[Congressional Record Volume 143, Number 98 (Friday, July 11, 1997)]
[House]
[Pages H5174-H5175]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
SAVE TIAA-CREF; STOP TAX HIKES ON THE ACADEMIC COMMUNITY
The SPEAKER pro tempore (Mr. Gibbons). Under a previous order of the
House, the gentleman from Massachusetts (Mr. McGovern) is recognized
for 5 minutes.
Mr. McGOVERN. Mr. Speaker, the Teachers Insurance Annuity
Association-College Retirement Equities Fund, which has been dubbed
TIAA-CREF for short, provides retirement benefits exclusively for
employees of U.S. colleges, universities, independent schools, and
other nonprofit educational and research organizations. Nearly 2
million current and retired employees at over 6,000 institutions
nationwide are served by TIAA-CREF. Participating institutions
contribute amounts on behalf of their employees where they are invested
in self-directed, tax-exempt accounts. Upon retirement, the amounts
accumulated are used to purchase annuities to provide lifetime income.
Like other pensions and annuities, distributions to retirees are taxed
as ordinary income when received.
Now, I do not know how many of my colleagues are aware of this fact,
but the House Republican tax bill would repeal, would repeal the tax-
exempt status of TIAA-CREF's pension program. TIAA-CREF would then be
treated for Federal tax purposes just like stock life insurance
companies. While this change would raise about $1.2 billion in
[[Page H5175]]
revenue over 10 years, it would have a major impact on the operations
of TIAA-CREF's pension program.
Revoking the tax exemption for the pension system of TIAA-CREF,
granted by the IRS in 1920, would cause irreparable harm to higher
education institutions, their employees, and the education and research
community as a whole.
The Senate Finance Committee has recognized this fact and has not
included this provision in their version of the tax bill.
This measure in the House Republican tax bill will impact virtually
every public and independent college, university, and education
research organization in the country, including 260 tax-exempt colleges
and universities in New England, 16 of which are in my own Third
Congressional District of Massachusetts. The next effect of revoking
TIAA-CREF's tax exemption after 75 years would be to significantly
reduce the earnings of current employees' retirement accumulation as
well as the pension income of retired employees. In effect, this
measure would increase taxes on the individuals served by TIAA-CREF by
up to $1.5 billion and would reduce pension benefits by 3 to 5 percent.
This would cut pension income for retired educators by $30 to $50 each
month. Over a typical 25-year payout period, a retiree would lose as
much as $15,000. In Massachusetts alone, 106,542 individuals would be
affected by this provision.
Mr. Speaker, this assault on our Nation's academic community is a
scandal. There is no rational justification for such an attack on the
financial and retirement security of working families who make up our
academic and research community. With neither hearings nor public
comment, this provision was slipped into the House Republican tax bill,
and it is an outrage.
Pension trusts for other American workers are entirely exempt from
the kind of taxation embodied in the House Republican tax bill, and
TIAA-CREF's not-for-profit pension operations are essentially
equivalent to those of a multiemployer pension trust.
Unlike for-profit commercial insurance companies, TIAA-CREF's pension
assets are exclusively used for the benefit of pension participants.
Its pension reserves can be used for no other purpose than to support
participants' retirement benefits. In addition, since 1986, TIAA's
nonpension insurance business is already subject to taxes.
TIAA-CREF has been widely lauded as a model of pension portability.
Not only does it provide the advantages of a fully funded, fully
portable retirement plan, TIAA-CREF provides benefits in the form of a
lifetime annuity. Some would argue that public policy should encourage
this type of pension model, not penalize it.
TIAA-CREF provides pensions to those who dedicate themselves to
education, despite the relatively modest salaries available in the
field. By imposing this unprecedented tax, the House Republican tax
bill would not only undermine the recruitment and retention of men and
women in teaching professions, but would significantly undercut efforts
by the Congress and by the President to improve educational quality and
opportunities for America's young people.
I have expressed my concern over this measure in the House tax bill
to President Clinton and to the House and Senate conferees. If
education is truly to be America's priority as we head into the 21st
century, then we must support, not undermine, the economic security of
our hard-working and modestly rewarded academic and research workers.
There are many other taxes affecting students, faculty, and academic
staff in the House Republican tax bill that concern me very deeply, and
I have also brought these to the attention of the President and the
House and Senate conferees. I hope these education taxes can be
remedied in the conference.
It is both cynical and dishonest for Congress to claim to be
committed to tax relief while raising taxes on the hard-working members
of our academic community.
I call upon my colleagues to support efforts to remove these ill-
advised and ill-considered provisions from the tax bill in the
conference. I want to commend and salute the gentlewoman from Maryland
(Mrs. Morella), who has circulated a letter to her House colleagues on
TIAA-CREF and other education tax issues. I hope most of my colleagues
will join in that effort.
Mr. Speaker, I submit for the Record an article from the July 8
edition of the Boston Globe.
[From the Boston Globe, July 8, 1997]
GOP Unleashes a Sneak Attack on Teachers' Pensions
(By Robert Kuttner)
The Republicans want to cut taxes for nearly everyone. But
they've finally identified a group whose taxes they don't
mind raising--retired teachers.
The House tax bill would repeal the tax exemption of the
nation's largest pension plan--TIAA-CREF. The $195 billion
nonprofit company manages pensions for most college teachers
and retirees from other nonprofit organizations.
The surprise measure, unveiled at a June 9 press conference
by Representative Bill Archer of Texas, chairman of the House
Ways and Means Committee, and passed by the full House, was
never the subject of hearings. It would levy $1.2 to 1.5
billion in taxes on TIAA-CREF over 10 years, thereby reducing
pension income for members by an estimated 3 to 5 percent.
Why TIAA-CREF? There are several theories. For one thing,
college professors are a bunch of pointy-headed liberals.
Their unions tend to support Democrats. The House bill
targets two other tax benefits for educators. It would end
the tax-free status of tuition scholarships for graduate
students and for children of professors.
More concretely, key staffers to Archer don't like TIAA-
CREF, which has been tax-exempt since 1918. In the 1986 tax
reform bill, which required some nonprofits to pay some tax,
Congress voted to tax profits on the life insurance that
TIAA-CREF sells but to retain the tax-exemption on its core
activity annuity plans for teachers.
However, Ken Kies, chief of staff to the congressional
Joint Tax Committee and a key Archer adviser, has long
believed that TIAA-CREF should be taxed like a commercial
company.
Other likely culprits are TIAA-CREF's for-profit rivals. A
Houston commercial insurance outfit based in Archer's home
town, the Variable Annuity Life Insurance Co., competes
directly with TIAA-CREF. VALIC's chairman recently told a
trade paper that ending TIAA-CREF's tax exemption was ``long
overdue.''
VALIC's corporate parent, the American General Group, is an
Archer campaign contributor and gave $115,000 in soft money
to the Republican National Committee. More broadly, the
organized right has lately mounted an attack on large
nonprofit institutions, painting them as unfair competitors
to tax-paying entrepreneurs.
The irony is that TIAA-CREF efficiently serves a goal that
has long eluded most working Americans and policy makers--
fully portable pensions. Roughly half of US workers are in
some pension plan (the fraction is dropping). But pension
contributions are lost if a worker frequently changes jobs.
A 1974 reform, the Employee Retirement Income Security
Act--ERISA--requires that workers' pension credits be vested
(locked in) once they have five years of credit with an
employer. But ERISA does not make pensions fully portable.
TIAA-CREF was created precisely to solve this problem for
educators and researchers. Teachers often have itinerant
careers. Thanks to TIAA-CREF, educational institutions pay
into a common pool so that all pension credits count. TIAA-
CREF has long been a model for legislators seeking
universally portable pensions.
The only other Americans with truly portable pensions are
workers, mostly in construction trades, who participate in
common pension plans jointly controlled by companies and
unions under the Taft-Hartley act; and most state and local
employees, who are typically members of an umbrella pension
system within the civil service. But Archer is not proposing
to tax the pension plans of construction workers and public
employees.
The Senate tax bill has no TIAA-CREF provision, and it
remains to be seen which version will prevail. The Clinton
administration has not made the issue a priority.
There is one other smelly aspect of this affair. For a
decade or so, after the Watergate reforms. Congress conducted
most business in public. In the late 1970s, committee ``mark
up'' sessions, where bills were drafted, were generally open.
Since the 1980s, a new custom has crept in. The committee
chairman and senior staff simply write the bill in private.
They unveil it all at once and count on party discipline to
carry it through.
This secretly drafted bill is pretentiously called the
``chairman's mark,'' a term redolent of bourbon, smoke-filled
rooms, and raw power. The tax on TIAA-CREF materialized from
nowhere in Archer's June 9 ``chairman's mark.''
It would be salutary not just to bury this sneak attack on
teachers' pensions. Congress should write a rule that no
measure can be approved by a committee for floor debate
unless it was the subject of prior hearings. But don't hold
your breath. Republicans are now the majority, and it's
payback time.
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