September 16, 2019

Today’s Economist: Casey B. Mulligan: The Health-Care Law and Retirement Savings

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Casey B. Mulligan is an economics professor at the University of Chicago. He is the author of “The Redistribution Recession: How Labor Market Distortions Contracted the Economy.”

Because of its definition of affordability, beginning next year the Affordable Care Act may affect retirement savings.

Today’s Economist

Perspectives from expert contributors.

Employer contributions to employee pension plans are exempt from payroll and personal income taxes at the time that they are made, because the employer contributions are not officially considered part of the employee’s wages or salary (employer health insurance contributions are treated much the same way). The contributions are taxed when withdrawn (typically when the worker has retired), at a rate determined by the retiree’s personal income tax situation.

Employees are sometimes advised to save for retirement in this way in part because the interest, dividends and capital gains accrue without repeated taxation. In addition, people sometimes expect their tax brackets to be lower when retired than they are when they are working.

These well-understood tax benefits of pension plans will change a year from now if the act is implemented as planned. Under the act, wages and salaries of people receiving health insurance in the law’s new “insurance exchanges” will be subject to an additional implicit tax, because wages and salaries will determine how much a person has to pay for health insurance.

While much about the Affordable Care Act is still being digested by economists, they have long recognized that high marginal tax rates lead to fringe benefit creation. And the Congressional Budget Office has concluded that the act will raise marginal tax rates.

Were an employer to reduce wages and salaries (or fail to increase them) and compensate employees by introducing an employer-matching pension plan, the employee is likely to benefit by receiving additional government assistance with his health-insurance costs. The pension contributions will add to the worker’s income during retirement, except that the income of elderly people does not determine health-insurance eligibility to the same degree, because the elderly participate in Medicare, most of which is not means-tested.

Take, for example, a person whose four-member household would earn $95,000 a year if his employer were not making contributions to a pension plan or did not offer one. He would be ineligible for any premium assistance under the Affordable Care Act because his family income would be considered to be about 400 percent of the poverty line.

If instead the employer made a $4,000 contribution to a pension plan and reduced the employee’s salary so that household income was $91,000, the employee would save the personal income and payroll tax on the $4,000 and would become eligible for about $2,600 worth of health-insurance premium assistance under the act. (The employer would come out ahead here, too, by reducing its payroll tax obligations).

Even though the Affordable Care Act is known as a health-insurance law, in effect it could be paying for a large portion of employer contributions to pension plans. This has the potential of changing retirement savings and the relative living standards of older and working-age people.

Article source: http://economix.blogs.nytimes.com/2013/01/30/the-health-care-law-and-retirement-savings/?partner=rss&emc=rss

Economix Blog: Casey B. Mulligan: The Health-Care Law and Retirement Savings

DESCRIPTION

Casey B. Mulligan is an economics professor at the University of Chicago. He is the author of “The Redistribution Recession: How Labor Market Distortions Contracted the Economy.”

Because of its definition of affordability, beginning next year the Affordable Care Act may affect retirement savings.

Today’s Economist

Perspectives from expert contributors.

Employer contributions to employee pension plans are exempt from payroll and personal income taxes at the time that they are made, because the employer contributions are not officially considered part of the employee’s wages or salary (employer health insurance contributions are treated much the same way). The contributions are taxed when withdrawn (typically when the worker has retired), at a rate determined by the retiree’s personal income tax situation.

Employees are sometimes advised to save for retirement in this way in part because the interest, dividends and capital gains accrue without repeated taxation. In addition, people sometimes expect their tax brackets to be lower when retired than they are when they are working.

These well-understood tax benefits of pension plans will change a year from now if the act is implemented as planned. Under the act, wages and salaries of people receiving health insurance in the law’s new “insurance exchanges” will be subject to an additional implicit tax, because wages and salaries will determine how much a person has to pay for health insurance.

While much about the Affordable Care Act is still being digested by economists, they have long recognized that high marginal tax rates lead to fringe benefit creation. And the Congressional Budget Office has concluded that the act will raise marginal tax rates.

Were an employer to reduce wages and salaries (or fail to increase them) and compensate employees by introducing an employer-matching pension plan, the employee is likely to benefit by receiving additional government assistance with his health-insurance costs. The pension contributions will add to the worker’s income during retirement, except that the income of elderly people does not determine health-insurance eligibility to the same degree, because the elderly participate in Medicare, most of which is not means-tested.

Take, for example, a person whose four-member household would earn $95,000 a year if his employer were not making contributions to a pension plan or did not offer one. He would be ineligible for any premium assistance under the Affordable Care Act because his family income would be considered to be about 400 percent of the poverty line.

If instead the employer made a $4,000 contribution to a pension plan and reduced the employee’s salary so that household income was $91,000, the employee would save the personal income and payroll tax on the $4,000 and would become eligible for about $2,600 worth of health-insurance premium assistance under the act. (The employer would come out ahead here, too, by reducing its payroll tax obligations).

Even though the Affordable Care Act is known as a health-insurance law, in effect it could be paying for a large portion of employer contributions to pension plans. This has the potential of changing retirement savings and the relative living standards of older and working-age people.

Article source: http://economix.blogs.nytimes.com/2013/01/30/the-health-care-law-and-retirement-savings/?partner=rss&emc=rss

Bank Data-Theft Suspect Allowed Out of Jail

The former employee, Hervé Falciani, a French-Italian citizen, was arrested in July in Barcelona on an international warrant after the Swiss accused him of stealing the data and breaching the country’s banking secrecy laws. He had previously fled Switzerland for France, which bought the data from Mr. Falciani and distributed relevant parts of it to countries including Germany, Spain and the United States.

The National Court ordered Mr. Falciani’s release from a Madrid jail because he had already been held there for several months and it could still take a considerable length of time to rule on the extradition request. Mr. Falciani will have to report to the Spanish police every three days and his passport has been confiscated.

Mr. Falciani is alleged to have stolen the customer data five years ago, while working in the information technology department of HSBC’s private banking subsidiary in Geneva.

Switzerland’s extradition request presented a dilemma for Spain, given that the Spanish authorities had used the HSBC data against holders of secret bank accounts including Emilio Botín, the chairman of Banco Santander, and 11 relatives.

The National Court eventually closed the case against the Botíns without filing any charges because the family had normalized its tax situation before the fraud investigation was announced. People close to the family said the Botíns paid about €200 million, or $265 million, in back taxes.

Article source: http://www.nytimes.com/2012/12/19/business/global/bank-data-theft-suspect-allowed-out-of-jail.html?partner=rss&emc=rss

Top Spanish Banker Faces Inquiry on Tax Charges

The national court in Madrid said it had agreed to hear an investigation by antifraud prosecutors from the Spanish tax agency into past income tax returns filed by Mr. Botín and his relatives.

The tax agency said the inquiry dated to May of last year, when Spain received a list of undeclared Swiss bank accounts, which was initially handed over to France by a former information technology specialist at HSBC.

Jesús Remón, a lawyer for the Botín family, said Thursday that the Botíns expected the court to resolve the case “quickly and satisfactorily” because “the family has voluntarily and completely normalized its tax situation and is compliant with all its tax obligations.”

A person with knowledge of the situation, who spoke on condition of anonymity, said the family had paid about 200 million euros, or $283 million, in back taxes over the last year.

Mr. Botín has been a dominant figure on the Spanish corporate scene for 25 years. He has transformed his bank into one of Europe’s largest, with significant investments in Brazil, Britain and the United States, where Santander owns Sovereign Bank.

The investigation comes at a particularly difficult time for Spanish banks, as they struggle with record borrowing costs and loan defaults after the collapse of the country’s real estate sector.

Spain has been part of a group of euro zone countries with troubled economies that has been in investors’ line of fire for more than a year. The yield differential, or spread, between Spanish and German government bonds climbed back to its highest in a decade on Thursday, a sign of investor nervousness about the implications for Spain of a possible financial and political collapse in Greece.

Because of its formidable assets outside Spain, particularly in the booming Brazilian market, Santander has weathered the financial crisis better than many of its Spanish counterparts.

The court announcement preceded a shareholders meeting on Friday in Santander, the northern Spanish city where the bank originated.

The tax agency emphasized that it had pursued court action because a statute of limitations will expire on June 30, jeopardizing its ability to examine some of the oldest tax data.

Among the family members being investigated are Mr. Botín’s daughter, Ana Patricia Botín, who is in charge of Santander’s British business, and Mr. Botín’s brother Jaime, a major shareholder in Bankinter, another leading Spanish institution.

Bankers in Spain did not want to comment for the record on an issue under judicial investigation, but many expressed astonishment about accusations that Mr. Botín was linked to the undeclared Swiss accounts in the HSBC file. Mr. Botín’s stature in Spain is such that his rare pronouncements on the Spanish economy can eclipse those of politicians in the national media.

The case dominated the conversation Thursday at an industry gathering in Madrid at which a prize was being awarded to Francisco González, the chairman of BBVA, Santander’s main Spanish rival.

The person familiar with the Botín situation, who spoke on condition of anonymity, said the family’s dealings with HSBC dated to 1937, when Mr. Botín’s father, Emilio, opened an account in Switzerland after the start of the Spanish Civil War when he left Spain for London. The elder Mr. Botín died in 1993; according to this person, his son and other heirs were told only last year by the Spanish authorities of the money kept in Switzerland.

The HSBC list included 569 Spanish clients. Its disclosure allowed Spain to recoup about 300 million euros, or $426 million, in previously undeclared tax revenue last year, according to the head of the tax agency, Juan Manuel López Carbajo. That amount is expected to increase this year because of outstanding cases involving some of the largest Spanish holders of secret accounts at the Swiss private banking subsidiary of HSBC.

Leadership problems at Santander surfaced this year after a court ruled against Alfredo Sáenz, the chief executive of Santander and Mr. Botín’s second in command, for making false claims in the 1990s against debtors to Banesto, a troubled bank that was eventually taken over by Santander. The ruling also prohibited Mr. Sáenz from banking for three months, but he has remained in the job pending the outcome of an appeal.

Mr. Botín, 76, has been chairman of Santander since 1986 but has shown little inclination toward finding a successor. “See you at the next acquisition,” is how he famously ended a presentation to analysts in London after buying Abbey National, a leading British mortgage lender, in 2004.

Since then, he has actually accelerated Santander’s expansion during the financial crisis to take advantage of falling valuations and help offset a weakening domestic market. Recent acquisitions have expanded Santander’s presence in markets like Mexico, Germany and Poland.

Mr. Botín is not the first prominent corporate leader to be a target of Spanish antifraud prosecutors. Two years ago, César Alierta, the chairman of Telefónica, was cleared after a lengthy investigation into accusations of insider trading. A court rejected the charges because it judged that too much time had elapsed between the suspected crime and the start of court proceedings.

Article source: http://www.nytimes.com/2011/06/17/business/global/17santander.html?partner=rss&emc=rss