Seven hundred and forty-four million dollars. That is the amount of Wall Street fees paid by the Maryland state pension plan for investment advice in fiscal 2021.
Over the past 10 years, the fees totaled roughly $4.5 billion, or about 15 percent of the plan’s earnings. For that kind of money, you would think the state gets only the prime stock and bond picks from its advisers, but, during that time, Maryland, as with most other states, failed to beat the returns of a simple 60 percent stocks/40 percent bonds index. Many large institutional investors, including public pension plans, use this 60/40 index as a barometer to gauge their portfolios’ results. They structure their portfolios to avoid a 100 percent exposure to the sometimes volatile stock market. If their results are better than the index for a given year, they claim success. Many mutual funds attract smaller individual retail and 401(k) retirement accounts by copying the index and charging low fees for passive management.
This drainage damages the financial security of public workers in Maryland and other states, and it forces greater taxpayer contributions to the plans. The ongoing situation has a secondary effect as well: The massive wealth transfer — from public workers and average taxpayers — to a small coterie of Wall Street money managers fosters a new plutocracy, successful at obscuring the problem and blocking reform.
The obvious fix for public plans is to shift from expensive fee investments to low-fee indexing, a tactic endorsed by none other than Warren Buffett, the noted value investor and philanthropist. For large public plans, including Maryland’s, this shift, if implemented, would be gradual. Extricating the fund from its long-term contractual commitments and replacing them with passive investments is going to take time.
Maryland’s Legislature recently overrode a gubernatorial veto and enacted a new tax on digital advertising — the first of its kind among the states. It was inevitable that somebody would break the ice. Last August, I explored the revenue implications for states and localities of a federal tax on interstate digital commerce. Globally, the COVID-19 pandemic has accelerated business migration to Internet platforms, making this the new frontier for tax policy.
Maryland legislators deserve credit for planting their semi-checkered state flag first, to stake their claim, but they are still far from the finish line. Anti-tax wonks point to a host of possible legal snags that could tie up the Maryland tax for some time. They complain that it’s unduly vague, imprecisely crafted, and invites double taxation. The social media goliaths are already protesting that it’s unconstitutional under the commerce clause, which gives Congress supreme authority to regulate interstate business. To salvage its tax, Maryland may find it necessary to make defensible amendments that can withstand judicial scrutiny. But rather than going it alone, the state could use some help from its peers eyeing digital ad taxes of their own.
States have been called the laboratories of democracy, and rightfully so. However, when it comes to national and international commercial activity that sweeps across state lines through complex multi-party transactions, let’s face it: Heterogeneity and administrative complexity are not desirable outcomes. Fifty separate labs tinkering with different tax formulas will drive companies nuts.
With Maryland’s state pension fund nearly $20 billion in the red, a new statewide survey from the Maryland Public Policy Institute reveals that a large majority of voters are concerned about the state’s ability to fund pension benefits for public employees. The survey of more than 500 registered Maryland voters gauged public sentiment on the health of the state pension system and found that two-thirds of Marylanders are worried that the state will have to raise taxes to ensure adequate funding. Read the full survey at mdpolicy.org.
More than 400,000 former and current state employees depend on the Maryland State Retirement and Pension System, yet the system suffers from a $20.1 billion shortfall – or approximately $15,000 per Maryland resident.
Publication Date: 22 March 2021
Publication Site: Maryland Public Policy Institute
Christopher Summers, a public policy expert at the Maryland Public Policy Institute, says the pandemic only complicates financial matters for a city reeling from financial troubles long before the pandemic’s nearly one-year grip.
One example includes a study by the non-profit “Truth in Accounting” released in January last year. The study gave Baltimore a grade of “D,” saying the city fell $2 billion short of paying its bills.
At the time, former Mayor Jack Young called the city fiscally sound and said the study was wrong.
Thought leaders in Connecticut are making waves with progressive revenue solutions of their own. Connecticut Voices for Children released a major report in December, highlighting several tax policy options with the potential to “ensure that Connecticut’s tax system works to advance economic justice rather than continue to contribute to economic injustice.” Those options include: income tax increases on households with incomes over $500,000 ($1 million for couples) that could raise $504 million to $1.72 billion per year; estate tax improvements to reverse cuts and raise $108-162 million per year; a surcharge on capital gains and other similar income to raise $167-334 million per year; and a mansion tax on homes valued over $1.5 million that could raise $331-663 million. These ideas are already being reflected in bills to be considered by lawmakers this year.
Author(s): Dylan Grundman O’Neill
Publication Date: 4 February 2021
Publication Site: Institute on Taxation and Economic Policy
The Maryland/West Virginia gap is one of many such anomalies across the country. Why has North Dakota managed to use 85% of the doses it has received for inoculations compared to 49% for Massachusetts? Why does New Mexico have an inoculations/doses received ratio of 77%, versus just 43% for Virginia? What differences of institutions, strategies, and leadership explain these gaps?