Fresh White House Opposition

[Boomer]

If Major US Companies are allowed to continue to underfund their pension liabilities for two more years, the problem will only grow larger in those two years.

A Major part of the problem is the unrealistic "assumed return" these pension funds project for future years.

My CompAAny went from projecting a 9.5% return to projecting a 9% return. At the same time that long term interest rates for 30 year mortgages were seeking a 5.5% return.

The problem for the companies is that if they drop their assumed rate of return to a more, Dem.-Warren Buffett approved, rate of around 5%; their pension plans are even more grossly underfunded. The period we are in was described by Buffett as being the hangover after the party, with the duration of the hangover being commensurate with the duration and intensity of the party.

The Senate and House approved delaying Intervention in these plans until a year after the current election cycle; the only debate between the houses is how many industries to include in the bill.

From where I sit, this thing is going to become as big as the Savings & Loan bailout in the not too long term. The PBGC is in deficit and throwing more pensions into the mix will only deepen the pot. Delaying intervention will only make the pot that much larger.

Like the scandals that have enveloped several large businesses in the last four years, these shenanigans did not begin with the election of Bush. Many had their roots in the "irrational exuberance" cited by Greenspan back in the late 90's under Clinton.

Of course, there is a segment of thebeltway population espousing the feeling that if this thing is going to be hung on someone; let it be so big that there is a groundswell of support for raising taxes to cover them all.

 

[local 12 proud]

demiCANS or republiCRATS whats the difference anymore? did'nt clinton block the AA pilots strike? they care only about who gives thier party the most contributions and that would be BIG BUISSNESS! <_<

 

[SmoothRide]

I can guarantee we'd be hearing a much different song from Congress if THEIR defined benefit pensions were at stake or being modified or flat out eliminated! Have any of you readers checked out theirs? Wish that I could quietly vote myself a fat raise like they do. Pretty disengenuous if you ask me. I hardly think their pension $$$ will ever need a bailout. Check it out sometime. A senior Congressman's take at retirement makes an airline Captain look very modest in comparison.

 

[The Drunken Duck]

Seems to me there are two issues:

1. The Moral Hazard created by bailing out firms that have agreed to obligations they should have never agreed to. It's not the governments fault that they did this. If an airline assumed a loan that its auditors new it could never repay, they would likely issue a statement in the annual report indicating that the firm is not a viable concern. The knowledge of this change in auditor opinion would force the company to not make that commitment. Because pension plans were poorly recorded on the balance sheet, airlines often were allowed to enter into contracts that realistically, they could not pay. As a result, I think any legislation should take this into account and seek to remove the possibility that other firms didn't engage in similar behavior under the belief that they would be bailed out by the population at large. This would economically unsound for the US economy.

2. The political dynamic will likely encourage the Democrats to be in favour of this legislation. They have no downside to increasing government spending - in particular where it benefits union dominated industries. Seems to me that they would logically vote for any plan, regardless of the efficacy of the solution or the long-term impact it would have. So, having some democratic spokesmen blame the Bush Administration is kinda like having fox blame the chickens. Fine, but not necessarily an unbiased opinion.

In the end, any solution should also not use too many of my tax dollars to perpetuate a failed business model. It rarely occurs in other industries. Plenty of small and medium-size firms go under and no one bails out their obligations? So why does this industry deserve its unique status?

 

[Dave]

>>In the end, any solution should also not use too many of my tax dollars to perpetuate a failed business model. It rarely occurs in other industries. Plenty of small and medium-size firms go under and no one bails out their obligations? So why does this industry deserve its unique status?<<

Fine. Then while we're at it, why don't we eliminate the incredible amount of taxes placed on the airlines...from fuel taxes to the aviation trust fund? How much is in the trust fund these days, anyway? And also remove the landing fees being paid. Oh, and how about letting airlines merge at will like other industries, or be able to talk to one another about price.

Maybe then they'll be able to fund our retirements.

 

[The Drunken Duck]

Then while we're at it, why don't we eliminate the incredible amount of taxes placed on the airlines...from fuel taxes to the aviation trust fund? How much is in the trust fund these days, anyway?

I agree that the current airline tax structure needs to be looked at. It seems that what airlines pay into an airline fund should be focused at improving airline and airport functions and not random spending in the economy. If airline tax rise, those fees should go back to that sector to improve its efficiency. I don't see a problem with that.

 

[Just Plane Crazy]

I agree that the current airline tax structure needs to be looked at. It seems that what airlines pay into an airline fund should be focused at improving airline and airport functions and not random spending in the economy. If airline tax rise, those fees should go back to that sector to improve its efficiency. I don't see a problem with that.

The Tax system is so complicated. There are federal, state, county and city fees and taxes and fees. Trying to regulate this takes more than just an act of congress. Every state county and city has to be dealt with etc. Unless all airports are placed under federal juristiction you can't get any one to agree on a reasonable structure. Every one just uses the fees collected from airlines to fill in holes of other projects (non aviation related) and if something at an airport has to be done, they just impose some additional sales tax increase in that county and resident's pay the bill a second time. No wonder that they vote not to improve airports etc.

 

[Flying Titan]

I find it somewhat interesting to see the widespread opinions that the airline industry is so overburdened with taxes and fees. Certainly, some of this has merit, but some seems over the top.

First - new runways - it's not funding that stops new runways. It's public hearings, city councils and town boards in and around cities across the country. Nobody wants their home to all-of-a-sudden be in a new flight path. People fight new runways tooth and nail - and often win. We've all seen this over and over. That's why it take a decade or more to get a new runway put in. Next to a landfill or a nuke plant, I can't think of something that draws more public opposition.

Second - landing fees - What? Are airports supposed to pay for themselves? How should they be financed -- property taxes?

Third - taxes - Certainly airport development, ATC, security, safety oversight, etc. are all appropriate government functions. Aviation taxes and user fees are the appropriate way to fund these functions.

Certainly, reasonable people can debate the level and scope of these taxes, but it's not reasonable to say that because the industry pays taxes for these funcations it therefore deserves further aid from the government.