value of current and future liabilities. The combination will allow companies to close the gap between the liabilities and assets of their pension funds. But only on paper.
Wait, it gets better.
The deal will also allow companies--at least the big ones--to put off making needed contributions to their pension funds, all so that they can continue to report inflated earnings for the next several quarters. This ignores the black holes on their balance sheets for investors and pension regulators.
The liability issue is a big deal for a few reasons. First, it allows shareholders to be more easily duped into thinking that their companies are truly profitable. Second, if the companies go belly-up or simply reorganize in bankruptcy court, workers with pension benefits could see their benefits severely cut back as the Public Pension Guarantee Corp--a government corporation that insures pension funds--put limitations on benefits. This limitation is often much lower than what many, if not most pension funds, have promised beneficiaries.
Third, if these companies do dump off their pensions onto the public insurer, then we as taxpayers will be left footing the bills. After all, the insurers' coffers are in real jeopardy now and won't be able to deal with any future problems.
Beyond the pension issue is corporate taxes. You've seen that, according to the General Accounting Office (GAO) and Internal Revenue Service (IRS) records for the years during the last administration, more than 60 percent of all corporations in the US paid no, or almost no, income tax. And companies abroad that paid little or no US taxes amounted to an even higher percentage.
So much for fiscal responsibility.
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