This is one of the things that keeps coming up and coming up. From the NYPost:
Uncle Sam, in a desperate attempt to fix its $16 trillion-plus deficit, is leering over Americans’ retirement nest egg as its new bailout fund.
Capitol Hill politicians are assessing tax changes that could let the Internal Revenue Service lay claim to a portion of the $18 trillion sitting in 401(k) accounts and other tax breaks used by middle-class workers, including cutting the mortgage tax deduction.
A commission looking for ways to close the deficit, and, noting the extent of 401(k) tax breaks, recommends an examination of the system as one way to prevent government bankruptcy.
It's a little murky on details. Who exactly is doing this out-of-the-box thinking?
Another proposal being discussed in Congress says all tax deductions on 401(k)s and IRAs to be replaced with an 18 percent credit. The credit, according to a proposal that has been endorsed by economist William Gale, would be placed directly in a person’s retirement account.
“Unlike the current system,” Gale told Congress, “workers’ and firms’ contributions to employer-based 401(k) accounts would no longer be excluded from income and would be subject to taxation, contributions to IRAs would no longer be tax-deductible and any contributions to a 401(k) plan would be treated as taxable income.”
In other words, the employee and employer would no longer get a deduction under the Gale plan, they would qualify for a credit. And the credit would “increase [government] revenues by about $458 billion,” Gale says.
It's unlikely anything like this is going to pass. But it does have a disquieting effect, doesn't it? All the more reason, I think, why November is a very important month.
- Comment (32)
- · Quote
- · UnfollowFollow (0)
- Pages:
- 1
- 2
Comments:
Nov '11
Re: 401k KO
Cynically I'd guessthe "examination of the system" as two proposals: 1) We're not taxing that enough so let's use a progressive tax regime based on amount saved or 2) Hey, those greedy people should be happy with Social Security, so let's take all that money and apply where it should be going. (In their oh-so-expert opinion.)
The fact that either of those are options that serious people would contemplate is scary.
On a positive note: There's $18 trillion in American 401(k) accounts? Holy Nest-Egg Batman!
Aug '11
Re: 401k KO
Yikes. Has Obama been talking to Ms. Kirchner again?
May '10
Re: 401k KO
I'm concerned about incentives or penalties assesses by the federal gov't. through the tax system, so I guess I would ask, why should we be giving tax breaks for savings?
Don't get me wrong, I don't think the gov't. should start confiscating more from the people without meaningful spending reform, but isn't the 401k, IRA just one of those loopholes that needs to be closed with a flatter tax system that Paul Ryan proposes?
Apr '11
Re: 401k KO
Well finally some honesty. That is what Mitt Romney needs here. People have to realize that the only taxes that will really help cut the governments deficits are massive tax increases on the middle class and their assets. This reality (which to conservatives is clear as day) will slowly make its way into the minds of the rest of America, and when it does that's when we will win this argument.
I hope that Mitt Romney can get this point across, because it is his best shot.
Nov '11
Re: 401k KO
ManBearPig: I'm concerned about incentives or penalties assesses by the federal gov't. through the tax system, so I guess I would ask, why should we be giving tax breaks for savings?
Don't get me wrong, I don't think the gov't. should start confiscating more from the people without meaningful spending reform, but isn't the 401k, IRA just one of those loopholes that needs to be closed with a flatter tax system that Paul Ryan proposes? · 2 minutes ago
If we closed the 401k/IRA loophole that tax rate better be quite a bit flatter for me to endorse it. While not going to far into Don't Tread on Me territory, since I think income taxes are immoral period, the fact that 401k money is not taxed is part of what incentivizes people to save, and the more you have saved in the past the less you depend on government charity in your retirement, saving tax dollars that you would have paid.
Mar '11
Re: 401k KO
So the idea is to smash all the retirement account piggy banks and use the loot to pay off the IOUs in the Social Security lockbox.
Meanwhile, all the money that was in the system that was being used to fund loans for stuff like houses and cars will obviously no longer be there for that purpose. This won't cause the number of houses and cars sold to drop, because We Are the Ones We've Been Waiting For. The housing market won't get any worse because you can't fall off the floor, and the car market will be ok, because if you can be ordered to buy health insurance, you can be ordered to pick up a Chevy Volt too.
Do you supposed that the term "secondary order effect" means anything at all to these people?
May '10
Re: 401k KO
Austin Murrey
If we closed the 401k/IRA loophole that tax rate better be quite a bit flatter for me to endorse it. While not going to far into Don't Tread on Me territory, since I think income taxes are immoral period, the fact that 401k money is not taxed is part of what incentivizes people to save, and the more you have saved in the past the less you depend on government charity in your retirement, saving tax dollars that you would have paid. · 1 minute ago
I am right there with you, but if you fall into the 10% bracket under the Ryan plan, you should be able to save money without the incentive of a tax break up front. My big fear is that this story is indicative of the desire of liberals to confiscate savings to add to "social security" as the first step down a slippery slope.
Aug '10
Re: 401k KO
"Why should we be giving tax breaks for savings?"
Because retirement savings lower the future burden on government expenses. People who have a retirement income have less need of hand outs and redistribution from their fellow citizens.
Sep '11
Re: 401k KO
When they finally tap, confiscate or otherwise alter prudent worker-bee taxpayers' relationship with their private retirement accounts, the feds will famously quote Willie Sutton, the bank robber: "Because that's where the money is."
Jul '10
Re: 401k KO
The subtitle of any plan to confiscate people's savings is "Laying the Groundwork for the Second American Revolution".
Apr '11
Re: 401k KO
Nathaniel Wright: "Why should we be giving tax breaks for savings?"
Because retirement savings lower the future burden on government expenses. People who have a retirement income have less need of hand outs and redistribution from their fellow citizens. ·
And because when I save, I put my money to work improving the economy. Mitt Romney's "class warfare" approach to capital gains tax that everyone here complained about (in which it is kept for those bringing in more than $250k) is slightly less effective for this second purpose, but much more effective for Nathaniel's purpose.
Jul '11
Re: 401k KO
How's that asset seizure working in Ireland. If it failed miserably then expect Obama to try it.
May '10
Re: 401k KO
Nathaniel Wright: "Why should we be giving tax breaks for savings?"
Because retirement savings lower the future burden on government expenses. People who have a retirement income have less need of hand outs and redistribution from their fellow citizens. · 8 minutes ago
If medicare and social security aren't means tested, how is the gov't saving money on people that have large savings? Don't be mistaken, I'm not advocating means testing. I just know that my father and his wife are retired, have a nest egg, yet are part of the medicare system and collect social security as well. I'm not saying people with savings aren't less of a burden on gov't, I guess I just don't see how.
Apr '11
Re: 401k KO
It's not just Obama. I go to quite a lot of tax related seminars and such, and I don't think I've been to one without someone talking about how important it was to get your tax benefits now, if you can, rather than taking assurances that money would be untaxed in the future.
If we don't get the budget under control this year, taxing pensions seems a near certainty to me, albeit not necessarily in the next term, and I'm under the impression that this is the view of most senior academic and practitioner tax experts.
Mar '11
Re: 401k KO
"Why should we be giving tax breaks for savings?"
Because the government has had one run at that money already.
Sep '10
Re: 401k KO
Austin Murrey:
On a positive note: There's $18 trillion in American 401(k) accounts? Holy Nest-Egg Batman! · 41 minutes ago
The cost of unfunded promises made by the Federal Government to current citizens is estimated to be about $60T.
Aug '10
Re: 401k KO
Even without means testing, there is savings when more people have retirement income because the "need" for an age cohort to lobby for more "largesse" is diminished. Imagine how much we'd pay in social security and medicare if there weren't retirement plans and supplementary insurance programs.
James, of course, has the best reason for allowing savings to be untaxed. That being that invested income -- either in savings or stock -- is well...investment. As such it creates jobs by providing capital to job creators and innovators.
Of course, spending also benefits the economy by creating jobs etc. So James' point could be extended to all taxes. Something I agree with, but which given the current hand out and rent seeking would be difficult to implement.
If we can show that savings today is better than handouts tomorrow, then that is one argument to the good. I wonder if I had invested my FICA deductions at 8% (S&P avg over time) if it would equal or exceed my eventual Social Security payments.
Jul '10
Re: 401k KO
Are you sure of the $18T figure? Sounds awfully high to me. BTW, on the latest podcast, you stated that monetary policy determined oil prices. It's a factor, but supply and demand are the overwhelming determinants.
Nov '10
Re: 401k KO
I have written about this in Ricochet twice in the last year. When Rob writes about it, suddenly its news. Good. Actually this idea emanated from Jesse Jackson more than a decade or so ago, but in a slightly different mechanism. He wanted 10% of all 401-ks to be invested in some type of "community assets" pool to be doled out to needy communities. Get the picture. I think CALPERS did something like this. The end result is, there is TOO much money here for them not to try to get their hands on it! As RR said, "there is a price we will not pay" but what dear friends will that price be?
Mar '11
Re: 401k KO
This is one of the first stories where I heard about this kind of scheme. It's been around for a few years.
http://www.csmonitor.com/Business/The-Adam-Smith-Institute-Blog/2011/0102/European-nations-begin-seizing-private-pensions