Curious as to what a veto-proof Democratic Congress may look like? In keeping with the spirit of Halloween, a couple of Democratic Congressmen give us a peek at coming attractions.
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.
“Overhaul”… “Obliged”…? Hmmmm. It does have a softer tone than “wreck” and “forced”, though, doesn’t it?
Let’s break this down to the basics. We are in debt. We are massively in debt and face even more debt as we contemplate bailing out the auto industry and depending on who’s getting sworn-in in January, toy with the idea of universal health care amongst all other manner of foolishness. And who’s going to pay for all this goodness? Well, you are, of course….. but how? For one, by Congress getting their hands on the estimated $2 trillion of estimated revenue over the past 15 years lost to the government because of tax-deferred savings accounts.
But don’t worry, Teresa Ghilarducci of the New School for Social Research (that title alone has train wreck written all over it) has got a plan. In return for wacking our 401(k) tax deferment, we would receive a $600 annual inflation-adjusted subsidy (read: a, hey, no hard feelings, bub “government kickback”) in return for being “obliged” to “invest” 5 percent of our pay into a guaranteed retirement account administered by the Social Security Admin which would pay a whopping 3% a year, adjusted for inflation.
Now, if you are thinking, “Gee, Beers, that sounds suspiciously like something we are “obliged” to pay into already that is administered by the SSA”, you would be entirely correct in that assessment but Ms. Ghilarducci, who has been testifying to this effect in front of Miller and Baghdad Jim, frankly doesn’t give a damn what you are thinking.
“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.” (ed.: what this statement has to do with anything relative to what she is proposing is lost on us)
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.
Its so nice to know that someone much smarter than us has got our back whether we realize it or not.
Unfortunately and despite what Ghilarducci has to say, 401(k)s will cease to exist if this plan is implemented because that big fat tax deferral at the front end of the paycheck along with the employers’ matching contribution is perhaps the biggest reason why people got into 401(k)s in the first place.
But all that, with the corollary benefit of depriving the federal government trillions of dollars while pumping the same into the private sector.... gone come January.
Think about it.
Exit question: How long is it before Congress starts talking about eliminating the home loan interest exemption?