Posted on 10/30/2008 6:11:41 PM PDT by Libloather
McCain suggests Democrats will tax 401(k) contributions, Dems say that's 'ridiculous'
Posted by Stephen Koff/Plain Dealer Washington Bureau Chief
October 30, 2008 14:45PM
Never mind Barack Obama's tax plan, which would raise taxes for people earning more than $250,000. We already know that John McCain says that Obama wouldn't likely stop there, while Obama says he would.
But this morning in Defiance, Ohio, McCain appeared to try to ramp up worries for any worker saving for retirement: Under Democrats, your 401(k) contributions might be taxed, too.
"This Democratic Congress -- this -- this Reid-Pelosi group of liberals, including Congressman Barney Frank, is planning all sorts of new taxes this week," McCain told the Ohio crowd. "This week, we're hearing they want to tax your 401(k) contributions."
Is that true? We asked a spokesman for the House Education and Labor Committee, since this talk of taxing contributions to retirement plans appears to have come from witnesses during recent hearings there.
"It's absolutely ridiculous," said committee spokesman Aaron Albright. "We're looking to protect 401(k)s, not tax them."
His boss, Democratic Rep. George Miller of California, said the same thing Friday when asked by Neil Cavuto on Fox News. Referring to workers saving for retirement by putting pre-tax dollars into 401(k) plans, Miller said, "It's not going to work without the tax incentives."
McCain's statement this morning was based in part on news stories on congressional hearings held in the midst of the recent financial meltdown.
Among witnesses who have appeared before Miller's committee this month was Teresa Ghilarducci, a professor of economic policy analysis at the New School for Social Research. She proposed a new system of "Guaranteed Retirement Accounts," with workers putting in 5 percent of their pay and the government paying a 3 percent inflation-indexed guaranteed return. The government also would put in $600 a year per worker -- while scaling back "substantially" the 401(k) tax break on worker contributions, Ghilarducci testified.
Albright says that while there have been several ideas and witnesses at recent hearings, Miller's interest is only in making sure that retirees are not penalized by rules on 401(k) withdrawals, and that their savings be protected from excessive 401(k) administrative fees.
But Miller also mulled whether the government's $80 billion a year in 401(k) tax breaks is spurring the kind of retirement savings envisioned. Jim McDermott, a Democrat from Seattle on the House Ways and Means Committee, has had the same conversations.
Partisans appear to have taken that -- and the proposal by Ghilarducci -- as tantamount to agreeing that it's time to end the tax breaks.
Repeats Albright, Miller's spokesman: "Absolutely ridiculous."
One correction: I forgot about the $600 the government would kick in. That extra $600 a year would add an extra $30,000 to that nest egg over 30 years.
So instead of $750,000, the government’s very generous $600 (taken from what? Our higher taxes due to the reduction in our 401-k tax break) would increase our haul to $780,000.
And that’s assuming that you face a 40% marginal tax rate (may well be higher than that) and that you put an after-tax amount equal to your previous pre-tax 401-k contribution into an index fund.
That $780,000 is compared to the $1.36 million you’d have doing it the normal way. Your nest egg was reduced by over 40% thanks to the Federal government protecting you from market risk. Isn’t that special?
Lock box? As if Congress would have access to a huge pile of money and not want to spend it.
http://www.investmentnews.com/apps/pbcs.dll/article?AID=/20081012/REG/310139971
An excerpt:
House Education and Labor Committee Chairman George Miller, D-Calif., and Rep. Jim McDermott, D-Wash., 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.
Under Ms. 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% 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% a year, adjusted for inflation.
The current system of providing tax breaks on 401(k) contributions and earnings would be eliminated.
“I want to stop the federal subsidy of 401(k)s,” Ms. Ghilarducci said in an interview. “401(k)s can continue to exist, but they won’t have the benefit of the subsidy of the tax break.”
End of excert
Farther on in the article it says that companies would probably not do the matching that they do now if no tax break incentive. So - for $600 a year you lose your matching funds and get 3% a year on your savings. Sounds like a real winner to me. I sure hope they can come up with a health plan that is just as great.
One Problem, it is not a tax break but a tax deferral to payed once the the 401K is distributed.
One Problem, it is not a tax break but a tax deferral to be paid once the the 401K is distributed.
“probably deduct the 401K repayments from your regular Social Security payment after you retire.”
Hey, stop giving ‘em ideas!
;)
There already is - it would grow immensely under Obambi.
I would cash mine totally out ... pay the taxes, pay the penalties, and keep the change rather than have the government redistribute my wealth to someone else.
And you are absolutely right ... there would be a massive exodus from the market not seen ... EVER. S&P 500 would crash.
I think it’s worse - I think they want to confiscate a significant percentage of current 401(k) balances to pay for Universal Health Care.
Oh Please there were stories in the news last week that this was one of the considerations from the new to come Congress. Why lie about it now?
Hahahahaha. BS. They want to force you to sell your current investments in your 401(k) accounts and purchase government bonds which will pay jack sh*t so they can shore up Social Security. And yes, Miller did question the value of the 401(k) deduction to the government in a recent hearing.
These frauds are getting exposed.
They just cannot help themselves when they see a big pile of money somewhere. This is when the ‘burbs tell you jackasses to f*** off.
I've asked my Congrescritters about where tax payments on SS are credited ~ back to SS or to the General Revenues bt they weren't able to find out.
So this trick seems to serve two purposes ~ tax old people, and take their Social Security benefit and cross subsidize other government expenditures.
Stephen “Dum” Koff is a liar by omission, like many of his New Government Media fellows.
There's a reason they've been computerizing mostly everything...
In five to ten years there won't be much of an underground economy.
What do you mean McCain “suggests” it? They’ve proposed it themselves.
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