Posted on 11/29/2008 11:41:32 AM PST by DivaDelMar
RALEIGH â Democrats in the U.S. House have been conducting hearings on proposals to confiscate workersâ personal retirement accounts â including 401(k)s and IRAs â and convert them to accounts managed by the Social Security Administration.
Triggered by the financial crisis the past two months, the hearings reportedly were meant to stem losses incurred by many workers and retirees whose 401(k) and IRA balances have been shrinking rapidly.
The testimony of Teresa Ghilarducci, professor of economic policy analysis at the New School for Social Research in New York, in hearings Oct. 7 drew the most attention and criticism. Testifying for the House Committee on Education and Labor, Ghilarducci proposed that the government eliminate tax breaks for 401(k) and similar retirement accounts, such as IRAs, and confiscate workersâ retirement plan accounts and convert them to universal Guaranteed Retirement Accounts (GRAs) managed by the Social Security Administration.
Rep. George Miller, D-Calif., chairman of the House Committee on Education and Labor, in prepared remarks for the hearing on âThe Impact of the Financial Crisis on Workersâ Retirement Security,â blamed Wall Street for the financial crisis and said his committee will âstrengthen and protect Americansâ 401(k)s, pensions, and other retirement plansâ and the âDemocratic Congress will continue to conduct this much-needed oversight on behalf of the American people.â
Currently, 401(k) plans allow Americans to invest pretax money and their employers match up to a defined percentage, which not only increases workersâ retirement savings but also reduces their annual income tax. The balances are fully inheritable, subject to income tax, meaning workers pass on their wealth to their heirs, unlike Social Security. Even when they leave an employer and go to one that doesnât offer a 401(k) or pension, workers can transfer their balances to a qualified IRA.
Mandating Equality
Ghilarducciâs plan first appeared in a paper for the Economic Policy Institute: Agenda for Shared Prosperity on Nov. 20, 2007, in which she said GRAs will rescue the flawed American retirement income system (www.sharedprosperity.org/bp204/bp204.pdf).
The current retirement system, Ghilarducci said, âexacerbates income and wealth inequalitiesâ because tax breaks for voluntary retirement accounts are âskewed to the wealthy because it is easier for them to save, and because they receive bigger tax breaks when they do.â
Lauding GRAs as a way to effectively increase retirement savings, Ghilarducci wrote that savings incentives are unequal for rich and poor families because tax deferrals âprovide a much larger âcarrotâ to wealthy families than to middle-class families â and none whatsoever for families too poor to owe taxes.â
GRAs would guarantee a fixed 3 percent annual rate of return, although later in her article Ghilarducci explained that participants would not âearn a 3% real return in perpetuity.â In place of tax breaks workers now receive for contributions and thus a lower tax rate, workers would receive $600 annually from the government, inflation-adjusted. For low-income workers whose annual contributions are less than $600, the government would deposit whatever amount it would take to equal the minimum $600 for all participants.
In a radio interview with Kirby Wilbur in Seattle on Oct. 27, 2008, Ghilarducci explained that her proposal doesnât eliminate the tax breaks, rather, âIâm just rearranging the tax breaks that are available now for 401(k)s and spreading â spreading the wealth.â
All workers would have 5 percent of their annual pay deducted from their paychecks and deposited to the GRA. They would still be paying Social Security and Medicare taxes, as would the employers. The GRA contribution would be shared equally by the worker and the employee. Employers no longer would be able to write off their contributions. Any capital gains would be taxable year-on-year.
Analysts point to another disturbing part of the plan. With a GRA, workers could bequeath only half of their account balances to their heirs, unlike full balances from existing 401(k) and IRA accounts. For workers who die after retiring, they could bequeath just their own contributions plus the interest but minus any benefits received and minus the employer contributions.
Another justification for Ghilarducciâs plan is to eliminate investment risk. In her testimony, Ghilarducci said, âhumans often lack the foresight, discipline, and investing skills required to sustain a savings plan.â She cited the 2004 HSBC global survey on the Future of Retirement, in which she claimed that âa third of Americans wanted the government to force them to save more for retirement.â
What the survey actually reported was that 33 percent of Americans wanted the government to âenforce additional private savings,â a vastly different meaning than mandatory government-run savings. Of the four potential sources of retirement support, which were government, employer, family, and self, the majority of Americans said âselfâ was the most important contributor, followed by âgovernment.â When broken out by family income, low-income U.S. households said the âgovernmentâ was the most important retirement support, whereas high-income families ranked âgovernmentâ last and âselfâ first (www.hsbc.com/retirement).
On Oct. 22, The Wall Street Journal reported that the Argentinean government had seized all private pension and retirement accounts to fund government programs and to address a ballooning deficit. Fearing an economic collapse, foreign investors quickly pulled out, forcing the Argentinean stock market to shut down several times. More than 10 years ago, nationalization of private savings sent Argentinaâs economy into a long-term downward spiral.
Income and Wealth Redistribution
The majority of witness testimony during recent hearings before the House Committee on Education and Labor showed that congressional Democrats intend to address income and wealth inequality through redistribution.
On July 31, 2008, Robert Greenstein, executive director of the Center on Budget and Policy Priorities, testified before the subcommittee on workforce protections that âfrom the standpoint of equal treatment of people with different incomes, there is a fundamental flawâ in tax code incentives because they are âprovided in the form of deductions, exemptions, and exclusions rather than in the form of refundable tax credits.â
Even people who donât pay taxes should get money from the government, paid for by higher-income Americans, he said. âThere is no obvious reason why lower-income taxpayers or people who do not file income taxes should get smaller incentives (or no tax incentives at all),â Greenstein said.
âMoving to refundable tax credits for promoting socially worthwhile activities would be an important step toward enhancing progressivity in the tax code in a way that would improve economic efficiency and performance at the same time,â Greenstein said, and âreducing barriers to labor organizing, preserving the real value of the minimum wage, and the other workforce security concerns . . . would contribute to an economy with less glaring and sharply widening inequality.â
When asked whether committee members seriously were considering Ghilarducciâs proposal for GSAs, Aaron Albright, press secretary for the Committee on Education and Labor, said Miller and other members were listening to all ideas.
Millerâs biggest priority has been on legislation aimed at greater transparency in 401(k)s and other retirement plan administration, specifically regarding fees, Albright said, and he sent a link to a Fox News interview of Miller on Oct. 24, 2008, to show that the congressman had not made a decision.
After repeated questions asked by Neil Cavuto of Fox News, Miller said he would not be in favor of âkilling the 401(k)â or of âkilling the tax advantages for 401(k)s.â
Arguing against liberal prescriptions, William Beach, director of the Center for Data Analysis at the Heritage Foundation, testified on Oct. 24 that the âroots of the current crisis are firmly planted in public policy mistakesâ by the Federal Reserve and Congress. He cautioned Congress against raising taxes, increasing burdensome regulations, or withdrawing from international product or capital markets. âCongress can ill afford to repeat the awesome errors of its predecessor in the early days of the Great Depression,â Beach said.
Instead, Beach said, Congress could best address the financial crisis by making the tax reductions of 2001 and 2003 permanent, stopping dependence on demand-side stimulus, lowering the corporate profits tax, and reducing or eliminating taxes on capital gains and dividends.
Testifying before the same committee in early October, Jerry Bramlett, president and CEO of BenefitStreet, Inc., an independent 401(k) plan administrator, said one of the best ways to ensure retirement security would be to have the U.S. Department of Labor develop educational materials for workers so they could make better investment decisions, not exchange equity investments in retirement accounts for Treasury bills, as proposed in the GSAs.
Should Sen. Barack Obama win the presidency, congressional Democrats might have stronger support for their âspreading the wealthâ agenda. On Oct. 27, the American Thinker posted a video of an interview with Obama on public radio station WBEZ-FM from 2001.
In the interview, Obama said, âThe Supreme Court never ventured into the issues of redistribution of wealth, and of more basic issues such as political and economic justice in society.â The Constitution says only what âthe states canât do to you. Says what the Federal government canât do to you,â and Obama added that the Warren Court wasnât that radical.
Although in 2001 Obama said he was not âoptimistic about bringing major redistributive change through the courts,â as president, he would likely have the opportunity to appoint one or more Supreme Court justices.
âThe real tragedy of the civil rights movement was, um, because the civil rights movement became so court focused that I think there was a tendency to lose track of the political and community organizing and activities on the ground that are able to put together the actual coalition of powers through which you bring about redistributive change,â Obama said.
Karen McMahan is a contributing editor of Carolina Journal.
I am sick, livid, disgusted, frightened by this prospect and I am considering pulling every penny out of my 401(k)/IRA's before the Obama takes office.
Why hasn't this gotten more attention? I am afraid the sheople will embrace this. God help us all.
Ping.
bump
This is old news. I still don’t think they can confiscate our private savings (401Ks).
DemocRATS are good at stealing other people’s money. A government of the politicians, by the politicians, for the politicians. Something seems to have gone wrong. That’s not how it is supposed to be.
Damn! This info has got to get out. People aren’t hearing about this. This confiscation is nothing short of communism. I’m so PO’ed.
A close reading indicates this is an effort to discourage and ultimately eliminate IRA’s and 401k’s. One thing your new socialist government does not want: independent people who save their money for themselves.
On the other hand, this may be the way they attempt to “save” social security; the next step will be confiscation of private pension plans just as the lady in Argentina just pulled off.
There will be too much outcry if they try.
However, that’s not the point.
The point is that the fascist bastards WANT to do it.
Levin interviewed one of the ‘architechts’ of this 401k plan. Basically, the govt is going to make a deal ‘you can’t refuse’. You won’t hear much about it until after the bin biden ‘crisis’ next year.
Over my dead body. They can p!$$ right off.
I grew up in Raleigh, and everyone I know from back there was voting for Obama. I hope they all see this. Most of them had no clue what they were voting for, other than “Change.”
They will imply that it’s still “yours” - just that it will be under “gov’t” (their) control.
I don’t have a substantial amount of money in 401k just yet. If I did, you better believe I would FIND a way to get to it before the federal government did.
This has to be one of the more outrageous things I’ve seen proposed. It’s bad enough we are forced into participating in Socialist Security. Now, they want to take away people’s hard earned retirement savings.
Any bets on how long it would take for this money to get spent by the politicians, just like how all of the Socialist Security money was spent? Their thirst for our money, driven by their hunger for power keeps getting closer to home....
They most certainly can. They confiscated all the gold in the country for the last Great Depression. There was no ruling that it was illegal, so now it's precedence.
The question is how they will. Direct confiscation, confiscatory taxes on 401k accounts to make up for the 'missed' taxes, or confiscation by inflation, are among the choices. But the goal is definitely to break the back of the middle class.
I myself do not pay federal income tax. (Combination of income and deductions).
I am also afraid if this comes to pass. I pay into my 401K and try to save what I can. Just because I am not currently wealthy doesn’t mean that someday I won’t be. I hope that punitive taxes and such are not in place if I ever do become wealthy.
Most democrats that I know don’t want to ever face the consequences of their actions. If they make it big they are happy to take the fruits, if it all goes wrong they look to the government to save them. I am so sick of the victims.
This is insane. And is unlikely to happen as the political fall out would be huge.
These people have truly lost it.
This provision alone would force more jobs and capital out of the country
I believe you’re refering to the proposal that would “restore” the value of 401k’s and IRA’s to their values prior to the October crash - if you subscribe to the proposed program.
Plus, the proposed program would credit anyone signing up with a 1 time $6000 credit.
Kinda like Extortion and Bribery Yes?
The government confiscated gold in the 30’s. How/why is this any different?
If they “give” you a government account with like balance to that which they confiscate, have they met complied with the 5th Amendment prohibition against confiscation of private property without just compensation?
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