Wednesday, October 29, 2008

The $80 billion dollar tax increase that the Democrats aren't talking about...

... is the elimination of pre-tax investment in 401K retirement accounts [supposedly only for the wealthy, which here appears to be anyone at 100K or more], which will be switched out, according to economics professor Teresa Ghilarducci for....

Under Ms. 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% 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% a year, adjusted for inflation.

Why would Congress want to do that? Because your tax exempt contributions to that 401K represent an $80 Billion dollar pool of potential tax increases for them to play with:

“With respect to the 401(k), it appears to be a plan that is not really well-devised for the changes in the market,” Rep. George Miller, D-Calif., said.

“We’ve invested $80 billion into subsidizing this activity,” he said, referring to tax breaks allowed for 401(k) contributions and savings.

With savings rates going down, “what do we have to start to think about in Congress of whether or not we want to continue and invest that $80 billion for a policy that is not generating what we … say it should?” Mr. Miller said.

This is the essence of Statist double-speak. Allowing people to save or invest with pre-tax dollars is now a Congressional investment of tax dollars as a subsidy to American citizens. In other words: it wasn't your money to begin with.

And granted that 401K accounts have taken a huge hit over the past few months (what hasn't?), the replacement plan advocated by the economist who is one of the liberals' favorite economic advisors mandates that in exchange for a $600 tax exemption, you will now have to turn over 5% of your salary to the Social Security Administration in addition to the SSI you already pay to be invested in government bonds that yield--get ready for it--a massive 3%.

So let's see how this plays out for a family of four with $100K income.

Today that family can choose to shelter $10k pre-tax and pay income taxes on $90K. If, of course, the family decides that other expenses will have priority in the coming year it can choose not to contribute to the 401 K and pay taxes on $100k.

Under the new Congressional plan, the family must invest $5 K with the Social Security Administration and (get ready for this) pay taxes of $99.4K (after the generous tax exemption of $600). Anything else invested in a 401 K would have to come after taxes.

Thus that family of four which used to be able to reduce its taxable income from $100K to $90K is now going to (A) pay taxes on $99.6 K no matter what; and (B) lose another $5K to the government for an account almost guaranteed to lose value against virtually any other investment you could make.

The government not only recovers $80 Billion in new taxes, but also acquires the use of another 5% of everybody's income in mandatory retirement savings accounts.

Now you know (in part) how the State intends to take your money to fund all the neat programs while lulling you to sleep with idiotic tax cut calculators!

And the worst part? This will probably happen whether Barack Obama or John McCain gets elected, because this is a Congressional plan....

Libertarians, being the only true small government people left in the country now that the GOP has deserted us, this is one of the big issues we're going to have to take to the people.


Brian Shields said...

Jesus H Christ - Why can't I just opt out of Social Security, invest my retirement how I see fit, and keep the government out of my pocket?

You get this if you do that and then we do this with your money to earn you this much if we keep our promise and don't change it in 10 years when new people are in charge.

Steven H. Newton said...

Hube has the answer, Brian, in a quote from Elizabeth Edwards:

Edwards – who has battled breast cancer since 2004 – said McCain’s plan fails in all important areas by leaving the decision-making process up to individuals, who can frequently “make stupid economics decisions.”

a most peculiar nature said...

I saw this story this week, and didn't completely understand it, knowing only that it sounded a little fishy.

We've got to keep an eye on this one. Good Lord.