Thursday, November 29, 2012

Coming after your 401K?

Looks like 401K plans have a target on their account statements. By some strange coincidence a Danish study criticizing the tax credits for 401K plans appeared in the New York Times, The Atlantic Monthly, and Time within 24 hours of each other.

The NYT published the story "Study Questions Tax Breaks’ Effect on Retirement Savings" on November 25:

"Every year, the government spends more than $100 billion on tax breaks to encourage Americans to save more for retirement. But a new study suggests such provisions may have little effect on the amount Americans save.

The finding has particular relevance as Congress looks for ways to raise revenue by reducing tax breaks as part of the year-end budget negotiations..." Article

That was the opening jab. The Atlantic Monthly followed up with the haymaker with the headline "The 401(k) Is a $240 Billion Waste" and the sub-headline "Why subsidize retirement saving if the subsidies don't work?". The Atlantic argued:

"Imagine there were no 401(k)s. You wouldn't stop saving for retirement, right? Right? Don't worry, I won't tell Suze Orman. Not that CNBC's personal finance guru would get mad at you -- according to a new paper, most households wouldn't sock away any less for their golden years if we eliminated 401(k)s. Which raises a $100 billion question...

Why subsidize retirement saving if the subsidies don't work?


"As far as tax expenditures go, the one for retirement savings is a biggie. Remember, "tax expenditure" is just econospeak for the various deductions, exclusions, and preferential rates -- in other words, subsidies -- that litter the tax code. According to the Congressional Budget Office (CBO), excluding pension contributions and earnings from taxes will cost us about 1.2 percent of GDP over the next decade, or an average of $240 billion a year. That's a lot of spending -- that's what tax expenditures are, just disguised spending -- without much bang for the buck. Maybe just a penny's worth.

In fact, one penny's worth is exactly how much extra saving a dollar's worth of retirement subsidies produced in Denmark, according to the recent paper by Raj Chetty and John N. Friedman of Harvard, Soren Leth-Petersen and Tore Olsen of the University of Copenhagen, and Torben Heien Nielsen of the Danish National Centre for Social Research. In other words, we might be spending $240 billion to get people to save $2.4 billion more.



But don't the trillions of dollars in 401(k) accounts tell a different story? Not necessarily. There isn't enough data for the U.S
....

Households save where the subsidy is, but don't save more because of the subsidy. It turns out the best way to get households to save more is ... to make them save more. In other words, automatically take a percentage of each person's paycheck and put it in a retirement account, as a default" Article



Time then mentioned the study 24 hours later. All of these publications within a 24-hour period are just a coincidence, mind you. The article led with the headline: "Fiscal Cliff: Why Congress Might Have to Mess with the 401(k)". The essay follows along the same slant used in the other two publications:

"One of the earliest fears about tax-favored savings accounts like IRAs and 401(k) plans was that when this pool of savings grew large enough Congress would not be able to resist tapping it to help solve the nation’s debt problems. We’re about to find out if those fears—persistent for decades—have been justified.

Everything including the sacred mortgage deduction is on the table as lawmakers wrestle with the fiscal cliff, a year-end avalanche of scheduled spending cuts and tax increases. With a combined $10 trillion sitting in IRAs and 401(k) plans, retirement accounts make a juicy target. Some of this money has never been taxed, and under current law never will be.

To maintain this savings incentive the government “spends” $100 billion a year in the form of tax breaks to those who stash money in these kinds of accounts. Now, a new study suggests this tax incentive does little to change saving behavior. Some lawmakers, no doubt, are wondering: Why keep an expensive tax incentive that does not incent?.
." Article

Keep in mind this website reported four years ago the efforts of Professor Theresa Ghilarducci to convert all 401K accounts to Government Retirement Accounts that were defined benefit plans that guaranteed a 3% annual return.  Earlier post. Another earlier post: Are the Democrats planning to seize your 401K plan?>  

These articles and study merely advocate, um, examine the idea of abolishing the 401K tax break. The good professor advocates converting them to government-held retirement accounts. What will happen? Stay tuned. There is a reason this suddenly appeared in the media this week.








6 comments:

Anonymous said...

here's a passive agressive way to do it: allow anyone to open their 401k piggybank w/o penalty and just tax it as regular income when disbursed. yeah, i know all the reasons not to. but the way this economy is going, 401k's are going to be worth much less soon

Anonymous said...

If the logic goes that a tax advantaged 401k does not change retirement saving behavior, then why have social security? Let's make a deal: no more 401k tax advantage, no more social security tax. I'll take that in a heartbeat.

Anonymous said...

You may remember when the markets fell hard in 2008 and Obama was elected, the Democrats floated a trial balloon to force IRA's and 401K's to purchase U.S. Treasuries "for safety", as too many good citizens were seeing their retirement savings depleted. In effect, they were seeking a market for the new government debt they would float. Instead the Fed monetized the debt to create a stock bubble. Now that deficits loom as far as the mind can imagine and equity assets have been inflated, they now feel justified in taxing the tax-deferred assets. One other point....look at the tax rate in Denmark and other Scandinavian countries. It's so high to support the socialized medicine and government programs, you wouldn't logically expect a person to use a tax-deferred account. The whole purpose of the account is the premise the tax rate in the future will either be lower than today or the compounding returns will compensate, should the marginal tax rate be unchanged.

Anonymous said...

The Kenyan wants anarchy. Won't be long now before the spin to rescind the 22nd amendment begins again. Civil wars have started from less.

Anonymous said...

8:53 - You are hitting the nail on the head. The man is bent on financial destruction of the country as well as his continued reign. The masses are taught to disregard what he does, only listen to what he says. The fruits of O's spirit show the truth of his intentions. You need not be psychic or prophetic.

If a known convicticed murder were to walk in your house and say, "I'm not going to hurt you, I'm just here to borrow the phone and get a cup of coffee", most of the voters in this country would start heating the water.

I hate to say, but I'm afraid the zombie apocalypse has already happened.

Anonymous said...

Pensions gone. Now 401k's saving preferences eroding. Only thing left for a big chunk of us middle class lemming will be Social Security. What a joke; bank will be broke. Really looking forward to the joy of surprise COLA increases granted by the elected Oz de jure in my golden years. And soilent green wafers.

Who is the hottest reporter?

Suscribe to latest on JJ.

Recent Comments

Search Jackson Jambalaya

Loading...

Subscribe to JJ's Youtube channel

Archives

Who is the Hottest Reporter in Jackson?

Trollfest '09

Trollfest '07 was such a success that Jackson Jambalaya will once again host Trollfest '09. Catch this great event which will leave NE Jackson & Fondren in flames. Othor Cain and his band, The Black Power Structure headline the night while Sonjay Poontang returns for an encore performance. Former Frank Melton bodyguard Marcus Wright makes his premier appearance at Trollfest singing "I'm a Sweet Transvestite" from "The Rocky Horror Picture Show." Kamikaze will sing his new hit, “How I sold out to da Man.” Robbie Bell again performs: “Mamas, don't let your babies grow up to be Bells” and “Any friend of Ed Peters is a friend of mine”. After the show, Ms. Bell will autograph copies of her mug shot photos. In a salute to “Dancing with the Stars”, Ms. Bell and Hinds County District Attorney Robert Smith will dance the Wango Tango.

Wrestling returns, except this time it will be a Battle Royal with Othor Cain, Ben Allen, Kim Wade, Haley Fisackerly, Alan Lange, and “Big Cat” Donna Ladd all in the ring at the same time. The Battle Royal will be in a steel cage, no time limit, no referee, and the losers must leave town. Marshand Crisler will be the honorary referee (as it gives him a title without actually having to do anything).


Meet KIM Waaaaaade at the Entergy Tent. For five pesos, Kim will sell you a chance to win a deed to a crack house on Ridgeway Street stuffed in the Howard Industries pinata. Don't worry if the pinata is beaten to shreds, as Mr. Wade has Jose, Emmanuel, and Carlos, all illegal immigrants, available as replacements for the it. Upon leaving the Entergy tent, fig leaves will be available in case Entergy literally takes everything you have as part of its Trollfest ticket price adjustment charge.

Donna Ladd of The Jackson Free Press will give several classes on learning how to write. Smearing, writing without factchecking, and reporting only one side of a story will be covered. A donation to pay their taxes will be accepted and she will be signing copies of their former federal tax liens. Ms. Ladd will give a dramatic reading of her two award-winning essays (They received The Jackson Free Press "Best Of" awards.) "Why everything is always about me" and "Why I cover murders better than anyone else in Jackson".

In the spirit of helping those who are less fortunate, Trollfest '09 adopts a cause for which a portion of the proceeds and donations will be donated: Keeping Frank Melton in his home. The “Keep Frank Melton From Being Homeless” booth will sell chances for five dollars to pin the tail on the jackass. John Reeves has graciously volunteered to be the jackass for this honorable excursion into saving Frank's ass. What's an ass between two friends after all? If Mr. Reeves is unable to um, perform, Speaker Billy McCoy has also volunteered as when the word “jackass” was mentioned he immediately ran as fast as he could to sign up.


In order to help clean up the legal profession, Adam Kilgore of the Mississippi Bar will be giving away free, round-trip plane tickets to the North Pole where they keep their bar complaint forms (which are NOT available online). If you don't want to go to the North Pole, you can enjoy Brant Brantley's (of the Mississippi Commission on Judicial Performance) free guided tours of the quicksand field over by High Street where all complaints against judges disappear. If for some reason you are unable to control yourself, never fear; Judge Houston Patton will operate his jail where no lawyers are needed or allowed as you just sit there for minutes... hours.... months...years until he decides he is tired of you sitting in his jail. Do not think Judge Patton is a bad judge however as he plans to serve free Mad Dog 20/20 to all inmates.

Trollfest '09 is a pet-friendly event as well. Feel free to bring your dog with you and do not worry if your pet gets hungry, as employees of the Jackson Zoo will be on hand to provide some of their animals as food when it gets to be feeding time for your little loved one.

Relax at the Fox News Tent. Since there are only three blonde reporters in Jackson (being blonde is a requirement for working at Fox News), Megan and Kathryn from WAPT and Wendy from WLBT will be on loan to Fox. To gain admittance to the VIP section, bring either your Republican Party ID card or a Rebel Flag. Bringing both and a torn-up Obama yard sign will entitle you to free drinks served by Megan, Wendy, and Kathryn. Get your tickets now. Since this is an event for trolls, no ID is required. Just bring the hate. Bring the family, Trollfest '09 is for EVERYONE!!!

This is definitely a Beaver production.


Note: Security provided by INS.

Trollfest '07

Jackson Jambalaya is the home of Trollfest '07. Catch this great event which promises to leave NE Jackson & Fondren in flames. Sonjay Poontang and his band headline the night with a special steel cage, no time limit "loser must leave town" bout between Alan Lange and "Big Cat"Donna Ladd following afterwards. Kamikaze will perform his new song F*** Bush, he's still a _____. Did I mention there was no referee? Dr. Heddy Matthias and Lori Gregory will face off in the undercard dueling with dangling participles and other um, devices. Robbie Bell will perform Her two latest songs: My Best Friends are in the Media and Mama's, Don't Let Your Babies Grow up to be George Bell. Sid Salter of The Clarion-Ledger will host "Pin the Tail on the Trial Lawyer", sponsored by State Farm.

There will be a hugging booth where in exchange for your young son, Frank Melton will give you a loooong hug. Trollfest will have a dunking booth where Muhammed the terrorist will curse you to Allah as you try to hit a target that will drop him into a vat of pig grease. However, in the true spirit of Separate But Equal, Don Imus and someone from NE Jackson will also sit in the dunking booth for an equal amount of time. Tom Head will give a reading for two hours on why he can't figure out who the hell he is. Cliff Cargill will give lessons with his .80 caliber desert eagle, using Frank Melton photos as targets. Tackleberry will be on hand for an autograph session. KIM Waaaaaade will be passing out free titles and deeds to crackhouses formerly owned by The Wood Street Players.

If you get tired come relax at the Fox News Tent. To gain admittance to the VIP section, bring either your Republican Party ID card or a Rebel Flag. Bringing both will entitle you to free drinks.Get your tickets now. Since this is an event for trolls, no ID is required, just bring the hate. Bring the family, Trollfest '07 is for EVERYONE!!!

This is definitely a Beaver production.

Note: Security provided by INS
.