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Congress at Work: Insider Trading and Payroll Taxes

Written by Nickel - 15 Comments

Congress at Work: Insider Trading and Payroll Taxes

I don’t usually cover politics here, but Congress has passed a couple of recent bills that have the potential to affect your pocket book.

For starters, the STOCK Act has been gradually making it’s way through Congress. This is the legislation that would stop Congressmen from using insider information when making investments.

The Senate was the first to pass the STOCK Act, followed by the House — but not before the House leadership removed a key provision regulating firms that collect “political intelligence” for hedge funds, private equity funds, etc.

The two versions now need to be resolved, either in committee, or via informal negotiations between the House and Senate. Hopefully they’ll get this worked out quickly, and send a strong bill to the President for his signature.

In other news, Congress has just passed an extension of the payroll tax cut. In case you don’t recall, this was set to expire at the end of 2011, and they ended up passing a two month extension near the end of the year to buy time.

This time around, they’ve extended the 2% cut (from 6.2% to 4.2%) for the rest of 2012. The bill also included an extension of long-term jobless benefits and a provision to avoid a cut in Medicare payments to doctors.

I’d be happy to hear your thoughts on both of these issues, though I’m going to have to ask you to keep it civil. Please steer clear of the underlying political issues, and stick to the financial side of things.

Published on February 17th, 2012
Modified on February 19th, 2012 - 15 Comments
Filed under: Economy

About the author: is the founder and editor-in-chief of this site. He's a thirty-something family man who has been writing about personal finance since 2005, and guess what? He's on Twitter!

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15 Responses to “Congress at Work: Insider Trading and Payroll Taxes”

  1. 1
    Why Says:

    Perhaps someone can explain why is it a good idea to have workers contributing 2% less to a social security system that is in financial trouble?

    Most Americans are saving little to nothing for retirement and this will just make the problem worse in the future.

  2. 2
    BG Says:

    Financially speaking, the US (taxpayers) are toast. You don’t run trillion dollar deficits for years without repercussions. As for the insider trading, I expect nothing less from our corrupted elected representatives.

  3. 3
    Jennifer Lissette Says:

    On a personal level, I appreciate the 2% tax cut. It allowed us to increase my husband’s 401k withholding by 2% and max out his contributions a year earlier than planned.

    However, on a grander scale, I know that we are in the minority using our payroll tax holiday to beef up our retirement savings. And that’s just going to make a bigger mess for everyone.

    As for the STOCK act, I’d be surprised if anything meaningful actually passes. I can’t help but feel that the legislative branch would be better at governing itself if there were term limits preventing career politicians in place.

  4. 4
    yourPFpro Says:

    I don’t know why people get so caught up in tax rates when the real issue is the deficit. We are spending more money than we bring in. A lot more! This cannot be sustained, am I the only one that sees this as a major problem?

  5. 5
    Jan Says:

    Amazing stuff.
    Cutting payroll tax is an easy fix now and a way to continue to destroy Social Security for the future. We plan on starting the minute we are elidgible- banking it until we need it.
    Long term unemployment checks are basically ones who work with unions. I think it stinks. Teachers who are not rehired -cannot get unemployment.
    Insider trading has never been legal- but now it has a few (weak) teeth.
    I am very disappointed in how things are going and am worried about the future.

  6. 6
    Imaginary Says:

    With the increasing enforcement of insider trading regulations and presuming the political intelligence prohibition makes it into law, it will be interesting to see the effect on hedge fund returns.

    Will active management lose further ground to indexing?

  7. 7
    Thad P @ thadthoughts.com Says:

    Somehow it seems a little late for these new laws to limit insider trading by Congressmen. That those who write laws holding Wall St. to a higher standard regarding insider trading than they themselves are willing to live by seems astounding. The nation’s lawmakers are guilty of having no moral foundation.

  8. 8
    Dalma Ruiz Dickens Says:

    I don’t understand why paying LESS into Social Security is a good thing. Sure, you get a few more dollars now, but what about what you receive in retirement? Many people do not save for retirement, so having an automatic 6.2% saved makes sense. Of course, it should be remembered that Social Security is not supposed to be the only source of retirement, but an addition to your own savings. I suppose this is just one more step in an effort to destroy the Social Security system.

  9. 9
    frank Says:

    This is a golden opportunity to increase retirement savings. Have that 2% automatically transferred into saving. Use it to max out a Roth or some other retirement vehicle.

  10. 10
    don Says:

    I agree with what others have written. Paying less into Social Security is not a good thing. It is a short term stimulus solution with long term repercussions. I was shocked to learn that insider trading laws do not extend to congressmen. It is a real conflict of interest if you pass laws that enrich yourself and your friends.

  11. 11
    TommyBoy Says:

    But they did not take care of the Alternative Minimum Tax.
    They also have not taken care of repealing the section of the The Emergency Medical Treatment and Active Labor Act (42 U.S.C. § 1395dd, EMTALA) Congress passed in 1986 as part of the Consolidated Omnibus Budget Reconciliation Act. It requires hospitals and ambulance services to provide care to anyone needing emergency treatment regardless of citizenship, legal status or ability to pay. There are no reimbursement provisions. As a result of the act, patients.
    You would have thought after passing Obamacare, this would not be needed anymore. It should have been rejected at the same time Obamacare was voted in.

  12. 12
    Aaron Says:

    It’s a good idea to put more money into the hands of those who will spend it to grow the economy in the short run. The deficit and social security are toast if the economy doesn’t recover. Getting the economy to recover is far more beneficial to the deficit and social security than paying less in payroll taxes.

    Now, the danger when enacting these policies has been and always will be Congress and the American people supporting the absolutely required tax increases later when the economy is growing. There should be no arguments or philosophical objections to restoring and even raising tax rates later overall to pay for the cuts now. Debate about who should pay more in taxes is healthy for public policy, but overall, rates must go up somehow, someway.

  13. 13
    Andy Says:

    In 2001 a panel appointed by former President Bush recommending diverting a portion of social security funds to the stock market. It was reccomended that 2% of an individuals tax would go into this account.

    In his book Audacity of Hope, Barack Obama opposed partial privatization of social security. As President, he has lowered the Social Security tax by 2%.

    Had the panel’s recommendation been enacted, the money invested monthly over the last 10 years would be up about 55%. At just $40 a month, the account would already have $7440 in it.

    If one takes that 2% and puts it in an IRA, that person is effectively privatizing 2% of his or her social security tax.

    How ironic or sad depending on your perspective.

  14. 14
    Einstein Says:

    I like the cuts to Social Security taxes. The way I see it is that I can get a better return elsewhere through my retirement accounts like 401ks and IRAs.

    Fact is, though, that not everyone will save this extra money. We have to make sure that people can be taken care of, but when I make withdrawals from my retirement accounts the government is sure to get more from my retirement accounts than it would my income. Tax me later and get more, government! That’s the better solution.

  15. 15
    don Says:

    Andy back-testing analysis is useless. If Bush’s 2% diversion would have been enacted in 2007, then you would still be down. Social Security is insurance, not an investment vehicle. Social Security is to ensure that seniors have enough for the necessities of living, not for increasing their wealth.

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