Skip to comments.Feds eye retirement-fund tax to cut $16 trillion-plus deficit
Posted on 04/22/2012 4:46:02 PM PDT by DeaconBenjamin
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.
Besides 401(k)s, other possibilities include the mortgage-interest deduction on second homes, as well as benefits from employer-provided health insurance, which are untaxed now.
Under current 401(k) rules, total employee/employer contributions cant exceed $50,000. In the proposed rule change, employer/employee contributions would be limited to 20 percent of the employees compensation, with a maximum of $20,000, the so-called 20/20 proposal.
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 persons 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.
(Excerpt) Read more at nypost.com ...
And people who live in Washington, DC are still taxed with no votes in Congress.
Meanwhile, the amount you are allowed to deduct from income to determine if you have to pay taxes on your Social Security has remained at $25,000 for a single person and $32,000 for a couple. This figure goes back to at least 1998 and probably earlier. The net result is that while people may have had an increase in income due to inflation, more and more of their Social Security is now subject to taxation. This needs to be changed. Call your Congresspeople.
In addition, the amount of $255 which is given as a death benefit under Social Security has not been changed since around 1957. This was supposed to cover a cheap funeral and give a couple of months of support after the death. Surely that ought to be adjusted for inflation as well.
All your 401K’s are belong to us!
Zing! The Brits have a way of putting things, don't they.
You are pissing us off, and we pay most of the government revenue NOW.
Start working on your resumes now. And good luck.
I am too PO'd to type more until later.
When are they going to give up their cushy retirement? I say vote all of them out of office, I don’t care who they are. we have stood for this crap long enough. Make them live like all of us, without all of the perks they vote in for themselves. WAKE UP AMERICA
So what happens if you have your money offshore...or take other diversionary action...wonder if they can still grab it?
They do this and they’ll destroy the housing market....
Obama hates this country so much he’s turning it into something we’ll all hate - if he gets his way.
As a tax preparer, why don’t you tell your clientel about the difference between “Wages” and “Income”.
Foreign real estate.
If more fiscal conservatives had done this decades ago, (when I did) we wouldn't be going over the financial cliff.
Freeze ALL salaries for public employees, including elected criminals (who set their own salaries and raises) to 2008 levels and no raises until 2025.
Don't like it?
Join us in the real world.
That's why they want to put all those accounts into a big federal "lock box" (vomit) and M-A-N-A-G-E it for us. I mean, after all, we're not capable of doing it ourselves. They just want to ENSURE even our IRA's are 'safe, sound and protected' when we get old and retired. (Still vomiting) I mean, what's better for us than the old saw..."I'm from the gobment and I'm here to hep'.
I think that may have been another reason for part of the planned Frank/Dobbs-initiated financial collapse....people lost all those billions in not only interest, but the biggie: the PRINCIPAL, from their IRA's. Why worry about a few hundred a year interest, when they can steal the principal?? Congress's plan is: "Go for the throat, baby. Forget the tail, it's just for fun and games!"
If the Federal government were to tax my 401(k) plan, I'd quit my job, cash it out in stages, and enjoy several years of leisure. Even with the 10% penalty for an early withdrawal, I'd still be paying less in Federal taxes in a lower tax bracket than I am right now.
Anyone see any holes in this plan?
OK, you've got me puzzled - what does that have to do with this topic and why do you insult me by assuming I don't?
Wages are line 7 and are reported with a W-2. Everything else is investment, business, retirement or other income and potentially has different taxability.
Perhaps you are cryptically talking about the pending  loss of the 15% max on Qualified Dividends and LT Capital Gains. If so, say YOUR opinion straight out please.
Its time to abolish the federal government.
Americans need their retirement funds much more than they need their federal government. Any politician who votes to steal the retirement funds of the nation’s workers will be committing political suicide.
I’m 59 this year. Think I’ll take mine and put it under the mattress.
POYBO and all your accomplices in Congress.
You can play the angles on a regular IRA vs. a Roth; as a broad proposition, it's close enough to a wash that I don't think this change would much affect IRA participation. I suspect the same would be true for 401(k)'s; it's the ability to let your money grow tax deferred for long periods that provides the real benefit, not the initial deductibility.
If contributions to all retirement accounts become taxable income, then what’s the incentive for anyone to save for retirement in a retirement account? “
Are you telling us that something saving for retirement is not worth doing without a Gummint subsidy??
I always object when people classify the tax deferral on 401(k) and IRA contributions as a "subsidy." Yeah, you can call it that if you look through one end of the telescope, but from the other end, not so. As a matter of principle, we should shift the tax burden from income to consumption in the interests of encouraging savings, investment, and personal financial security. The current structure of thrift savings plans incorporates a form of a consumed income tax, with income being taxed when it is taken/realized, not when it is earned. That is a perfectly rational tax policy, not a gimmick.
Not that rationality or consistency has anything to do with the U.S. tax code ... but there's still no reason to surrender the rhetorical high ground.
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