House Demcrats Want to Abolish 401(k) Tax Breaks

Link: http://www.workforce.com/section/00/article/25/83/58.php

© ignoranceorapathy.com 10/23/2008

You do not have to dig very deep to find the problems with Obama’s tax speeches. Here is one of the reasons we must not send back the same ole Senator and Congressmen, taking back either or both houses of congress is just as important as the White House this year.

According to his statements on the campaign trail and in the debates, he is going to cut taxes. He states he will be cutting taxes for 95% of Americans and he promised a capitol gains tax cut for small business (what small business pays capitol gains taxes, they pay income taxes), among other things.

Article on WorkForce.com House Democrats Contemplate Abolishing 401(k) Tax Breaks.

Powerful 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.

Oh how lovely a brand new and additional tax and social security program.

Follow up:

A plan by Teresa Ghilarducci, professor of economic-policy analysis at the New School for Social Research in New York, … 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.”

Moving current investments from the stock market and municipal bonds would be a disaster for both the stock market and for main street America. Those Muni-Bonds are what pay for our schools and roads and courthouses and fire stations. She calls a tax deduction a subsidy. But wait it gets even better.

“I want to spend our nation’s dollar for retirement security better”…. Ghilarducci said.

I want to spend the nations tax dollars better.
When you spread the wealth around.
It’s time for everyone to jump in, get on board, be patriotic.

Thank the lord above someone is arguing against this socialist utopia.

“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.
“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.
“This is a battle between liberalism and conservatism,” said Christopher Van Slyke, a partner in the La Jolla, California, advisory firm Trovena, which manages $400 million. “People are afraid because their accounts are seeing some volatility, so Democrats will seize on the opportunity to attack a program where investors control their own destiny,” he said.

Socialism on parade, Obama admits to Joe the plumber that he wants to take his hard earned money and give it to whoever Obama sees fit and this does not cause a firestorm?
Then these socialist utopia nut jobs decide they are going to create a brand new social security plan that you are going to contribute 5% of your income and they will take it at gunpoint. This is a classic example of the socialist policies of the very left Democratic Party. Government knows best how to save and invest your money, not you, so give it to us and we will make everything wonderful for you. They cannot even run the cafeteria in there own office building, and just look at the fiasco of social security.

Now if we look at some real numbers this is how this idea will put the screws to Joe Six Pack.

You make a gross income of say $50,000.00.
You contribute say 5% to your 401(k) $2,500.00
Under the current law you deduct your contribution from your gross income for tax purposes.
Your adjusted gross income is $47,500.00 and that amount you would pay taxes on less any other deductions you might have. Also under the current system you would not currently owe any taxes on capitol gains or dividend income in your 401(k).

So you added $2,500.00 to your own retirement account, which is wholly, and totally yours to control and do with as you see fit. Usually an employer would make a matching contribution also, that would be another $2,500.00, so your 401 grew by $5,000.00 this year. Good for you.

Under the new Obama Democratic Party plan, you could still contribute to your 401 BUT you could not deduct the amount of contribution from your gross income. Also your employer loses the tax incentive to offer matching funds.
Under the new tax plan your employer is not likely to give you the matching funds so you only increase your 401 by $2,500.00, then you also do not get to deduct the contribution from your gross income so you will have to pay income taxes on your total income of $50,000.00.
Also under this new plan you will be forced to pay to the government a totally new tax of 5% of your gross income to contribute to this so call “government guaranteed retirement account”. So you get to pay more income taxes on your earnings and you get to pay more in taxes to sponsor this brand new entitlement plan.

But wait there is even more; you now get to pay capitol gains and dividend taxes on any and all earnings and dividends your 401(k) may have produced for you this year.
Yeah You, your so patriotic!
Overly simplified example:

Extremely over simplified chart, using 20% as income tax rate and 15% as dividend tax rate. If our tax forms were this simple we would not need accountants.

Under this new Socialist Government plan you get to pay more taxes on your income. You lose all incentive to be responsible and save for your own future. You get to pay a brand new tax to enable government to have even more control over your life and the future of your children. Welcome to the United Socialist Sates of America!

Didn’t Obama promise a tax cut for 95% of all Americans? How is that even conceivable under this plan that would raise all American workers taxes by no less than 5%. Remember;

Under Ghilarducci’s plan, all workers would be required to invest 5 percent of their pay into a guaranteed retirement account administered by the Social Security Administration.

So not just you rich fat cats with the lofty 401(k) plans are going to pay, but all workers.
How many times must we tell you that the Democratic party is the home to the most anti-American socialist ideas that are not only wrong but will actually harm our country and our economy.

Again I will ask the 10th Amendment challenge question; what clause, article or amendment to our constitution gives congress the authority to become the harbinger of our individual retirement accounts?

Also on a related topic, very good article posted on the Heritage website: Economic Effects of Increasing the Tax Rates on Capital Gains and Dividends