Ah, yes; in the midst of the Obama recession, let us intensify the war on savings and investment. These people are hopeless.
That said, this would essentially turn everything into a Roth. (I'm assuming the tax deferral on earnings remains as is, and that this proposal applies only to the initial contribution.) That's not the end of the world. But the objectionable thing here is the mindless nickel and diming of useful and constructive things in order to kick the can down the road another year or two on the deficit.
NOTHING that is done on the tax side makes any difference unless we cut spending and reform entitlements.
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?
That said, this would essentially turn everything into a Roth. ...And those rules could change, too. SS was declared as a “contribution”, not a tax so they began taxing a part of it. Now, if you have ANY outside income (pension, part-time job, stocks, bonds, etc.) 15% or more is taxed. Who’s to say they won’t tax 60% of your Roth AGAIN?