Pomeroy Warns of Tax Reform Threats at IRI Marketing Summit

Gridlock on Capitol Hill
Turning to election prospects, Pomeroy warned that Congress will likely remain polarized after the November elections; and that neither party is likely to consolidate power in the White House, Senate and House, making passage of key legislative initiatives an ongoing challenge.

Despite the improving economy and high approval rates among certain groups, such as women and young people, President Obama’s prospects for reelection in November could dim if the unemployment rate remains rates high or if international events – a Greek default, marked rise in gas prices or tensions in the the Middle East – take a turn for the worse.

Pomeroy added the Democrats risk losing control of the Senate, and Republicans a majority in the House, because of an “anti-incumbent” mood prevalent among the electorate, especially independent voters who have been alienated by policies of both parties. The approval rating of Congress, said Pomeroy, now stands at just 9%.

“Whoever becomes president in 2013 will likely be dealing with a divided Congress an and an evenly split electorate,” said Pomeroy. “This is depressing, especially considering the rigidity the parties have brought to key issues facing the nation, including a looming budgetary catastrophe and spiraling national debt.”

“Medicare is fueling an uncontrolled rise in entitlement spending,” he added. “The U.S. ranks 37th worldwide in the quality of healthcare, but we have the most expensive health care system.”

Pomeroy disapproved of a budget plan formulated by House Republicans that seeks to reduce healthcare costs. The plan, which calls for providing Medicare recipients with vouchers, would increase out-of-pocket healthcare expenses by $2,200 per senior by 2030, he said. Pomeroy added the additional burden is unreasonable considering that 85% of all Medicare households already spend 15% of their annual budget on uncovered medical care costs.

“Asking seniors to pay more for healthcare will dramatically reduce the standard of living for many retirees,” Pomeroy said. “There is no question that this plan is bad policy and makes for bad politics. Seventy percent of seniors don’t want any change to the current Medicare plan.”

To deal with the nation’s burgeoning red ink, said Pomeroy, Congress will have to explore new sources of tax revenue, which now totals just 16% of gross domestic product, the lowest level since the 1950s. He noted that Congress needs to adopt a simpler and flatter tax code, one that eliminates many of the code’s 200-plus loopholes or “tax expenditures.” He pegged the estimated value of tax exclusions in 2014 at $1.1 trillion. Accounting for the top tax expenditures are health care benefits ($630 billion), retirement savings deferrals ($600 billion) and home mortgage tax breaks ($475 billion).

Given budgetary problems, Pomeroy noted in closing, insurance and financial service professionals will play an increasingly critical role in the coming years to help people transiting from the workforce to retirement.

“One thing must be clear to you and your customers: There will be no new federal program to rescue seniors from the cash flow challenges many will face in retirement,” he said. “The federal programs we have now will either be sustained or eroded. 

“The curse of good times is over,” he added. “Your role in their lives – helping them to secure an adequate cash flow in retirement – is more important than ever.”