Cost estimate on proposed legislation to undo the Labor department's investment-advice fiduciary rule

[Peter Gulia]

This link is to the Congressional Budget Office's one page describing a CBO finding that H.R. 2823 (which would undo the Labor department's investment-advice fiduciary rule "would have a negligible effect on revenues for the period between 2017 and 2027."

https://www.cbo.gov/system/files/115th-congress-2017-2018/costestimate/hr2823.pdf

 

 

[My 2 cents]

53 minutes ago, Fiduciary Guidance Counsel said:

This link is to the Congressional Budget Office's one page describing a CBO finding that H.R. 2823 (which would undo the Labor department's investment-advice fiduciary rule "would have a negligible effect on revenues for the period between 2017 and 2027."

https://www.cbo.gov/system/files/115th-congress-2017-2018/costestimate/hr2823.pdf

 

 

Why, when I see this, do I think that this is probably the most spectacularly inappropriate way to measure the impact of the proposed legislation? Nothing that looks at the impact of the legislation on individual savings for those who are not investment advisors versus the impact of the legislation on individual savings for those who are investment advisors?

[Peter Gulia]

The Labor department estimated the rule's aid to investors in the hundreds of billions for a ten-year period.

A CBO estimate considers only whether a legislative proposal would result in an increase or decrease in the U.S. Government's "revenue" (most often, taxes) or expenditures.

 

[My 2 cents]

16 hours ago, Fiduciary Guidance Counsel said:

The Labor department estimated the rule's aid to investors in the hundreds of billions for a ten-year period.

A CBO estimate considers only whether a legislative proposal would result in an increase or decrease in the U.S. Government's "revenue" (most often, taxes) or expenditures.

 

When you say that "the Labor department estimated the rule's aid to investors in the hundreds of billions for a ten-year period", do you mean that scrapping the rule would COST investors hundreds of billions over a ten-year period?  Allowing investment advisors to choose which investments to recommend based on their own interests (as opposed to those of the investors) would seem, if I understand the dynamics correctly, to have that kind of effect.

[Peter Gulia]

Yes.  The rulemaking's cost-benefit analysis included assumptions that some retirement investors would, as results of the rule and related exemptions, get somewhat better advice, improve their investments, and so get higher account balances.

Undoing or weakening the rule, or loosening the conditions of a prohibited-transaction exemption, would unravel those effects.

Many commenters dispute both the methods and the assumptions of the economic analysis.  That includes some who think the Labor department's analysis underestimated the benefits to retirement investors.

Also, some believe the rulemaking should simply do the best interpretation of the statutes, without reconsidering the cost-benefit analysis and public-policy choices Congress already made.