Investment Executive Urges Debt, Tax Reduction

An investment industry leader warned that Washington’s spending habits and tax policies are crimping economic growth and resulting in unsustainable levels of debt at a Nov. 17 Newsmaker press conference.

Robert Reynolds, chief executive of Putnam Investments, a mutual fund company, said the country could suddenly be thrown into a tailspin if foreign creditors doubt the ability of U.S. political leaders to address what amounts to an $2 million being added to the national debt every two minutes.

“It’s a fiscal time bomb,” Reynolds said. “We can hear it ticking, and it is clearly undermining long-term confidence, at home and around the world. Our country really is at a historic inflection point – between decline and renewal – and the whole world is watching us.”

Reynolds offered his prescription for what’s ailing the United States, an economic program he dubbed The New Solvency. The initiative is based on reforming Social Security and the private retirement system and enacting tax policies that Reynolds said would spur higher savings and investment and job creation.

He advocated making the research and development tax credit permanent, allowing 100 percent immediate depreciation for corporate plant and equipment purchases, implementing tax cuts for businesses that hire new workers and instituting a tax holiday for capital gains on any initial public offering that investors hold for a year or two.

On the retirement side, he supports legislation in Congress that would establish automatic IRAs for workers at companies that don’t offer retirement plans. Reynolds said the concept would extend coverage to “younger, low-income and minority workers.”

Existing workplace retirement programs should adopt the best-practice plan design outlined in the 2006 Pension Protection Act, Reynolds said. Those elements include automatic enrollment of employees in 401(k) plans, automatic savings escalation and guidance on qualified default investment alternatives.

For reforming Social Security, he backed many of the steps that were highlighted in the draft proposal from the presidential deficit commission — gradually raising the retirement age, means-testing benefits and broadening the payroll tax base.

He left out, however, any suggestion of individual Social Security accounts, an idea popular among Republicans and anathema to liberals. “I don’t think you need private accounts in Social Security to make it solvent,” Reynolds said.

-- Mark Schoeff Jr., [email protected]