President’s Quarterly Report
As you know, the Institute’s leadership has been outspoken about the urgent need for the U.S. government to take a sounder fiscal approach, ending this era of debt and deficit excess.
We’re heartened that Congress and the White House ultimately reached an agreement to avoid the January 1 “fiscal cliff.” Nonetheless, it is clear that much more remains to be done to restore America’s fiscal soundness without damaging the economy or undercutting our ability to address pressing national needs.
Last month, I was proud to join many of ICI’s Governors, including several independent directors, in a letter conveying this message once again to every member of the U.S. Congress and to President Barack Obama.
In the words of that letter: “Investors, markets, the economy—indeed, all Americans—are best served if the Administration and Congress incorporate in their deliberations a clear path toward reforms of both the tax code and major spending programs. These actions are vital to getting our nation’s fiscal house in order and setting our economy on a course for stronger growth. We recognize that these challenges will necessitate bold, bipartisan decisions about the future of both federal outlays and revenues.”
There are no easy answers here, and we must accept that getting America back on track fiscally will require change, even sacrifice. We should affirm equally, however, that remedies chosen now to confront America’s fiscal challenge should not wreak long-term havoc.
The latter proposition is particularly clear in the context of a key national priority: helping Americans achieve retirement security. America’s fiscal challenges have led some to contemplate an alarming course reversal on the policies that help ensure retirement security for working Americans. In the hunt for revenue, Washington could target the tax deferral on compensation Americans set aside for retirement.
Indeed, in the fiscal cliff agreement, lawmakers included $12 billion in revenue they expect to reap from a provision that allows more 401(k) savers to convert part of their account balances to Roth 401(k)s—voluntarily paying taxes now that otherwise would be deferred until retirement. While that change brings additional flexibility to retirement planning, it raises concerns that Congress and the White House may consider tapping retirement savings further to help meet budget targets.
That approach would be shortsighted at best. Remember, most of the incentives offered for retirement savings involve deferring taxes into retirement—not eliminating taxes. Whatever revenues might be gained today by reducing the incentives for retirement savings would be largely offset in time by loss of revenues later. But reducing these incentives would send a harmful signal to American workers hoping to save for a secure retirement and their employers, discouraging both the creation of retirement savings plans and participation in them.
Policymakers must not make this mistake. America’s retirement system, an edifice built painstakingly over the course of decades, is serving the nation well. Thanks to the mutually reinforcing components of Social Security, homeownership, defined benefit plans, defined contribution plans, individual retirement accounts, and personal savings, successive generations of American retirees have been better off than previous generations.
To scrap savings incentives would undermine this edifice’s foundation, risking wider damage. It also would run contrary to the overwhelming support that Americans show in favor of preserving current tax incentives to encourage retirement saving.
As this debate continues, ICI will continue to marshal the facts and to urge that policymakers take sensible steps on addressing our fiscal challenge.
Rule 4.5 Developments
Last month also saw significant developments in the legal challenge filed by ICI and the U.S. Chamber of Commerce against the Commodity Futures Trading Commission’s recent amendments to its Rule 4.5, which excludes certain entities from regulation as commodity pool operators. Regrettably, the U.S. District Court for the District of Columbia upheld the CFTC’s amendments, rejecting our arguments that the CFTC’s rulemaking was arbitrary and capricious and that it violated the Administrative Procedure Act and the Commodity Exchange Act.
We plan to pursue this case. ICI and the Chamber have filed a notice of appeal and have asked the U.S. Court of the Appeals for the District of Columbia Circuit to expedite consideration of our appeal in hopes of receiving a ruling by the summer of 2013. We brought this challenge because the CFTC failed to justify the regulatory excess and added costs of its amendments to Rule 4.5, which would impose that agency’s regulatory regime atop the comprehensive regulation already applied to registered funds by the Securities and Exchange Commission. The district court’s decision, if allowed to stand, will harm the many shareholders of registered funds that will bear the costs of overlapping regulation by two agencies.
In the coming months, the Institute will keep you apprised of our activity on these matters and others as we work toward favorable policy outcomes for funds and fund investors.
In closing, let me extend ICI’s and my personal best wishes to each of you for a bright and prosperous 2013.
/s/ Paul Schott Stevens