No More 401(k)?
Ed Morrissey at Hot Air has a post up discussing how House Democrats want to kill your 401(k).
A plan by Teresa Ghilarducci, professor of economic-policy analysis at the New School for Social Research in New York, contains elements that are being considered. She testified last week before Miller’s Education and Labor Committee on her proposal…
Under Ghilarducci’s plan, all workers would receive a $600 annual inflation-adjusted subsidy from the U.S. government but would be required to invest 5 percent of their pay into a guaranteed retirement account administered by the Social Security Administration. The money in turn would be invested in special government bonds that would pay 3 percent a year, adjusted for inflation.
The current system of providing tax breaks on 401(k) contributions and earnings would be eliminated.
Says Ed:
That means your employer can no longer write off their contributions to your 401(k), and your capital gains would be taxable year-on-year. In other words, it becomes just another investment or savings account, with no tax benefit at all, and no employer contribution. Instead, Uncle Sam would give you your “matching” funds — up to a whopping $600 per year! Whoopee!
As Michelle Obama says, you could buy a pair of earrings every year … except, of course, you can’t. It’s in The Lockbox, defined by politicians as Locked Away from You but Accessible to Us. It goes there along with 5% of your gross earnings, apparently to play with the 7% of your gross earnings that already goes to Social Security. And what do they do with the money? They give you government bonds as your only investment option.
Why would Democrats want to gut the best retirement savings vehicle Americans have? Two reasons: (a) more government control for them and (b) more money for them to spend on things we don’t need.
Remember the “Social Security lockbox”? The one that doesn’t exist because we use the money to hide the size of the deficit? Now imagine that there are two lockboxes…both available for government pilfering and both without you being able to control your money. For 600 bucks.
Wow, Democrats controlling government is such a great idea!
aphrael:
Were that to pass, and Obama to sign it, there would be a middle class revolt in 2010.
23 October 2008, 10:41 amSharon:
My guess is that we’ll see a revolt in 2010, anyway, because Democrats will overstep.
23 October 2008, 10:57 amArt Downs:
Any time that the name of an institution includes the phrase ‘New School’ there is a guarantee that the Party Line of the Left will be echoed.
23 October 2008, 11:56 amPhoenician in a time of Romans:
Why would Democrats want to gut the best retirement savings vehicle Americans have?
Help me out here - of which Congressional district was Teresa Ghilarducci elected as the Democratic representative?
Ooops - I’m sorry, did I interrupt your rant?
Next up as a Sharon exclusive - the book “American Psycho”. Why are Democrats advocating slicing up people?
23 October 2008, 11:56 amJoe Shallenberger:
Sharon:”…(b) more money for them to spend on things we don’t need.”
The short-sighted suggestion of eliminating tax deferment would only gets Washington through the immediate estimated $85B shortfall. The real damage comes in the long run, where the vastly larger revenues that could have been expected, if deferment had not eliminated, will no longer be there.
Once again, the effect will result in even more damage to the future of our economic well-being, as well as that of our children and grandchildren. But Hey - by that time, the idiots who’re orchestrating this will be long gone and it’ll be someone elses problem down the road, right?
Does this sound vaguely familiar? Kind of like Social Security?
Washington cannot continue kicking the can down the road to follow-on generations to support their pork barrel spending habits. Sooner or later they’re going to run out of road.
If they forecast a reduction in antipated revenue of $85B, why don’t they cut $85B worth of pork spending on things like ACORN and a thousand other idiotic things like it?
Let none of us forget whose money it is we’re talking about here! We should not allow Washington to forget either. They are supposed to work for us, not the other way around.
23 October 2008, 12:15 pmJeff:
I’m not a big fan of this plan, but I’m not a big fan of the tax code being used to encourage retirement saving in general. Instead of having the employer pay straight into an investment account, why not have that money go to the employee in salary and allow them to invest that money as they please? Seems to me a lot of the problem with the Enron collapse was that employees had all their retirement money in a 401(k) backed by company stock, and that those savings went up in smoke when the company tanked. Wouldn’t eliminating the employer-backed 401(k) allow employees to not have all their eggs in one basket, metaphorically speaking?
A lot of the problem with our health care and retirement systems is that they’re both tied to employers. It’s about time we started decoupling.
23 October 2008, 12:16 pmConservatism Today:
Democrats Want to Take Away Your 401K…
This isn’t the fake, false, fearmongering claims offered up by the Obama campaign about how Republicans, and especially John McCain, want to take away Medicare. This actually is happening. From Dana Pico at Commonsense Political Thought. Actually - he…
23 October 2008, 5:01 pmArt Downs:
A person investing in a 401K at work can tailor his or her investment strategy any way they want. There is no mandate that the funds be invested in company stock.
Perhaps those brilliant young MBA types at ENRON got carried away with a scheme that never seemed to make sense to a lot of people.
Just how are Social Security funds that are taken at the point of a virtual gun ‘invested’?
23 October 2008, 5:24 pmDana Pico:
The 401(k) system is a great one. Because money put into a 401(k) plan is not subject to the income tax (Social Security and Medicare taxes still apply), $100 put into a 401(k) does not reduce your take-home pay by $100; people can see a real reduction in their income taxes by participating in such programs.
And employers like the program: not only is it a retention incentive, it’s one on which they get a tax write-down as well. For the employees who don’t stick around through the full vesting period, the employers get back some or all of the money they contributed.
Jeff made a libertarian point about it, but I think he missed the point. Sure, the way Jeff wrote it, it could all go into an IRA, but such begs a couple of questions. First, would it? By using payroll deduction, a sense of savings discipline is given. Second, because employers see a real benefit for their expenditure, in retention incentives, they might not contribute as much to such a plan without that benefit to themselves.
401(k) plans are things that actually work — so, naturally, someone wants to fix them!
23 October 2008, 7:51 pmmarl444:
Democrat’s shape plans to abolish private retirement plans
by Lee Muller
Barack Obama and other radicals in the Democratic Party are calling tax-free contributions to
401-k plans a “loophole” and readying legislation to end all employer contributions and
individual pre-tax contributions.
“We’ve invested $80 billion into subsidizing this activity,” said Rep. George Miller, D-Calif,
chairman of the House Committee on Education and Labor, referring to tax breaks allowed for
401(k) contributions and savings as “subsidies” and the government’s “investment”.
Rep. Jim McDermott, chairman of the House Ways and Means Committee, invited Teresa Ghilarducci, a
professor at the New School of Social Research, to testify before a subcommittee on her ideas to
eliminate the preferential tax treatment of the popular retirement plans. In place of 401(k)
plans, she would have workers transfer their savings into government-created “guaranteed
retirement accounts” for every worker.
Common details of the schemes in both committees include:
http://www.house.gov/ed_workforce/testimony/2008-10-07-TeresaGhilarducci.pdf
* Abolish the 401-k, SEP, and Roth IRA plans
* Sell off some stocks to convert to cash
* Roll your accounts over into an account “managed by the federal government”
* The government would now own controlling shares of stock in many corporations
* Those without IRA accounts will get a new one, with $600 to start it off.
* Pay you 3% interest on your cash.
* You can make no more contributions on your own.
* The IRS will deposit $600 each year in everyone’s account
* Some accounts with “excessive balances” may be reduced through asset taxation
* You will pay up to full income taxes when you withdraw funds.
* You cannot withdraw funds until you are 64 years old.
* The IRS can take your funds any time to pay income, payroll or other taxes you owe.
Special treatment for union members, government workers and teachers:
* Bankrupt union pensions will be guaranteed by the federal government.
* Underfunded state and teacher pensions will be guaranteed by the federal government.
Did you get that?
Tax-deferred investments are a “loophole” that “isn’t working” and is receiving a “subsidy”.
Workers who saved would be forced to sell out of stocks at the bottom of the market, and deposit
the cash into a government savings account.
The government would hold all the common stock formerly in the individual plans, except what it
sells off for cash. You would have no control of the timing of the sale, and the government
would now hold a controlling interest in most public corporations.
A 3% return on $10,000 yields $22,000 in 40 years.
A 7% return from the stock market average yields $150,000 in 40 years.
The amount of wealth which would be destroyed on the front end would be devastating to economic
growth, and leave millions of hard-working Americans dependent on government retirement plan
promises.
The majority of Obama supporters have no savings, and no retirement plans. They welcome taking
money from “the rich”. This scheme has appeal to the reparations crowd as more get-back on “rich
white folks”. But a lot of Obama supporters mean well and just have not looked beyond his
rhetoric at what he and other Democrats are cooking up in legislation.
Corporate and state pensions are at risk.
The federal government has quietly been taking over pension plans of failed corporate plans, but
there is not enough money in the insurance fund to cover all that are at risk. On top of that,
all the state pension plans are grossly underfunded and unable to meet future promises.
In the financial bailout package for the mortgages, Democrats slipped in authority to bail out state pensions. Unions, which don’t want to give up lavish retirement plans, are all for federal guarantees. But the radical Democrats do not want to guarantee trillions of future payments; they want to take the cash that is in the plans now, and replace it with a government pension that will be much smaller, just as they propose for the 401-k accounts.
The strategy of big-government Democrats is to prey on the uncertainty and fears of the market,
blame money managers, and convince the future retirees to let government take the money “out of
the hands of Wall Street”, when they are actually taking it out of the hands of the workers.
There are lots of stories in the investment press, but none in the mainstream media.
Investment News
http://www.investmentnews.com/apps/pbcs.dll/article?AID=/20081007/REG/810079894
US News & World
http://www.usnews.com/blogs/capital-commerce/2008/10/23/would-obama-dems-kill-401k-plans.html
Copyright 2008 Lee Muller.
2 November 2008, 7:31 pmReproduction in whole permitted for the purpose of defeating socialists like Obama.
Last Updated 10/28/2008
Amorphis:
All I can say to the federal government is: Please, don’t do me any favors! I beg you!!!
4 November 2008, 10:43 pmMike:
This would lead to nothing short of a revolt.
24 November 2008, 4:59 pm