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House Democrats Contemplate Abolishing 401(k) Tax Breaks

Workforce Management
October 16, 2008

Powerful House Democrats are eyeing proposals to overhaul the nation’s $3 trillion 401(k) system, including the elimination of most of the $80 billion in annual tax breaks that 401(k) investors receive.

House Education and Labor Committee Chairman George Miller, D-California, and Rep. Jim McDermott, D-Washington, 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.

A plan by Teresa Ghilarducci, professor of economic-policy analysis at the New School for Social Research in New York, contains elements that are being considered. She testified last week before Miller’s Education and Labor Committee on her proposal.

At that hearing, the director of the Congressional Budget Office, Peter Orszag, testified that some $2 trillion in retirement savings has been lost over the past 15 months.

Under 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 percent 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 percent a year, adjusted for inflation.

The current system of providing tax breaks on 401(k) contributions and earnings would be eliminated.

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http://www.workforce.com/section/00/article/25/83/58.php

I wish the idiot dems and their minions in the press would correctly say these are not “tax breaks” but “deferred taxes”. Taxes will be paid —but the dems are too greedy to wait a few years until the boomers start retiring.

But the press won’t go for the truth —they didn’t during the Obama campaign and election, why would they start now? Let’s start with their 401(k)s and pensions first!

American workers know we have a short term and long term pension crises but it is not with Social Security but with the voluntary, self-directed, commercial- account - based pension system.

Has she even looked at Social Security's medium and long term finances? If anyone other than the government ran a program like that they would be accused of running a pyramid game and be tossed in jail for fraud.

I've topped out my 401k for the year, but starting with my January paycheck I'm thinking of cutting contributions to zero, pay the tax up front and invest in tax advantaged mutual funds which try to force as much of the return to be long term capital gains rather than dividends or short term gains. Depending on future tax rates it might even be better just to pay the tax now than pay the much larger tax on the principle in the future like a 401k.