Friday, October 10, 2008

Are your 401k's safe from the Democrats?

Update: See post on October 27, 2008: Who is Teresa Ghilarducci?

Original Post:
One common question asked of Obama's proposed policies is how will he pay for increased government spending since his plans also call for tax cuts. Perhaps Congressional Democrats unwittingly provided us with a clue. Investment News reported the following remarks in a recent hearing:
A wide range of sweeping changes to the 401(k) system were proposed Tuesday at a hearing on how the market crisis has devastated retirement savings plans.
"Chief among them was eliminating $80 billion in tax savings for higher-income people enrolled in 401(k) retirement savings plans.
This was suggested by the chairman of the House Committee on Education and Labor.
“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.
Congress should let workers trade their 401(k) assets for guaranteed retirement accounts made up of government bonds, suggested Teresa Ghilarducci, an economics professor at The New School for Social Research in New York.
When workers collected Social Security, the guaranteed retirement account would pay an inflation-adjusted annuity under her plan.
“The way the government now encourages 401(k) plans is to spend $80 billion in tax breaks,” which goes to the highest-income earners, Ms. Ghilarducci said.
That simply results in transferring money from taxed savings accounts to untaxed accounts, she said

The Democrats are planning on grabbing your 401k plans and using them for their schemes just as Augustus paid for the Roman Empire's expansion by seizing Cleopatra's gold. What they will do is move your 401k funds into so-called government bonds or accounts. The money will not be put into Algore's "Lockbox" but instead placed into the general fund just as the government does with FDIC premiums and Social Security contributions, giving IOU's in return.

The arrogance and ignorance of these social engineers is obvious. They can not stand for Americans to control their own retirement plans. If someone worked hard, sacrificed, and saved for retirement, they see him as rich because he didn't want to settle for $800 a month while living under their control. While whining about how 401k plans receive unfair tax breaks, they very conveniently ignore the fact that 401k plans ARE taxed when funds are withdrawn or the account is closed. Such taxation is not good enough for these thieves as they see anything one earns as a target since they are smarter than the rest of us.

What is ironic is they are complaining about market instability yet their proposal is to withdraw a colossal amount of money from the market when it is falling. This will cause the market to crash even further and rob 401k holders of ANY recovery in the market that will return to them all or part of their lost value. It also ignores that every 50-year return on the stock market, INCLUDING the Great Depression, has a rate of return that is near double digits. However, economic ignorance seems to be in ample supply among our leaders on both sides of the aisle.

McCain should nail these bastards with a hard-hitting ad about this issue. Americans may not care about Ayers or Wright. They DO care about the government taking away their retirement accounts while it claims to be helping them.

Related posts:

And RedState finally caught up:

Here is an essay written by the Democrats' intellectual godfather for seizing 401k plans:


Anonymous said...

While I understand American’s lack of retirement savings is a critical issue and needs to be addressed, I think the current Miller/ Ghilarducci proposal to redistribute my retirement nest egg and adversely impact my ability to save for retirement is outrageous. My points of contention are as follows:

- A Miller / Ghilarducci proposal would have a return of 3%. The long term return on the S&P 500 from 1950 to 2007 was 11.8%. The returns from the proposed plan are obviously inferior. A knee jerk reaction to recent cyclical movements in the equities markets is a call to panic and not to reason. Most market experts warn against investment decisions based on panic, which this one clearly is.

- The Miller / Ghilarducci proposal would mandate 5% savings. But a worker making $50,000 to $100,000 a year can today save up to a 15,500, versus $5,000 under the Ghilarducci plan. This would have a disastrous effect of those nearing retirement who desperately need to step up their savings. Also, the Miller / Ghilarducci assumes $5,000 a year is enough to fund retirement for the average American. As the cost of living in the tri-state area is higher than average, this proposal would penalize those living in higher income states, such as New Jersey, New York, and California.

- ALL current contributions to a 401K plan, once vested, goes to the participant or their family. Under the Miller / Ghilarducci proposal, when the participant dies, the family only gets half of the contribution. This is not only unfair, but financial disruptive to the surviving family, especially in the later years of their lives.

- Ghilarducci claims that the government could run retirement plans more cost efficiently. I am very surprised to hear that. The cost of the Vanguard SP500 fund is 19 basis points (0.19%). How will the government beat that? With all due respect, when is the US Government ever more efficient than US businesses in a highly competitive market?

- No offense, but I do not want the US Government managing my retirement. This is from the same management that brought us a Social Security plan that is targeted to go bankrupt by 2041, a FannieMae FredieMac program that will cost the US taxpayers at least $200 billion, the $13 billion bailout of Amtrack and other wonderful programs too numerous to mention. If Miller / Ghilarducci want a government mandated plan, there is already one in place. It’s called Social Security, the largest retirement plan in the world. Creating a second government plan will not fix the problems with the first plan.

- Ghilarducci claims that the 401K plans are unfair. I do not agree. Individuals that are not part of a 401K plan can contribute tax differed income to IRA plans if they chose. Also, 401K plans are capped at $15,500 for 2008, so an employee making more money can not possibly contribute more than the lower level employee in the same 401K plan. This seems fair to me.

- Ghilarducci claims that the tax savings on the current 401K plan is regressive. What Ghilarducci fails to take into account is that the US Tax plan is progressive, which causes regressive savings. So the savings is merely a by product of the US Tax code. Please also remember that only 41% of American’s pay taxes. So the Miller / Ghilarducci proposal requires the middle class to shoulder even more of our nation’s economic burden.

- Each year, more families fall into the Alternative Minimum Tax status. Under this, middle class families can not deduct property taxes, state taxes, and local taxes from their federal taxes. The 401K savings is one of the few deductions that the middle class family paying taxes under AMT have. Lower income families have the ability to deduct these state and local taxes. So the Miller / Ghilarducci proposal causes further tax penalties on the middle class. The combined Obama/Bidden tax plan, AMT, and Miller / Ghilarducci would create a perfect storm four our middle class.

- By moving retirement funds away from the capital markets, the Miller / Ghilarducci proposal could cause a decline in the equity and bond markets and reduce the amount of available funds for capital expansion and development. My estimates are that this would be about $300-$400 Billion a year that would be pulled from our capital markets. The Miller / Ghilarducci proposal does not consider those impacts on our markets and our economy.

- An unintended consequence of the Miller / Ghilarducci proposal would be the negative impact on small businesses. By mandating that ALL companies pay in $2,500 per employee, small businesses would see their costs rise. If you couple that with the Obama / Bidden proposal to increase taxes on small businesses and mandate the payment of health benefits, this could create a perfect storm for small businesses. The direness of this is greater in our current economic environment, where we need small businesses to lead us into a recovery, which they have historically done. The Miller / Ghilarducci proposal could prevent that from happening and prolong our recession.

- Applying the Miller / Ghilarducci's proposal to the current 401K planning model pushes the estimated retirement of a middle class worker back at least 3-5 years, if not more.

Mike said...

My dad is convinced that most of American's problems come from Obama being in power. I don't know enough about politics to really comment about this. I just feel that no matter who's in power not much change accords in our world.

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