Posted on 10/25/2008 7:58:04 AM PDT by Behind Liberal Lines
You are now starting to hear Democrats talk about eliminating the tax deductability of 401(k)s.
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."
Best of the Web has more. In exchange for $600 from Uncle Sam, you agree to give 5 percent of your income to them each year, which they will increase at 3 percent per year. You die, the government gets half. Some deal.
Earlier today Rush Limbaugh spotlighted this comment by Joe Biden on the stump:
Biden took direct aim at executives who draw big salaries while leading failed companies where employees are losing pensions. "Their pensions go first," he told a roaring crowd.
If those CEO's pensions "go" — i.e., are confiscated, as Argentina is currently doing — who goes second? Third?
What 401K?
How can they kill something their policies already murdered.
why is not being discussed by McCain on the trail. Anyone I talk to about this has a dramatic reaction. This issue is a game changer. talk about it with all you come in contact with.
These democrats are inviting a second American Revolution. Whether armed or not, they will turn Americans against the democrat party once and for all.
Won’t happen.
Too many working Americans are in 401(K)plans, including young voters.
I fired off a quick note to my Congressman about this. Might as well let them know we’re paying attention.
this is the start of the new, new deal. it is only the beginning. The Super majority scenario is scary as heck.
Like the $80 billion is not our money to begin with. Amazing thought processes in D.C.
ADS
It sounds to me like these people do not expect to have to face the electorate again any time soon.
I expect one of the Obama regime's first actions will be to disarm the public, Supreme Court be damned.
Use their own tactics against and them and NOW you spineless wonders at the RNC.
Something like “They want to STEAL your retirement plan.” Say it over and over and over again.
They won't do it. The white flag of surrender went up a long time ago at the RNC. What a pathetic bunch of losers.
Obama is going to make sure that can't happen. He already controls the "free" press and will make sure to institute the Fairness Doctrine, hate speech laws and campaign finance reforms that make effective opposition to the Democrat Party impossible.
Remember: he is a Chicago thug, no more, no less.
I am right there with you on the frustration with the RNC. God forbid we fight back with real ideas and the absolute stupidity of the DEMS. If we do, we are somehow racist...or worse yet not bipartisian. I miss the days of BUSH 00 and 04.
Talk about a great way to tank the market! Could you imagine what would happen to the global market if all 401-K’s were to be transfered out of it? Duh! What a bunch of idiots these people are!
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Obama Says A Baby Is A Punishment
Obama: “If they make a mistake, I don’t want them punished with a baby.”
Let's get real..Wall Steet IS Main Street.
sw
Bump
From the article:
“The money in turn would be invested in special government bonds that would pay 3 percent a year, adjusted for inflation.”
From a microeconomic perspective, I would convert my entire retirement portfolio (about 5X my annual salary) to government guaranteed bonds earning a 3% real rate of return right now. That is over twice what you can get from TIPs. When I retire in 22 years I would have, after inflation, 10X my current annual salary. We could probably live comfortably on 60% of my current salary. This would give me 19 years guaranteed real income before that portion of my portfolio would be depeleted (assuming no SS or employer pension). This means that I can go on autopilot and stop those sleepless nights. I have seen 15% of my portfolio vanish this year (enough money to pay off my house). I have friends who are 10 years older that have lost 40-50% of their portfolio. I was heavy into cash when the crash started, and I dumped about a 1/3 of my equities early on in the crash with another 1/4 coming towards the midpoint of the crash. I am thinking about getting back in next week in the hope of making up a portion of my losses.
If you dollar cost averaged from around 1997 or so you would be 4% down in the stock market (this assumes dollar cost averaging investing into Vanguards S&P 500 fund)
If you assume from 1987 (21 years) then your return would be 8.8% (this is over 21 years). Dollar cost average actually gives a better return than a straight investment into the S&P 500 in October 1987. The S&P 500 at that time was a dividend adjusted close of 328. The close as of a couple of days ago was 897 for a 5% return per year. The CPI has grown 3% per year over that time. To think you have experienced horific market risks for a 2% real growth. Give me some of those 3% over inflation TIPs for my portfolio.
By the way if you look at dollar cost averaging from 10/2000 (just before Bush took over) the annual rate of return is -4.5%.
Another advantage to tying up pensions in Inflation Adjusted government securities is that it will cause the government to not so readily run the printing presses. Of course this assumes some factors will hold constant:
1. The rules won’t change - haha thats a laugh
2. The government does not lie about the CPI. They probably do today, and they will have even more reason to lie about it in the future
If the only debt our government owed was to our retirees (ie Social Security and debt in pension), then I would feel a whole lot better about things.
From a macroeconomics perspective it is a horrible idea if you think investing in business is a good idea. The flight out of equities would cripple the capital markets. 3% over inflation is just too high to make sense.
Folks who hold up the mantra that U.S. equities outperform inflation 7-8% over time need to understand that past is past and market fundamentals may be different today. Also when do you enter and exit? My 55 year old friend just took a 40-50% bath on his retirement savings, and his retirement was actively managed by an advisor. Mark my words he will never make that back up.
I keep hearing economists saying that the tax exemption does not have an impact on national savings rates. I think this is bunk (at least I know my behavior has been different because of the existence of 401(k)s). Since about 7 years into my career my goal was to withhold 15% of my salary into 401(k)s. That number came from the maximum allowable withholding at the time with my employer. The rates have since gone up I think, and I have moved more of my saving percent to HSAs and 529s for the kids (decreasing my 15% to 6% for the 401(k)). My only debt is my house which I am scheduled to have paid off in about 8 years. It is not a matter of me substituting 401(k) savings for consumer debt.
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