Would Obama, Dems Kill 401(k) Plans?

US NEWS ^ | 10/23/2008 | James Pethokoukis

[Grampa Dave]

Would Obama, Dems Kill 401(k) Plans? October 23, 2008 10:47 AM ET | James Pethokoukis |

I hate to use the "S" word, but the American government would never do something as, well, socialist as seize private pension funds, right? This is exactly what cash-strapped Argentina just did in the name of protecting workers' retirement accounts (Efharisto, Fausta's Blog). Now, even Uncle Sam isn't that stupid, but some Democrats might try something almost as loopy: kill 401(k) plans.

House Democrats recently invited Teresa Ghilarducci, a professor at the New School of Social Research, to testify before a subcommittee on her idea to eliminate the preferential tax treatment of the popular retirement plans. In place of 401(k) plans, she would have workers transfer their dough into government-created "guaranteed retirement accounts" for every worker. The government would deposit $600 (inflation indexed) every year into the GRAs. Each worker would also have to save 5 percent of pay into the accounts, to which the government would pay a measly 3 percent return. Rep. Jim McDermott, a Democrat from Washington and chairman of the House Ways and Means Committee's Subcommittee on Income Security and Family Support, said that since "the savings rate isn't going up for the investment of $80 billion [in 401(k) tax breaks], we have to start to think about whether or not we want to continue to invest that $80 billion for a policy that's not generating what we now say it should."

A few respectful observations:

1) McDermott is right when he says the savings rate isn't going up. But the savings rate doesn't include gains to money you invest in the stock market. It ignores the buildup of net worth. (If you bought a share of XYZ Corp. in January at $100, for instance, and its value doubled by December, the savings rate measure would still value that investment at $100. In short, the savings rate is a phony number.)

2) So based partly on the above faulty logic, the $4.5 trillion, as of the start of the year, invested in 401(k) plans doesn't count as savings.

3) Ghilarducci would have workers abandon the stock market right at the bottom of the market. A stupid idea, according to Warren Buffett: "I don't like to opine on the stock market, and again I emphasize that I have no idea what the market will do in the short term. Nevertheless, I'll follow the lead of a restaurant that opened in an empty bank building and then advertised: 'Put your mouth where your money was.' Today my money and my mouth both say equities."

4) Ghilarducci would offer a lousy 3 percent return. The long-run return of the stock market, adjusted for inflation, is more like 7 percent. Look at it this way: Ten thousand dollars growing at 3 percent a year for 40 years leaves you with roughly $22,000. But $10,000 growing at 7 percent a year for 40 years leaves you with $150,000. That is a high price to pay for what Ghilarducci describes as the removal of "a source of financial anxiety and...fruitless discussions with brokers and financial sales agents, who are also desperate for more fees and are often wrong about markets." Please, I'll take a bit of worry for an additional $128,000.

5) What effect would this plan have on an already battered stock market? Well, I would imagine it would send it even lower, sticking a shiv into the portfolios of everyone who didn't jump aboard. But I am sure the Chinese would love to jump in and buy all our cheap stocks to fund the retirement of their citizens.

My bottom line: If you believe in the long-run dynamism of the American economy, then you have to believe in the stock market. Listen to superinvestor Buffett, not the prof from the New School.

Tags: Democrats | Barack Obama | stock market | 401(k)

[Grampa Dave]

Thanks for your excellent summary of the nightmare that will take over if Obama and a Rat controlled congress are in total control in Jan 2009.

"And once the government gets that money, I'm sure they would never be tempted to spend my retirement money the way they have spent social security money. Oh, and just wait a year or two after you've been forced to put your money in the government accounts. 1. The age at which you can start making your withdrawals will start creeping up until it finally intersects with one’s life expectancy. 2. There will be talk that the “rich” don't really need the money they've put in, and “means testing” will be introduced as a method to confiscate all or part of the retirement funds of a lot of people. 3. Since that money was for your retirement, it just wouldn't make sense to let your children reap a windfall by allowing the money to pass through inheritance.

In short, the system will first mirror social security, then merge with it, and at the end of the day, you will be left with the same meager social security check even though your contributions to it would have doubled.

[yazoo]

I am soooooo hoping the dems try this. It would never get passed but just the idea the Dems want to take all our savings would send a clear message in the mid-term elections.

[midwyf]

2010 will be too late if they have confiscated all of our savings. They will have pooped it off by that time. I guess if they pass a law that is what they are going to do, and I do not think it will be voluntary, I will take my money out, pay the taxes I have to and hide it from the government.
I can jsut hear the big O telling how he single handedly saved Social Security, he of course will not mention all of the money he confiscates.

[NavVet]

Before the mid-terms in 2006 the Dems wouldn’t come right out and say that they were going to let the bush tax cuts expire, but now they brag about it openly. Sadly, if the Dems win, while all but waiving a socialist banner, they will be they have a mandate to do just that. Furthermore, if people aren’t up in arms about what they openly have stated they plan to do, I wouldn’t count on a grass roots rebillion to save our 401K’s.

[Grampa Dave]

If they do this in 2009, we will never be able to get back to the free market and capitalism.

If Obama wins, it might be time to clear out our IRAs and 401ks. 50% in Nov/Dec, and the rest in Jan 2009 before he is sworn in as the grand dictator of America and the rest of the world.

That way, the extra cash could be on two income tax periods, this year and 2009.

[chimera]

Anyone out there have any ideas about how we can avoid this kind of 'Rat money grab? I'm thinking maybe offshore accounts? Something that can be accessed by ordinary working schmucks like me, not a billionaire's tax dodge.

On another thread a poster suggested increasing your deductions and maybe working fewer hours to reduce your tax liability. Anything to keep the dollars earned by own sweat and tears out of Obortion's hands.

[cgbg]

Tax increases have _never_ been popular and there is no evidence the American people will be crazy enough to support them in our lifetime.

The Democrats _will_ overreach and they _will_ pay a very heavy price.

(I was reading a Dummie discussion of Detroit and started laughing out loud when I read about one Dummie who refused to invest in foreclosed properties there because the "property tax was too high".)

Even Dummies don't like to see their cash flushed down the toilet.

[Strutt9]

I doubt that Repubs will regain in 2010. MSM will cover for them like they are doing today. This is war for MSM... they need to prove that they are relevant and can still influence the masses.

They made O and blame everything on the Repubs. Majority of public still believe what they hear from MSM. If Dems gain control of both houses.. they will ensure that laws are passed that will make it extremely difficult for any other party to gain control. Once, American has been reduced to handouts...they may complain... but will do nothing. In the meantime, MSM will be part of the bailout and the fairness doctrine will rule surpreme.

[Grampa Dave]

“Furthermore, if people aren’t up in arms about what they openly have stated they plan to do, I wouldn’t count on a grass roots rebillion to save our 401K’s.”

Throw in the financial turmoil, we are in now and the potential damage it has done to our IRAs and 401ks, we might have a majority of retirees and those wanting to retire, begging Obama, Pelosi, Reid the Dead and Barney to take control of what’s left of their Iras/401ks.

[yazoo]

It wouldn’t require a grassroots movement. If you have 200K of life savings in a 401K and your senator and congressman votes to take it away from you don’t you think you would throw them out at the next election? Senators and Congressmen operate from one single perspective, getting re-elected, They can weasel and doubletalk taxes all day long, and try and convince their constituents they are getting a tax break, but when they threaten to take away all your life savings they know you will take very sharp notice. Dems from very poor areas would support it, but they are in a minority.

[gotribe]

Can someone photoshop Shelly O’Bomber’s face on a lobster? Because that’s where your retirement funds will be going: into O’Bomber’s bedroom in the form of champagne, lobster and caviar.

[ridesthemiles]

If Obama wins, it might be time to clear out our IRAs and 401ks. 50% in Nov/Dec, and the rest in Jan 2009 before he is sworn in as the grand dictator of America and the rest of the world.

That way, the extra cash could be on two income tax periods, this year and 2009.”

Great advice. I have been faxing these threads about the confiscation of the 401(k) and other plans.
The Congress was fretting that we didn’t save enough, so they gave us a carrot. We are now heading to get the stick-or should I say the shaft?

Even if you have lost some value due to the Wall Street meltdown, I say take out your own money, pay the taxes- spread it into 2 tax years, and put the money into a jar and forget about getting 2% on it that is also taxed.
The socialist stance of Nobama and his thugs is just too much to gamble your savings on.

[Grampa Dave]

"They made O and blame everything on the Repubs. Majority of public still believe what they hear from MSM. If Dems gain control of both houses.. they will ensure that laws are passed that will make it extremely difficult for any other party to gain control. Once, American has been reduced to handouts...they may complain... but will do nothing. In the meantime, MSM will be part of the bailout and the fairness doctrine will rule surpreme."

In 2006 some really wise so called republicans/conservatives* decided that we needed to "teach the country a lesson" by handing power over to the Dem/Fascists. They assured us that the resulting shambles would bring about the next great conservative revolution. We got the shambles all right, but somehow, no one seems to make the connection as to who got us here.

If those brilliant peoples's minds* were right, the Dems should be cowering in hidey-holes like Sadaam for fear of the public's retribution.

Instead, they are poised to destroy America once and for all.

Nancy to Barney and Harry, "As long as we control the mediots and so called conservatives, who suffer from BDS and blame Bush for everything, we elite/rich/white liberals in Congress will have no problem. Just remember everything is Bush's fault! Heh! Heh!"

*Now the same mentally ill idiots filled with same bs, want Sarah and John to lose to really teach America a lesson.

[mlocher]

Thanks for the article.

The dems are always looking for pockets of capital for their socialist experiment. Tobacco lawsuits, tax the rich, tax businesses, control retirement (401K) funds, tax university endowment funds.....the list goes on and on.

If we resorted to only a personal income tax, then people would see the true cost of socialism and would rebel -- instantly. (Non-violently, of course)

[ridesthemiles]

I say take out your own money, pay the taxes- spread it into 2 tax years, and put the money into a jar and forget about getting 2% on it that is also taxed.”PS_ NOt only is the 2% taxed, the Government knows where your money is if it is in a bank.
If it is in your hands, in a mason jar or whatever- then they don’t know where it is.

I told people when this series of plans was started to be very careful.
what the Congress giveth, the Congress can taketh away.
Why would I want to let them locate my principal to get a measly 2% interest, of which 50% goes to taxes? That gives me only a net of 1%.
Not worth losing the 100% principle in the first place.

[Mad_as_heck]

Its beginning to look like the people with their savings safely deposited in a tin can buried in the back yard are the smart ones after all....

[Grampa Dave]

“Can someone photoshop Shelly O’Bomber’s face on a lobster? Because that’s where your retirement funds will be going: into O’Bomber’s bedroom in the form of champagne, lobster and caviar.”

[ridesthemiles]

I say take out your own money, pay the taxes- spread it into 2 tax years, and put the money into a jar and forget about getting 2% on it that is also taxed.”PS_ NOt only is the 2% taxed, the Government knows where your money is if it is in a bank.
If it is in your hands, in a mason jar or whatever- then they don’t know where it is.

I told people when this series of plans was started to be very careful.
what the Congress giveth, the Congress can taketh away.
Why would I want to let them locate my principal to get a measly 2% interest, of which 50% goes to taxes? That gives me only a net of 1%.
Not worth losing the 100% principle in the first place.

[Leftism is Mentally Deranged]

They won’t seize the funds. Even under Obama, the USA will not be that far left.
Instead they will find a way to leach a little bit now, a little bit later, until the value of your savings is reduced.
Example. You think you own a home. Wrong. Your town taxes you on the value of your home. Every year a little bit. 5% a year? In 20 years they have confiscated the entire value of your home while you thought it was just taxes.
Example. Your social security. Once sacred and free from taxes, they have cleverly found a way to confuse us so we don’t realize that they ARE taxing social security. If you earn over a certain amount, they tax your social security.

Bottom line is that leftists hate the fact that you worked hard and saved some money. They have their marxist eyes on your retirement savings. The day will come that they WILL grab it. But we aren’t there just yet.

[ridesthemiles]

I cannot believe for a minute that the MSM elite don’t have 401(k) plans, Keogh’s or something in that grouping.
Don’t they understand that they have been making more money than us- they have maxed out their deductions into the 401 for many years, and that they could lose it all in a blink?

The actions in Argentina this last week haven’t gotten enough coverage, either.
Argentina CONFISCATED $30 BILLION in PRIVATE PENSIONS.
Think about that in terms of your union pension- your personal 401k, your company pension that you have nurtured for years.
What’s next? Taking half my furniture?