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House Dems Contemplating the Elimination of 401(K) Tax Breaks

If House Democrats have their way, the 401(k) system that currently includes tax breaks will be eliminated:

Powerful House Democrats are eyeing proposals to overhaul the nation's $3 trillion 401(k) system, including the elimination of most of the $80 billion in annual tax breaks that 401(k) investors receive.

House Education and Labor Committee Chairman George Miller, D-California, and Rep. Jim McDermott, D-Washington, chairman of the House Ways and Means Committee's Subcommittee on Income Security and Family Support, are looking at redirecting those tax breaks to a new system of guaranteed retirement accounts to which all workers would be obliged to contribute.

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.

At that hearing, the director of the Congressional Budget Office, Peter Orszag, testified that some $2 trillion in retirement savings has been lost over the past 15 months.

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. (Emphasis mine)

Welcome to the United Socialist States of America folks. This is what you'll be looking at if Barack Obama becomes president. And if you think they're going to stop there, you're being hopelessly naive.

Hat tip: Tom Elia at The New Editor

Update: James Pethokoukis at US News and World Report has more detail on the consequences this kind of action would have on Americans' retirement. But first he ponders this:

I hate to use the "S" word, but the American government would never do something as, well, socialist as seize private pension funds, right? This is exactly what cash-strapped Argentina just did in the name of protecting workers' retirement accounts (Efharisto, Fausta's Blog). Now, even Uncle Sam isn't that stupid, but some Democrats might try something almost as loopy: kill 401(k) plans.

And the consequences of such an action:

4) Ghilarducci would offer a lousy 3 percent return. The long-run return of the stock market, adjusted for inflation, is more like 7 percent. Look at it this way: Ten thousand dollars growing at 3 percent a year for 40 years leaves you with roughly $22,000. But $10,000 growing at 7 percent a year for 40 years leaves you with $150,000. That is a high price to pay for what Ghilarducci describes as the removal of "a source of financial anxiety and...fruitless discussions with brokers and financial sales agents, who are also desperate for more fees and are often wrong about markets." Please, I'll take a bit of worry for an additional $128,000.

5) What effect would this plan have on an already battered stock market? Well, I would imagine it would send it even lower, sticking a shiv into the portfolios of everyone who didn't jump aboard. But I am sure the Chinese would love to jump in and buy all our cheap stocks to fund the retirement of their citizens.


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Comments (29)

So we're still few steps be... (Below threshold)
iurockhead:

So we're still few steps behind Argentina.

http://online.wsj.com/article/SB122460155879054331.html

So basically they want to i... (Below threshold)
retired military:

So basically they want to increase the social security tax from 7.5% to 12.5% so they can spend our money and use it to "balance the budget" while they do so.

Tell me again where is my money that I am sending into Social security now?

Where do I sign up?

Unf-ing believable. And to... (Below threshold)
Dave:

Unf-ing believable. And to think that as brazen and comfortable as they are with promoting this crap, Obama and the Dems are still up. Either they are in for big surprise on Nov. 5 or America is in for an even bigger surprise....for mine and my childrens sake I hope its the latter.

There is no SS fund, Retire... (Below threshold)

There is no SS fund, Retired. There's a cigar box there now full of IOUs.

OysterI know.... (Below threshold)
retired military:

Oyster

I know.

only now instead of a cigar box Obama wants to give us footlocker full of IOUs.

Now we know how he plans to balance the budget in 4 years, and pay for his new spending.

By doubling the future outlays of social security.


GREAT PLAN.

The government does not see... (Below threshold)
hcddbz:

The government does not see private property anymore, they see all our labor and fruits they are as governments. They tax income, then they tax savings they establish SS for use and use the money. Now they see that some Americans may have savings in old age cannot have that got to take it. All those liberals that heard their party state we got to take those profits from BIG OIL, from the RICH maybe some of them will get it that all those people are Americans.
they want to reach into your pocket and pull out every dime.

Oh, I can't WAIT to see how... (Below threshold)
JLawson:

Oh, I can't WAIT to see how Hypie and Paul H are going to try to spin THIS as a good thing.

Un-friggin'-believeable.

Comrade, can you direct me ... (Below threshold)

Comrade, can you direct me to the shop that can redeem my voucher for a pound of oil? I hear it is barely even rancid!

It's not bad enough I've se... (Below threshold)
JLawson:

It's not bad enough I've seen my 401K drop by 30% in the last month or so - they've got to do THIS also?

Tell me again how Obama's going to be SOOOOOO good for this country? And how the Democrats are the party of the 'little people'?

What's next, they're going to start sending tax collectors around to check under our mattresses?

I can't wait to hear what t... (Below threshold)
MPR:

I can't wait to hear what they are going to do with 403(b) plans. These are available teachers and probably has twice the money invested as 401(k)s. Will the teacher supported Dems go after those lost tax revenues?

Rope. Tree. Socialist.... (Below threshold)
Les Nessman:

Rope. Tree. Socialist.

Some assembly required.

All Your Base Are Belong To... (Below threshold)
JLawson:

All Your Base Are Belong To Us - Democratic Style...

In A.D. 2008
Election was beginning.
Citizen: What happen ?
Economist: Somebody set up us the bomb.
Operator: We get signal.
Citizen: What !
Operator: Main screen turn on.
Dems: All your money are belong to us.
Dems: You are on the way to destruction.
Citizen: What you say !!
Dems: You have no chance to prosper make your time.
Dems: Ha ha ha ha ....

Fairness. It's a good thing.

Just a bit of book keeping ... (Below threshold)

Just a bit of book keeping -- that "$600 annual inflation-adjusted subsidy from the U.S. government" covers the investment new tax on the first $12,000 of income.

For a full-time minimum wage worker at the federal rate of $6.55/hour, the way it will probably work is probably this:
1) You work your normal 40-hour week from January through November, and the "subsidy" covers your "contribution" to the program.
2) In week 46 of the year (the week after the election), you break the $12,000 threshold, and the subsidy cuts off.
3) From week 46-52, your base pay is reduced by about 33 cents an hour to cover your mandatory 5% "contribution" to your retirement account. This reduces your take-home pay by about $13 a week.
4) You spend the Holiday season cursing "the man" because now you can't buy a turkey or those few extra gifts for your family.
5) After 16 years of "saving" with the government's "help" you have accumulated a whopping $13,598 -- roughly a year's pay at minimum wage.
6) In roughly 27 years, you have 2 years pay. Note that compounding of interest is starting to have some effect now, and by year 36 you will reach the 3-year point.

Assuming you start on this treadmill at age 17, and have a 76-year life expectancy, this plan will accumulate enough money to replace your annual income for the rest of your life. After you work for 53 years. You can retire at age 70, after a lifetime of minimum wage labor, no vacations, and 53 holiday seasons of scrimping to get by because the government cuts your pay in the last few weeks of the year.

Where do I sign up?

My God, they just never sto... (Below threshold)
DMD in LA:

My God, they just never stop. Do they not understand that we are a center-Right country? Yesterday, a national poll was released that found that 82% of Americans were AGAINST "spreading the wealth." The poll included feedback from all parties.

Change we can believe in? HA! We will not only have the change left in our pockets if The One is elected, but we will lack even that!

Rope. Tree. Social... (Below threshold)
Rope. Tree. Socialist.

Some assembly required.

Forget the rope and tree method----just dig a big hole, (like in the Newman movie Hud), round them up and shoot the critters, (metaphorically speaking of course). This socialism disease must be stopped.

So the party of the 'workin... (Below threshold)
hermie:

So the party of the 'working man' wants to punish the 'working man' because they were smart enough not to depend on Social Security, and invested a small part of their income while getting a relatively minor tax deduction.

The Feds will keep the masses dependent upon the government's 'generosity'. Oh, yeah...with an Obama plan, you are also given the honor of paying more into SS for a longer period of time to pay for all those people who didn't get an IRA or 401K when they had the chance.

Obambi is attacking McCain ... (Below threshold)
MPR:

Obambi is attacking McCain on S.S. now. They are desperate.

Under Ghilarducci'... (Below threshold)
Mac Lorry:
Under Ghilarducci's plan. . . The money in turn would be invested in special government bonds that would pay 3 percent a year, adjusted for inflation. (Emphasis mine)

More likely the money would be used to pay the IOU's the government has already written to the current ponzi scheme (social security). The democrats can't let social security fail, so the "special government bonds" they talk about are just more IOU's to be paid by yet another future ponzi scheme. Eventually, the chickens come home to roost as Reverend Wright is fond of saying.

The next scheme will be to offset your social security payments by how much you withdraw from your 401k. Either you live in poverty or you forgo your social security check until you have cleaned out your private savings, and then you live in poverty.

Hopefully, these politicians find out that messing with people's retirement is the third rail of politics, but if the American Electric is stupid enough to elect Obama than I expect they are stupid enough to fall for the democrat's spin on their retirement funds. Heck they may even support nationalizing private retirement savings. You know, spread the wealth around.

Garsh, I wonder if the "MSM... (Below threshold)
P. Bunyan:

Garsh, I wonder if the "MSM" will bother to report this to the American public?

Mantis, want to make a childish joke about the Dems not having c-word tendencies, now?

This is perfectly logical ... (Below threshold)
Magic:

This is perfectly logical to the Obamanation and surragates, if you remove the tax exempt status from a 401K then there is much more money to tax. They have to get their share as quick as possible to insure their elite status over the common mob. They know that the social security system is a abject failure of their big government aggenda, so they can't let those little people know they can survive without the government handout or the little people will realize WE DO NOT NEED THEM !!!!

Think about all the folks w... (Below threshold)
retired militiary:

Think about all the folks who DONT pay into 401Ks. This is basically a 5% tax added onto them above and beyond social security and medicare.

Only it wont be called a tax but something like a retirement investment fee as Obama has said that 95% of Americans wont see their taxes go up.

So folks who cant afford 401Ks will still lose 5% of their paycheck to the government. Does Obama's voters who are poor know this?

As I said above. Where do I sign up?

JLawson - "Oh, I can't ... (Below threshold)
marc:

JLawson - "Oh, I can't WAIT to see how Hypie and Paul H are going to try to spin THIS as a good thing."

Now you understand why hooson (and Lee) and the MSM have their collective titties in a twist over Palin's "wardrobe."

"It's the diversion STUP"ID!"

BTW - Here;s some more "Rob... (Below threshold)
marc:

BTW - Here;s some more "Robin Hood" type BS that's being attempted. A Bi-partisan one.

Which only goes to prove the whole lot of them dems, reps, indys, one and all. need to get tossed out on their asses, institute a one term rule for all, and start all over again.

Actually I would take a gua... (Below threshold)
Mike B.:

Actually I would take a guaranteed 3% over inflation for my entire retirement portfolio right now. That is over twice what you can get from TIPs.

If you dollar cost averaged from around 1997 or so you would be 4% down in the stock market. I don't know but 11 years does seem like a fairly long time horizon.

If you assume from 1987 (21 years) then your return would be 8.8% (this is over 21 years). Dollar cost average actually gives a better return than a straight investment into the S&P 500 in October 1987. The S&P 500 at that time was a dividend adjusted close of 328. The close now is 897 for a 5% return per year. The CPI has grown 3% per year over that time. To think you have experienced horific market risks for a 2% real growth. Give me some of those 3% over inflation TIPs for my portfolio.

By the way if you look at dollar cost averaging from 10/2000 (just before Bush took over) the annual rate of return is -4.5%.

Another advantage to tying up pensions in Inflation Adjusted government securities is that it will cause the government to not so readily run the printing presses. Of course this assumes some factors will hold constant:

1. The rules won't change - haha thats a laugh
2. The government lies about the CPI, and they will have even more reason to lie about it

I guess I would be more in favor of this plan if they would route a portion of current Social Security withholdings to the account instead of making it in addition to Social Security.

Robin Hood.The rich ... (Below threshold)
hcddbz:

Robin Hood.
The rich in Robin Hood was the government. They over Taxed the people, taking all the fruits of the people labor and hording it. Robin Hood stool from the Government and returned the people labor back to them. See he stole from the elite and government. The nobles did not want common men holding their own destiny.

Lesson lets not let the Fed over tax us or we will become slaves.

The money in turn would ... (Below threshold)
Joe C:

The money in turn would be invested in special government bonds that would pay 3 percent a year, adjusted for inflation.

Special government bonds. Hmmm. Government bonds are loans to the government by the purchaser of the bond. Where does the money to pay the interest come from? The only place the government can get money from: tax revenue (Read: me).

So, if I have this right, the government will take money from me to save for my retirement. It will then invest this money by loaning the money to itself. They will pay interest on the loan by taking more money from me. All so it can give it all back to me, minus income tax no doubt, minus the cost of the massive bureaucracy to run this thing, when I retire. This plan has the distinction of being worse for me than burying money in my back yard.

All in favor of hanging thi... (Below threshold)
JP Castiglia:

All in favor of hanging this socialist bitch and her friends in Congress, stand up, grab a rope and let's roll!

You guys know that this is ... (Below threshold)
Glenn:

You guys know that this is just flat out lie right?
George Miller never said about eliminating 401k tax or whatever stupid lies listed here. He only said, I quote:

"Taxpayers subsidize 401(k) plans by $80 billion dollars annually. For a taxpayer
investment of this size, we must ensure that the structure of 401(k)s adequately protects
the nest eggs of participating workers.

At a minimum, we know that much greater transparency and disclosures in 401(k)
investment policies are needed, to protect workers from "hidden" fees that could be
eating deeply into their retirement accounts.

And with seniors poised to suffer the most from the current economic turmoil, we must
suspend an unfair tax penalty for seniors who don't take a minimum withdrawal from
their depleted retirement accounts, like 401(k)s."

Where in here does he said that he wanted to eliminate the 401K. He would like to "PRESERVE AND STRENGTHEN 401k"

Before typing and looking like bunch of idiots, why don't you guys google this and go to his website. Theresa, the socialist, did present in the hearing but so does 3 other professors from UCLA, Berkeley, and UMASS.

No wonder we're fighting someone else's war in IRAQ, we have more idiots running around in this country.

The last comment by Glenn .... (Below threshold)
Fred the Citizen:

The last comment by Glenn ...

You are the only idiot here on this web sit ? This has been brought about by the author of a real bill in senate to remove the tax advantage ( destroy ) the 401 saving that the middle class need to retire !

Do your homework you pink - o ...

Yeah ! learn the phrase " Perastrika " we will need it in twenty years to free us from these Marxsists ...

To all who do not understand this is the beginning of all of "us" moving to the socialist middle that is long lines, no choices and no prosperity to any one !

Tread lightly and vote smart !




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