Trump’s idea on changing Social Security funding has the potential to break an impasse on much-needed reforms


President Trump has proposed a dramatic change to how Social Security is financed. But Trump’s controversial proposal to fund Social Security with income taxes rather than payroll taxes opens the door to reforms that both Democrats and Republicans might support.

On Aug. 8, President Trump issued an executive order that would temporarily defer the collection of Social Security payroll taxes through the end of the year, meaning that these taxes wouldn’t be owed until Americans file their tax returns in April 2021.

But President Trump made clear in an Aug. 12 news conference that his real goal is to replace the Social Security payroll tax with revenues drawn from the general tax fund, the vast majority of which is income taxes. This idea faces both practical and philosophical hurdles, but could help the political parties finally come together to fix Social Security.

Read:Paul Brandus says this is one Trump tax cut you really don’t want

The first problem with funding Social Security via income taxes is obvious: the federal budget is already in deficit, which means there isn’t room to fund Social Security with general revenues without significantly cutting other programs or raising income taxes. And that tax increase wouldn’t be tiny. In 2019, the federal government collected about $1.7 trillion in individual income taxes, versus nearly $1 trillion in Social Security payroll taxes. Even if the President’s plan would replace only the employees’ 6.2% payroll tax, that would mean about an additional $500 billion in general tax revenues needed.

Moreover, funding Social Security with income taxes is also contrary to the program’s history, in which benefit were funded with a flat rate tax that applied to all earnings up to a maximum, which is currently $137,700 per year. The payroll tax contributed to the view that Social Security is an “earned benefit” rather than a welfare plan.

Read:This eye-opening experience has me rethinking how Social Security figures into my retirement planning

But most Democrats have already given up on the idea of truly earned benefits, since their Social Security proposals focus on lifting the payroll tax cap and making the rich carry more of the load.

Income-tax financing would simply take that idea in a more progressive direction. While about 15% of earnings accrue to employees with salaries above the $137,700 payroll tax ceiling, almost half of total income taxes are paid by households with incomes above that level. More than one-third of income taxes are paid by the top 1% alone.

But what it in it for Republicans? The answer is that an income-tax-financed safety retirement net need not be nearly as expensive as the current Social Security program. For instance, Australia’s Age Pension costs around one-fifth of what Social Security does, because it merely supplements households’ own savings to ensure a minimum standard of living in retirement. Canada and New Zealand also use income tax-financed programs to provide a strong base of retirement income.

Read:Australia’s safety net for retirees is generous and comprehensive — and complicated

For this idea to work, though, the U.S. would need to follow Australia’s lead by signing up every worker for a retirement savings account with automatic contributions. Those contributions could be funded using the payroll taxes that no longer would be needed to fund Social Security.

Once transitioned into place — which admittedly would take years — the result would be higher private savings, particularly for lower-income households, which reduces wealth inequality and boosts the economy. And while income taxes would be higher, total government spending on Social Security would be lower.

To be clear, this is my plan, not President Trump’s. But for income tax-funding of Social Security to work, for it to overcome 30 years of Congressional inaction on Social Security, it needs to think creatively and offer something to both sides. Because the traditional menu of reforms — payroll tax rate increases, higher retirement ages, lower cost-of-living adjustments and so forth — haven’t motivated Congress to action.

Follow MarketWatch’s coverage of all things Social Security here.

Andrew G. Biggs is a resident scholar at the American Enterprise Institute and former principal deputy commissioner of the Social Security Administration during the George W. Bush administration. Follow him on Twitter @biggsag.





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Trump is following the playbook of other antidemocratic strongmen— here’s how to stop him


BERLIN (Project Syndicate)—With November approaching, I am becoming ever more nervous about the U.S. presidential election. While my American friends focus on Joe Biden’s lead over President Donald Trump in opinion polls, believing deeply in U.S. democracy’s capacity for self-renewal, my own perspective as a British citizen and think-tank director has me worried.

As a Briton, I can remember watching a 20-point polling lead for “Remain” become a victory for “Leave” in the Brexit referendum four years ago. And as a think-tank director, I work closely with scholars who study how authoritarian leaders manipulate democratic systems to stay in power, as has happened in Turkey, Russia, Hungary, and Poland.


Like other authoritarian leaders, Trump is deploying a new antidemocratic politics that has yet to be fully comprehended.

In fact, it often seems as though Trump has studied the tactics pioneered by other aspiring strongmen more closely than anyone. Based on recent conversations with experts on each of these countries, I have compiled the following catalogue of dirty tricks that Trump seems to borrowing.

Weaponization of history

The first is the weaponization of history. Populist leaders promote their political platforms through polarization and social division. They do not mind alienating and insulting some voters if doing so will energize their own base. By posturing as the champions of national greatness, they want to determine who counts as authentic citizens and who does not. This practice inevitably brings history to the fore.

Whether it is Russian President Vladimir Putin invoking the Soviet victory in World War II, Turkish President Recep Tayyip Erdoğan harking back to the Ottoman Empire, Hungarian Prime Minister Viktor Orbán fixating on the Treaty of Trianon, or British Prime Minister Boris Johnson looking back to Pax Britannica, each leader has advanced a highly partisan historical narrative.

Post-truth politics

Another, related approach is what might be called post-truth politics. These leaders prefer direct communication with voters through professional propaganda videos and social media, because this allows them to dismiss inconvenient facts offered by experts.

In this media ecosystem, fact-checking has little purchase, because the people who need to hear it are not listening, or refuse to believe anything the “liberal” media says. In many democracies, fake news is now most common at the local level, where political operatives have filled the vacuum left by the decline of traditional city and regional outlets.

Run against the Deep State

A third tactic is to run against one’s own government. The term “deep state” is said to have originated in Turkey in the 1990s, but now features prominently in the lexicon for Trump, Orbán, Erdoğan, Johnson, and Poland’s de facto ruler, Jarosław Kaczyński. By blaming nameless shadowy, faceless characters behind the curtain and shadowy cabals, all these leaders have a ready excuse for all of their own failures.


It often seems as though Trump has studied the tactics pioneered by other aspiring strongmen more closely than anyone.

A fourth element in the playbook is voter suppression. Like Erdoğan’s constant attempts to disempower Kurdish voters, Trump and the Republican Party are desperate to disenfranchise African-Americans. For an incumbent would-be strongman, the need to tip the electoral scales opens the door to all kinds of attacks on democratic processes.

Hence, before Poland’s general election in May, the ruling Law and Justice (PiS) party tried to limit all voting to mail-in ballots, effectively transferring control of the election from the independent National Electoral Commission to the PiS-controlled postal service. Though this plan ultimately ran into resistance, it showed that there are countless ways for authoritarians to meddle in or subvert the process.

Not surprisingly, mail-in voting and the politicization of the U.S. Postal Service have become major issues in the election, too.

Dirty tricks

Another related device is “political technology,” a term for the dirty tricks commonly associated with post-Soviet politics. Such methods include Russia’s covert backing of third-party candidates like Jill Stein in the 2016 U.S. presidential election; Kompromat, or compromising material (epitomized by the search for dirt on Biden in Ukraine); and simply declaring victory before the votes are counted.

In the case of the United States, if Trump declares victory before all postal mail-in ballots have arrived, Republican-controlled legislatures in key states could end the counting early to lock in that outcome.

An incumbent authoritarian can also engage in various forms of “lawfare,” using law enforcement or compliant courts to facilitate gerrymandering, voter suppression, coverups, and other violations of the democratic process.

Here, one of the biggest advantages is the ability to control the timing of events or the release of politically damaging information.

Many people still believe that then-FBI Director James Comey’s announcement of a new probe into Hillary Clinton just days before the 2016 election tipped the outcome in Trump’s favor. Now, the Department of Justice is run by Attorney General William Barr, a man who has shown no compunction about politicizing independent law-enforcement agencies on Trump’s behalf.

Law and order

Another common authoritarian tactic is to play the “law-and-order” card. By tarring the Black Lives Matter protests as an outpouring of violent “urban” hooliganism, Trump is reprising the racial politics used by former Republican presidents since Richard Nixon, but by Erdoğan more recently, during the Gezi Park protests in 2013.

The problem for the Democrats in the U.S., and democrats everywhere, is that all these techniques tend to become more effective the more they are called out.

Fact-checking fake news can inadvertently spread misinformation more widely. Warnings about voter suppression can become self-fulfilling prophecies if enough people conclude that the process is rigged and not worth participating in. Challenging violations through the courts creates the impression of an end run around democracy.

To avoid these effects, the project of corrupting democracy needs to be clearly identified, named, and analyzed through a new lens.

There is a world of difference between the political subterfuge outlined above and the outright falsification of election results, as happened last month in in Belarus. Nicu Popescu, a former Moldovan foreign minister who is now at the European Council on Foreign Relations, contends that autocracy is not the right term to describe the phenomenon. Rather, “it is the “degradation, corrosion, and deconsolidation of democracy.”

In any case, if Trump were Moldova’s president, one assumes that the European Union would be calling him out for his dirty tricks. Any such criticism from abroad would almost certainly be counterproductive. But it may help to put the current American experience in a wider context, so that democratic forces can see Trump more clearly.

Ultimately, the only way to defeat Trump is through politics. The task for the Democrats is to remind Americans what democracy is for—and, one hopes, to counter Trump’s tactics effectively.

Mark Leonard is director of the European Council on Foreign Relations.

This article was published with permission of Project SyndicateTrump’s Dirty Tricks.



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Indiana’s alternative to vote by mail: 28 days of early in-person voting


In Indiana, we keep it simple. Our state makes it easy to vote and hard to cheat. This year, we’ve been hearing a lot about vote-by-mail states. I want to highlight our state’s alternative process of early, in-person voting because in Indiana, we don’t just do Election Day, we have an election month.

It’s not surprising that there has been a significant focus on mail-in ballots this year as many of us have reduced our outings to help flatten the COVID-19 curve. And while voting by mail is a safe process, early voting is a popular alternative.

Indiana voters have access to 28 days of early, in-person voting prior to Election Day, one of the longest early voting periods in the nation. Every county election office is required to offer early, in-person voting, including weekend hours, and many counties opt for additional early voting locations.

The process is simple, and in the last presidential election, almost a third of Indiana voters voted early, in person.

Voting early and in person provides the satisfaction of voting at the ballot box, but avoids the lines that can occur on Election Day. Because many counties have multiple early voting options, voters are usually able to cast their ballot in a matter of minutes. Voters also have the confidence that their ballot was received and logged by the election office, rather than sending their ballot through the postal service where they may have to wait several days before receiving confirmation.

I encourage Indiana voters to vote early and in person if possible. Election offices have been equipped with personal protective equipment and because of the short lines during early voting, social distancing is easy.

I often get asked if people vote early, how do you ensure they only cast one ballot? Rest assured, we have safeguards and procedures in place to ensure the integrity of our election. Many counties use electronic poll books that update in real time, allowing election workers to see who has requested to vote by mail and who has already voted in person.

In addition, we track this information in our statewide voter registration system. Each county tracks early voting closely, so fraudsters can’t vote more than once.

I realize that everyone can’t go to the polls and they may be uncomfortable with mailing their ballot. Indiana voters who are ill or confined may request to vote by traveling board. In these cases, one Republican and one Democrat go to the voter and allow them to cast a ballot. This option is often favored by those who are less mobile or live in a retirement community.

Indiana’s 92 county clerks and their staff do a tremendous job of safeguarding our votes and providing alternative in-person voting options. Through their tireless efforts, we are again approaching Election Day with confidence, knowing that our carefully constructed systems are operating as designed.

I encourage other states to look at the Indiana model as an efficient and effective way to provide an alternative to in-person, Election Day voting. The pandemic has forced Americans to review many processes and procedures, and voting is no different. I hope that early, in-person voting is an option that we can all look to embrace.

Also read:Oregon’s key lessons on voting by mail — after 2 decades of only voting that way

Connie Lawson is Indiana’s secretary of state.



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The Trump administration wants to discourage your 401(k) from including ESG investment options


Two proposed rulemakings from the Labor Department in the past eight weeks would largely gut sustainable investing options and strategies in retirement plans. These proposals would reverse the Labor Department’s 2015 and 2016 guidance while ignoring the growing consensus among academics, retirement plan fiduciaries and professional money managers that responsible companies are likely to outperform over the long haul.

The first measure, “Financial Factors in Selecting Plan Investments,” now in the late stages of the approval process, would discourage 401(k) and other qualified retirement plans from offering funds from managers that consider environmental, social and governance (ESG) factors in their due diligence.

The proposal establishes burdensome requirements for analysis and documentation around inclusion of ESG options. The Labor Department currently has no such requirements for any other kinds of funds.

Support for the measure has been decidedly underwhelming. A group of investor organizations and financial firms analyzed the more than 8,700 public comments on the proposed rule and found that only 4% of comments expressed support. Some 95% of the comments — across individuals, investment-related groups and non-investment-related groups — were strongly opposed, and 1% expressed neutral views or didn’t clearly express support or opposition.

The 30-day public comment period ended on July 30 and the Labor Department is likely to implement the proposal before the end of the year.

The second proposal, “Fiduciary Duties Regarding Proxy Voting and Shareholder Rights,” which was announced at the end of August, would restrict the ability of retirement plans to hold company leadership accountable through proxy voting. It alleges that proxy measures are onerous for public companies.

A fundamental misunderstanding

The reasoning betrays a fundamental misunderstanding of how financial professionals consider ESG criteria in their investments and how proxy voting practices enhance long-term value of investments. Because of inconsistent corporate disclosure rules, investors often file proxy proposals to receive relevant ESG information.

Both proposals represent a solution in search of a problem. They imply that investment managers and plan fiduciaries promote social goals over sound investment analysis, but proponents fail to cite a single instance that this has happened or any related enforcement actions they have taken.

Moreover, the agency doesn’t acknowledge any of the dozens of studies that demonstrate that consideration of ESG issues may lead to better investment outcomes. Morningstar found that during the stock collapse in the first quarter of 2020, all but two of 26 ESG indexes suffered fewer losses than their conventional counterparts. Studies of longer periods from Morgan Stanley and MSCI have found no financial trade-off in the returns delivered by ESG funds relative to traditional funds. Additionally, a 2018 report from the Government Accountability Office (GAO) reported that 88% of the academic studies it reviewed found a neutral or positive relationship between the use of ESG information and financial performance.

Setting aside the academic debates over ESG, the market has already spoken. As of 2018, more than one of every four dollars under professional management was invested using ESG criteria, according to the US SIF Foundation’s 2018 Report on U.S. Sustainable, Responsible and Impact Investing Trends. Morningstar has reported that in 2020, flows into sustainable funds outpaced traditional funds.

Read:Sustainable-investing flows have smashed records in 2020. What’s going on?

Far from making a concession to ESG, professional money managers increasingly analyze ESG factors precisely because of risk, return and fiduciary considerations. They know that bad policies and practices can harm companies’ reputations, affect consumers and lead to stock-price declines. Climate change is widely recognized as an environmental and financial risk for companies. Similarly, companies that fail to promote racial equity face real and meaningful challenges.

Investors are coming to recognize that companies with better policies and practices and more robust corporate governance will outperform over the long term. A 2018 US SIF Foundation survey of U.S. sustainable investment money managers with aggregated assets of more than $4 trillion found that three-quarters of the respondents employ ESG criteria to improve returns and minimize risk over time, and 58% cited their fiduciary duty as a motivation.


In 2020, flows into sustainable funds outpaced those into traditional funds.

The Labor Department’s proposals would largely supplant an existing regulatory regime that was already working. In 2015 and 2016, President Obama’s Labor Department carefully considered these issues and issued Interpretive Bulletins clarifying that fiduciaries of ERISA-governed retirement plans “do not need to treat commercially reasonable investments as inherently suspect or in need of special scrutiny merely because they take into consideration environmental, social, or other such factors.” The second Interpretive Bulletin recognized that shareholder rights, including voting proxies, are important to long-term shareholder value and consistent with fiduciary duty.

These new proposals are not taking place in a vacuum. They are part of the Trump administration’s broader effort to generate barriers to investment practices that have a focus on environmental, social or governance issues. The Securities and Exchange Commission is currently seeking to create its own barriers on this topic, including the role of proxy voting firms, fund names and shareholder rights.

By tipping the scales against consideration of ESG criteria when selecting investments and against the use of proxies to encourage better governance and better disclosure, the Labor Department proposals prevent plan sponsors from fulfilling their fiduciary obligation. It should retain current practices related to the utilization of ESG criteria and proxy voting.

Lisa Woll is CEO of US SIF: The Forum for Sustainable and Responsible Investment. Follow her @LisaWoll_USSIF. Judy Mares is former deputy assistant secretary in the Labor Department.





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This analysis of Wall Street stock ratings is sounding a warning for Tesla and 62 other stocks


In the financial media, “Wall Street” typically means U.S. brokerage firms and often the analysts who work for them. They are known as “sell-side analysts.” They work independently of the firms’ sales teams, but there’s no question that Wall Street’s job is to sell stocks. So when you see a high level of “sell” ratings on a stock, take heed.

Tesla Inc.
TSLA,
+2.78%

is the poster child for high-flying stocks during this pandemic year. The electric-car company’s shares are up 435% this year and 891% in the past 12 months. And as the shares have shot up, many analysts have continually increased their price targets.

But not all of them have kept doing so. And now, among 37 sell-side analysts polled by FactSet, eight rate the shares the equivalent of a “buy,” while 11 rate them the equivalent of a “sell.” The shares closed at $447.37 on Sept. 2. The consensus price target among those analysts is $284.97, implying 36% downside for the shares.

Tesla is not yet included in the benchmark S&P 500 Index
SPX,
-0.81%
,
although it is expected to be added soon. It is rare for any S&P 500 stock to have majority “sell” ratings, and none do at this time. But a quick look shows 33 stocks with “sell” ratings outweighing “buy” ratings.

Expanding to the Russell 1000 Index
RUI,
-0.85%

of the largest 1,000 publicly traded companies listed in the U.S. by market capitalization (including Tesla and subject to changes when stocks plunge), there are four companies with majority “sell” ratings.

Among the Russell 1000, there are 63 companies with “sell” ratings outweighing “buy” ratings. Here they are, sorted by market capitalization:

Company

Ticker

Share ‘buy’ ratings

Share ‘sell’ ratings

Market cap. ($ millions)

Total return – 2020 through Sept. 2

Tesla Inc.

TSLA,
+2.78%
22%

30%

416,863

435%

Exxon Mobil Corp.

XOM,
-0.07%
12%

20%

165,704

-41%

Illinois Tool Works Inc.

ITW,
-0.37%
13%

22%

63,849

14%

Public Storage

PSA,
-0.37%
13%

27%

37,436

3%

Southern Copper Corp.

SCCO,
+0.81%
15%

54%

37,092

16%

Walgreens Boots Alliance Inc.

WBA,
-0.53%
5%

9%

32,209

-35%

WEC Energy Group Inc.

WEC,
+0.13%
15%

38%

30,726

8%

Paychex Inc.

PAYX,
-0.36%
10%

19%

27,988

-6%

Hormel Foods Corp.

HRL,
+0.17%
8%

23%

27,698

15%

ResMed Inc.

RMD,
-2.41%
22%

33%

26,517

19%

McCormick & Co. Inc.

MKC,
-1.05%
17%

33%

26,001

25%

Brown-Forman Corp. Class B

BF.B,
+0.97%
6%

33%

24,715

19%

Consolidated Edison Inc.

ED,
+0.88%
6%

35%

24,161

-18%

Mettler-Toledo International Inc.

MTD,
-1.42%
0%

25%

24,095

27%

Equity Residential

EQR,
+1.23%
21%

26%

21,473

-27%

Expeditors International of Washington Inc.

EXPD,
-0.84%
7%

36%

15,218

17%

Avangrid Inc.

AGR,
+0.55%
9%

36%

14,968

-3%

Tiffany & Co.

TIF,
-0.31%
0%

7%

14,854

-8%

J.M. Smucker Co.

SJM,
-0.56%
6%

17%

13,786

19%

FactSet Research Systems Inc.

FDS,
-1.97%
0%

44%

13,452

33%

Waters Corp.

WAT,
-1.39%
0%

38%

13,442

-7%

C.H. Robinson Worldwide Inc.

CHRW,
+0.29%
18%

23%

13,438

29%

Jack Henry & Associates Inc.

JKHY,
-1.52%
10%

20%

13,113

18%

Cognex Corp.

CGNX,
-5.22%
22%

28%

12,376

28%

Brown-Forman Corp. Class A

BF.A,
+0.31%
6%

35%

12,170

15%

CenturyLink Inc.

CTL,
-0.09%
13%

44%

11,985

-11%

Ubiquiti Inc.

UI,
+0.13%
25%

75%

11,942

0%

Omnicom Group Inc

OMC,
-0.38%
25%

33%

11,588

-32%

Occidental Petroleum Corp.

OXY,
-2.70%
12%

19%

11,534

-68%

Lennox International Inc.

LII,
-0.42%
12%

29%

11,009

19%

Franklin Resources Inc.

BEN,
-1.02%
0%

43%

10,784

-14%

Carnival Corp.

CCL,
+5.40%
5%

20%

10,037

-67%

Western Union Co.

WU,
-0.86%
10%

29%

9,852

-9%

Allegion PLC

ALLE,
-0.74%
0%

9%

9,666

-15%

CNA Financial Corp.

CNA,
-0.34%
0%

25%

8,766

-22%

Watsco Inc.

WSO,
-0.95%
11%

22%

8,161

42%

Beyond Meat Inc.

BYND,
-3.06%
22%

30%

8,099

72%

Gap Inc.

GPS,
-0.90%
13%

17%

6,870

5%

Vornado Realty Trust

VNO,
+1.46%
15%

23%

6,830

-44%

Credit Acceptance Corp.

CACC,
+0.42%
0%

33%

6,807

-13%

American Airlines Group Inc.

AAL,
+1.87%
20%

45%

6,728

-54%

Grubhub Inc.

GRUB,
-0.77%
0%

4%

6,629

48%

Commerce Bancshares Inc.

CBSH,
+1.86%
0%

40%

6,599

-12%

Continental Resources Inc.

CLR,
-1.81%
10%

16%

5,992

-52%

Comerica Inc.

CMA,
+2.54%
19%

23%

5,587

-42%

Invesco Ltd.

IVZ,
+2.24%
11%

28%

4,881

-38%

Cullen/Frost Bankers Inc.

CFR,
+2.79%
20%

47%

4,403

-26%

Rayonier Inc.

RYN,
-2.17%
14%

29%

4,109

-6%

Xerox Holdings Corp.

XRX,
+1.52%
13%

25%

3,992

-48%

Unum Group

UNM,
+8.21%
9%

18%

3,802

-33%

Hawaiian Electric Industries Inc.

HE,
+0.20%
0%

67%

3,750

-25%

Antero Midstream Corp.

AM,
-1.63%
11%

22%

2,979

-2%

Brighthouse Financial Inc.

BHF,
+6.15%
9%

27%

2,865

-21%

Teradata Corp.

TDC,
-0.70%
14%

21%

2,611

-11%

Mercury General Corp.

MCY,
+0.17%
0%

50%

2,526

-3%

Trinity Industries Inc.

TRN,
+1.79%
17%

33%

2,469

-3%

Nordstrom Inc.

JWN,
+2.77%
14%

18%

2,448

-61%

Taubman Centers Inc.

TCO,
+1.24%
0%

11%

2,357

25%

Park Hotels & Resorts Inc.

PK,
+6.64%
7%

36%

2,300

-60%

Sabre Corp.

SABR,
+2.98%
22%

33%

2,253

-67%

First Hawaiian Inc.

FHB,
+1.12%
25%

50%

2,133

-41%

Associated Banc-Corp

ASB,
+2.79%
0%

10%

2,096

-36%

Chesapeake Energy Corp.

CHKAQ,
+2.36%
0%

100%

46

-97%

Source: FactSet



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