Whose money is it?

NEW YORK, MAY 13

OUR devious tax laws give rise to such venerable questions as, Whose money is it? This point was raised acutely by the court in Chicago that ruled that United Airlines could legitimately, when turning to the protections of the bankruptcy law, suspend the payment of pensions accrued. One can sympathize with the outrage felt by company employees who have lived on the assumption that pension funds were accumulating to which one day they would have access.

The company's position is what one might expect. If the purpose of the bankruptcy law is to suspend the obligations of a company in bankruptcy, then one would expect that "all obligations" would include pension payments. The position of the unions is that the sequestration of those funds was sacrosanct.

In December, US Airways brushed against the same question, and when the court paused to hear the company's case, the union responded with a "slowdown." The union pointed out that company executives had not cut their own benefits, a good tough cultural charge pointing to the catastrophic conduct of some capitalist enterprises, which reward failed CEOs with hundreds of millions while playing loosely with obligations to lesser employees.

But--again--whose money is it? No doubt United and US Airways listed payments to the pension fund as expenses, entitling them to reduced tax exposure. But the companies did not segregate these pension funds and put them away in Fort Knox. They behaved rather as the U.S. government behaves when it incurs a Social Security obligation--they file a claim on themselves. But--yet again--whose money is it? If the unions with which US Airways negotiated employment contracts did not insist on the segregation of the pension money, were they in some way complicit in the legerdemain that then happened?

I recently wrote in this space that a major problem with the Social Security system is that people are asking for greater returns than they should reasonably expect. George Shadroui, the nimble analyst for FrontPageMagazine.com, reproached me. His reasoning is that when you are clipped by the Social Security tax let us say $1,000, what is owed you down the line isn't just $1,000 plus interest. It is also compensation for lost economic opportunities. If you had had that $1,000 to deploy on your own, you might have used it to invest in enterprises which would eventually earn for you a bite of the U.S. national economy. That, in other ways, is what Mr. Bush is arguing.

But the question remains: Whose money is it? It is easy to say: Yours. But the Social Security system is a complex social organization with complex obligations. For instance, if you were to die a month after beginning your Social Security payments, the government would pay money to your widow throughout her lifetime.

Who is supposed to pay for that protection for your family? If you took out life insurance, the contractual implications of the arrangement would be easily understood. But since Uncle Sam is shouldering it, how should he be reimbursed, if not by the forfeiture of one or another hypothetical claim? In this case, the claim to possible profits you might have made investing the money on your own.

The looming nightmare of General Motors is the august horror of the day. One learns that one-fifth of GM's total payroll cost is the money the company undertakes to pay its workers and retirees in health benefits. Whose money is that?

Agreed, the money of the employees. But if pension obligations induce bankruptcy, how are such pensions protected? Can the powerful unions that negotiated such benefits authorize a retroactive reduction, such as might prolong the life of the company? Or would they then be dealing with stolen property?

We are paying for licenses taken in the past. During World War II, you couldn't raise wages, under price-control laws. So corporations raised benefits instead, and took deductions on them, and the government--winked. What will the government do in the junctures ahead? With bankruptcy laws and sheltered investments? Whose money is it? we repeat.