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.
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Aug '10
Re: 401k KO
Waaaaaaaaaait a second, didn't we have this conversation before? Someone said "it might happen one day", and we all got indignant and talking about going for our guns if it happened, before the conversation got shut down?
Edit: Google turns up an article from Dave Carter a year and a half ago. I can't say the 2nd Amendment talk would be out of line this time either.
Edited on April 23, 2012 at 10:16pmMay '10
Re: 401k KO
Look, we are supposed to be like the noble less-developed neighbors who operate fairly and equitably in collectivist worlds. We must emulate Argentina in every way possible.
And in the real world, there are two choices- government pensions for everyone, or incentives to save for your own retirement. If you want to fix social security, you need to enable retirement savings- and the 401(K) cash is not exempt from taxation, it is deferred, plus stop inflating everything so that the savings, already yielding almost no return, become worthless.
The bigger problem is that most SS and Medicare reform proposals are simplistic. Raise the retirement age? Sure- as long as you don't destroy the economy and lay off everyone over 55 as every company does now. More private-pay health care in place of Medicare? Sure- but first you need to undo the cost-accelerating damage caused by 50 years of third-party payments that eliminated retail markets in medicine, and oligopolistic licensing schemes that escalate costs and restrict competition.
Dec '11
Re: 401k KO
The harash truths is that we cant keep putting all our revenue eggs in the wealthies basket because their income is the most variable and their share has gone way down.
The progressive tax code is bad government, and is why we are having something of a 400ish billion revenue shortfall. Our entire system is set up to exist by the rich getting richer faster than our government can spend money and when they dont actually get richer fast enough we have big problems. Every dollar that isnt paid into the incomes of people in the top tax bracket steals from the government to channel my left of center friends.
What does that have to do with this? Well somebody has got to find a way to make all the people who aren't paying their fair share, or much at all, and feel overtaxed pay more in taxes. Its an absolute imperative.
Jun '10
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? · 3 hours ago
Except it's not really a break or a "loophole" because you eventually pay taxes on the full amount, you're just deferring the tax until later. You pay the tax when you withdraw from the 401(k)/IRA, so you're trading taxes now for taxes later.
The $18 trillion will eventually all be taxed as workers retire, so the IRS will get its cut in due time. The politicians who want to change this are like spoiled trust fund kids who want all the money now so they can spend it all today.
Jul '11
Re: 401k KO
Duane, unfortunately inflation is here and will soon be much worse. As you allude, this will destroy wealth and that will be most keenly felt in the middle class savers who followed the rules etc.
Oligopolistic? There's no reason to bring religion in to this. Kidding aside you're touching on a topic we addressed partially and that has to do with restrictions of those who can legally deliver care. At some point this needs to be a big old debate among the crowd here IF obamacare is struck down. It is relatively pointless if upheld as socialized care is inevitable in 10-15 years since obamacare accelerates the rate of failure of our current system substantially.
Sep '10
Re: 401k KO
I wonder what the people at The New York Times think about this?
May '10
Re: 401k KO
Wait a minute: why is this even necessary? I thought the rich were going to pay for everything....
Re: 401k KO
BlueAnt: Waaaaaaaaaait a second, didn't we have this conversation before? Someone said "it might happen one day", and we all got indignant and talking about going for our guns if it happened, before the conversation got shut down?
Edit: Google turns up an article from Dave Carter a year and a half ago. I can't say the 2nd Amendment talk would be out of line this time either. · 4 hours ago
Edited 4 hours ago
I thought I remembered writing that. Thank you BlueAnt. Here's another interesting take on the subject, courtesy of an interview Mark Levin did with a liberal college professor. Here, he coaxes the truth out of her:
Aug '11
Re: 401k KO
So the question still remains: who is talking this up in Congress?
Mar '12
Re: 401k KO
Late to the thread, but there is another angle stemming from the Chicago days and the concept that 401ks are ill gotten gains.
This was a topic in 2008, but unfortunately the video that was at Hot Air (here: http://hotair.com/archives/2008/05/29/pfleger-at-trinity-hillary-cried-after-iowa-because-of-white-entitlement/ ) is no longer operational and one has to wade through the comments to see reactions to the 401k portion. I remember seeing it then and being quite shocked; anyone else remember this.
Thankfully, the Pittsburgh Tribune Review also had an opinion piece on the video.
http://www.pittsburghlive.com/x/pittsburghtrib/opinion/s_572675.html
To those who believe that 401k money is an extension of past oppression of either different races or "the worker" it is not a stretch to see that it rightfully belongs to the government.
Aug '10
Re: 401k KO
Probably no one. This is the kind of junk that gets inserted into an obscure corner of a massive appropriations bill under the anonymous cover of committee.
From the language in the article, it looks like someone is "floating trial balloons", leaking the idea to a friendly reporter to see if they can get away with it. If it sparks immediate outrage and fury, they have plausible deniability; if no one seems to mind, they feel safer trying to sneak it in.
Jul '11
Re: 401k KO
Duane Oyen:
And in the real world, there are two choices- government pensions for everyone, or incentives to save for your own retirement. If you want to fix social security, you need to enable retirement savings- and the 401(K) cash is not exempt from taxation, it is deferred, plus stop inflating everything so that the savings, already yielding almost no return, become worthless.
14 hours ago
The incentive to save for retirement is dramatically reduced by having the gov't provide one for you - whether or not that was the intent, that's the net result. Which is why most retirees blow through whatever they paid into SS in less than a decade of retirement. Note that if that money had been invested over time, individuals would have much more saved for retirement than promised outlays of Social Security - which are simply transfer payments at this point, paid by current workers, but that's because of our lovely politicians in DC who also have no incentives on their end to stop spending.
The suggested article is double taxation, plain and simple. Cap gains is double taxation, and they want to raise that, too. Does it ever end?