House Democrats Want to Eliminate Your 401K
Written by Sam on October 23rd, 2008Powerful 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.
“I want to stop the federal subsidy of 401(k)s,” 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.”
Under the current 401(k) system, investors are charged relatively high retail fees, Ghilarducci said.
“I want to spend our nation’s dollar for retirement security better. Everybody would now be covered” if the plan were adopted, Ghilarducci said.
She has been in contact with Miller and McDermott about her plan, and they are interested in pursuing it, she said.
“This [plan] certainly is intriguing,” said Mike DeCesare, press secretary for McDermott.
“That is part of the discussion,” he said.
While Miller stopped short of calling for Ghilarducci’s plan at the hearing last week, he was clearly against continuing tax breaks as they currently exist.
Workforce Management
A $600 a year contribution from the government? Is this a joke??? My company matches every dollar I put in my 401k up to 4% of my pay.
“From where I sit that’s just crazy,” said John Belluardo, president of Stewardship Financial Services Inc. in Tarrytown, New York. “A lot of people contribute to their 401(k)s because of the match of the employer,” he said. Belluardo’s firm does not manage assets directly.
Higher-income employers provide matching funds to employee plans so that they can qualify for tax benefits for their own defined-contribution plans, he said.
“If the tax deferral goes away, the employers have no reason to do the matches, which primarily help people in the lower income brackets,” Belluardo said.
Well, that’s the whole point, you see. The government doesn’t want you to be in charge of anything in your life. They want you to depend on them and that is whole purpose behind this proposal, to eliminate the 401k altogether so that the vast majority of us will have to rely on this new government program that they will control and we won’t. If we’re forced to pay 5% of our income into this new program most workers who have a 401k now won’t be able to continue contributing to them on the side, particularly if they repeal the tax breaks for them. Most Americans will have no choice than to rely on the new government program and considering that Social Security is already heading towards insolvency, what are the odds that your money you will have spent 30 years contributing into this program will still be there when you are ready to retire? Do you really trust the government to be responsible with it?
23
PM
Hey Sam, it would actually be great for conservatism and personal liberty if legislation like this passed. Eventually, people will see what a disaster it is and elect people to repeal it. Just like social security and medicare! Theyve been repealed right?
23
PM
The government is deeply in debt after this latest round of bailouts, there are only so many more tax dollars to be had and cutting spending is out of the question. The next logical step is to requisition other private sources of capital for the common good. 401ks, IRAs, and bank accounts over a certain size should all have a special tax placed on them since only rich people save money, right comrades?
24
AM
I thought this video might be very telling, considering all the hub-bub about Republican “mismanagement” of the financial crisis.
Paints a very stark contrast:
http://www.youtube.com/watch?v=_MGT_cSi7Rs
24
PM
This insane plan is to make it all “FAIR”. Lower income people can’t afford to put into a 401K plan, so they won’t have much money in retirement. Those of us who pinch pennies now so we can have a comfortable retirement are the bad guys. The liberals want to take from us to give to the “less fortunate” all inthe name of “fairness”. News flash: “Life isn’t fair—-get over it!”
I don’t get matching contributuons from my employer, but I max out every year by denying myself the better things in life now. But if these wackos get their way, I won’t be able to enjoy anything in retirement either.
This is unadulterated BS!
24
PM
Miller and McDermott are among the most liberal House members. They will be part of the cabal of the leftist Obama Administration. All private saving is in danger of being collectivized.
25
PM
Let’s compare the tax breaks for investors and homeowners.
Investors in 401K’s save $80 billion a year from this tax break. But when they cash in their savings, it is taxed as regular income. The net savings is probably closer to half of this.
Investors in stocks outside of a 401K pay 15% capital gains plus state tax. Obama will raise this tax to at least 20%.
Now let’s look at homeowners. They can deduct their mortgage interest, property taxes, and certain upgrades. They pay no capital gains tax at all! And when you add to that all the subsidies and bailouts, courtesy of the taxpayer, the relative cost is astronomical.
Already this year, there have been 3 bailouts for homeowners: $300 billion for the “Mortgage Relief” bill, $300 billion for Fannie Mae/Freddie Mac, and recently $850 billion for banks and homeowners. For the latter, the banks will have to pay it back and give up some control of their operations; the homeowners will get off Scot free.
So why all the fuss about an $80 billion tax break for 401K investors? The answer is that Democrats hate investors because we are the antithesis of the nanny state beneficiaries that they pander to.
27
AM
Why aren’t McCain and all other Republican candidates raising hell over this? If the Democrats destroy the 401(k) system it will be time for more drastic action than a bunch of dumb ass elections.
28
AM
Its bad enough that Social security has been watered down by an obvious inability of our government to manage it, now they want their hands on our 401K?
Each state should have referendums to re-call elected officials.
29
AM
http://www.arenaofideas.org/?p=1271
http://www.dakotavoice.com/2008/10/house-democrats-abolish-401k-tax-breaks.html
I saw Greta a few nights ago and Rush Limbaugh brought up the fact that the Dems wanted to buy-out personal 401K investments, at their worth in August 2008. They would be willing to give 3% interest annually. Now, I see a few websites, after research, that suggest it is not only true, but that, that will compensate for Barack Obama’s tax cut on the 95% of Americans, which is a welfare check. It is a control factor. CONTROL. That is the government he will provide. I think this needs to be revealed BEFORE the election. God Help Us.. Now they want to take what Americans have saved and gain control, demand a minimum of 5% deduction from the paycheck, control it and use it to replenish the Social Security System, or rather in lieu of it. What has happened to all the monies paid to SS? Now they are saying, basically, because they have screwed up, we paid the money, they gambled our money through the years, and now they want to take more. WE PAID INTO SOCIAL SECURITY.
Voters need to know what the Dems already have a plan for because they feel Barack Obama has already won and the House and Congress are controlled by Dems as well. They can do what they want. I am ashamed to say that I voted for Dems in the past. Not this time.
Darla
6
PM
Will FOX or someone in the media pose this question to BO elect? Let’s get his take on this before we get out of control.
This is patently grand theft and I will not stand for it.
7
PM
I am totally against such a plan. I do not want the government controlling my money. I prefer to make my own decisions, make my own mistakes, and celebrate my own successes. There is little incentive to contribute if the money is not matched and tax-deferred. I would just put my money in regular mutual funds and take my chances that way if such a plan were ever put in place. This is just a scam to keep over-extended government programs such as SS, Medicare, etc. solvent.
11
PM
OK, so the government wants me to contribute an additional 5% of my pay to my retirement which they will invest at a whopping 3%. Nice!
First, I have invested 6.2% of my pay into the social security system for the duration of my working career. And most likely I will not see any of that.
Second, the government could very easily treat social security as a very large pension fund and literally have only one fund manager who could earn 11 - 12% per year while at the same time protecting the proceeds entrusted to them. But they do not! So why in the world would I give them 5% more of my money? And what guarantee is there that I would ever see a dime of that money?
No, I think I’d prefer to manage my retirement myself. The Democrats need to quit thinking so much and keep their hands off the money for which I work very hard. Why suddenly is everything in America a right and not earned?
14
PM
Has anyone considered if this became a reality what would happen to an individuals contribution in the event the individual died before collecting on their retirement? Unlike 401k which can be left to your heirs, want to bet, the government would simply keep any uncollected money you paid in, instead of allowing you to leave it to your loved ones. They’d quickly forget whose money it is. Just like social security.