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House Democrats: Abolish 401k Tax Breaks, Create New Tax

What do Democrats do when they see a system or program that isn't working? They throw more money at it, or recreate the same system under another name, or both.

Social Security (or rather, Socialist Security) has been revealed as the glorified government-mandated ponzi scheme that it is, and the Democrats answer is to create another version of it.

Workforce Management says House Democrats are looking at another plan to tighten the goverment's grip on your life, your retirement, and take a bigger chunk of your paycheck.


A plan by Teresa Ghilarducci, professor of economic-policy analysis at the New School for Social Research in New York, contains elements that are being considered. She testified last week before Miller’s Education and Labor Committee on her proposal.

At that hearing, the director of the Congressional Budget Office, Peter Orszag, testified that some $2 trillion in retirement savings has been lost over the past 15 months.

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.”

So the Dems want to take away the tax breaks for 401ks...and tax you yet another 5%???

And this idiotic program would be nothing more than a Social Security spinoff. It's just more of the same government-mandated socialist ineptitude.

The definition of "reform" in the Democrat playbook is ludicrous. Keep doing things that don't work. Come up with new ways to do the same things that don't work. Tax more. It'll all be fine.

We need to end that--now.

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House Democrats contemplate abolishing 401(k) tax breaks
Mandatory contributions from workers considered
By Sara Hansard
October 12, 2008
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-Calif., and Rep. Jim McDermott, D-Wash., 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.

A plan by Teresa Ghilarducci, professor of economic-policy analysis at The New School for Social Research in New York, contains elements that are being considered. She testified last week before Mr. Miller's Education and Labor Committee on her proposal.


George Miller: Looking at redirecting tax breaks to a new system of guaranteed retirement accounts.
At that hearing, the director of the Congressional Budget Office, Peter Orszag, testified that some $2 trillion in retirement savings has been lost over the past 15 months.

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.

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," Ms. 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."

Under the current 401(k) system, investors are charged relatively high retail fees, Ms. Ghilarducci said.

"I want to spend our nation's dollar for retirement security better. Everybody would now be covered" if the plan were adopted, Ms. Ghilarducci said.

She has been in contact with Mr. Miller and Mr. McDermott about her plan, and they are interested in pursuing it, she said.

"This [plan] certainly is intriguing," said Mike DeCesare, press secretary for Mr. McDermott.

"That is part of the discussion," he said.

While Mr. Miller stopped short of calling for Ms. Ghilarducci's plan at the hearing last week, he was clearly against continuing tax breaks as they currently exist.

SAVINGS RATE


John Belluardo: "If the tax deferral goes away, the employers have no reason to do the matches, which primarily help people in the lower income brackets."

"The savings rate isn't going up for the investment of $80 billion," he said. "We have to start to think about ... whether or not we want to continue to invest that $80 billion for a policy that's not generating what we now say it should."
"From where I sit that's just crazy," said John Belluardo, president of Stewardship Financial Services Inc. in Tarrytown, N.Y. "A lot of people contribute to their 401(k)s because of the match of the em-ployer," he said.Mr. Belluardo's firm does not manage assets directly.

Higher-income employers provide matching funds to employee plans so that they can qualify for tax benefits for their own defined contribution plans, he said.

"If the tax deferral goes away, the employers have no reason to do the matches, which primarily help people in the lower income brackets," Mr. Belluardo said.

"This is a battle between liberalism and conservatism," said Christopher Van Slyke, a partner in the La Jolla, Calif., advisory firm Trovena LLC, 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.

The Profit Sharing/ 401(k) Council of America in Chicago, which represents employers that sponsor defined contribution plans, is "staunchly committed to keeping the employee benefit system in American voluntary," said Ed Ferrigno, vice president in the Washington office.

"Some of the tenor [of the hearing last week] that the entire system should be based on the activities of the markets in the last 90 days is not the way to judge the system," he said.

No legislative proposals have been introduced and Congress is out of session until next year.

However, most political observers believe that Democrats are poised to gain seats in both the House and the Senate, so comments made by the mostly Democratic members who attended the hearing could be a harbinger of things to come.

ADVICE AT ISSUE

In addition to tax breaks for 401(k)s, the issue of allowing investment advisers to provide advice for 401(k) plans was also addressed at the hearing.
Rep. Robert Andrews, D-N.J., was critical of Department of Labor proposals made in August that would allow advisers to give individual advice if the advice was generated using a computer model.

Mr. Andrews characterized the proposals as "loopholes" and said that investment advice should not be given by advisers who have a direct interest in the sale of financial products.

The Pension Protection Act of 2006 contains provisions making it easier for investment advisers to give individualized counseling to 401(k) holders.

"In retrospect that doesn't seem like such a good idea to me," Mr. Andrews said. "This is an issue I think we have to revisit. I frankly think that the compromise we struck in 2006 is not terribly workable or wise," he said.

Last Thursday, the Department of Labor hastily scheduled a public hearing on the issue in Washington for Oct. 21.

The agency does not frequently hold public hearings on its proposals.

E-mail Sara Hansard at shansard@investmentnews.com.

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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.

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Retirement plans could change under Obama
Mandatory withdrawals of IRA, 401(k) accounts might be reconsidered

By David Pitt
Associated Press

The election is over and a big question is how some of President-elect Barack Obama's campaign proposals will affect retirees and workers with 401(k) and other retirement accounts.

One issue Obama has endorsed could get serious consideration before he takes the oath of office in January.

Obama proposed a temporary suspension of the required minimum distribution rule, which forces tens of millions of retirees to take money out of their IRA and 401(k) accounts once they turn 701/2. The rule is designed to give the government its share of the taxes on the money, which has been accumulating tax free. Failure to take out the money results in a 50 percent penalty assessed by the IRS.

Suspending the mandatory withdrawal would allow people to keep the money in the account and possibly recover some of their losses when the market recovers.

Obama's plan would temporarily waive the penalties and taxes on withdrawals made after age 701/2. There's interest in Congress to get it done — sooner rather than later.

The chairman of the House Committee on Education and Labor, Rep. George Miller, D-Calif., has asked Treasury Secretary Henry Paulson to suspend the tax penalty immediately.

AARP, the Washington-based group that represents 39 million people aged 50 and older, also has urged Paulson to take the action right away.

David Certner, the group's legislative policy director said the required withdrawals essentially force retirees to take money out of the market at the bottom, recording large losses, rather than letting them keep their money in the account to potentially recoup the losses when the market improves.

Department of Treasury spokesman Andrew DeSouza said on Wednesday he had nothing to report on the issue and declined to comment further.

''There's absolutely no reason to force people to take out a larger share of their current account at the bottom of the market,'' said Monique Morrissey, an economist with the Washington-based Economic Policy Institute. ''It doesn't make any sense at all.''

Ethan Kra, chief retirement actuary for business consultant Mercer, agreed with the idea of suspending the mandatory withdrawals.

''We're seeing the greatest poverty among those who are the oldest,'' he said. ''I understand the IRS wants its money sooner rather than later, but you really don't want people spending all their money in their early retirement years and not having it in their older years.''

A second proposal made by President-elect Obama would allow workers to make hardship withdrawals of up to 15 percent of their balance from individual retirement accounts or 401(k) plans this year and in 2009. A withdrawal of up to $10,000 would not be subject to the 10 percent early withdrawal penalty charged by the IRS, but normal income tax would be due.

Some economists believe too many 401(k) plans already are underfunded and too frequently tapped for loans or early withdrawals, and making such a change sends the wrong message.

''I know people are feeling pain, but if you raid the piggy bank every time there's market downturn or recession, you will not have enough left in the piggy bank for old age,'' Kra said.

Other reforms Obama has supported include:

• Eliminating income taxes for seniors making less than $50,000 a year. This would provide an immediate tax cut averaging $1,400 to 7 million seniors and relieve millions from the burden of filing tax returns.

• Creating automatic workplace pensions by requiring employers who do not currently offer a retirement plan to enroll workers in a direct-deposit IRA account that is compatible with existing direct-deposit payroll systems. Employees may opt out if they choose.

• Matching 50 percent of the first $1,000 of savings for families that earn less than $75,000 a year. The savings match will be automatically deposited into designated personal accounts.

• Regulating pensions more strictly by ensuring that bankruptcy courts cannot use pension funds to pay creditors ahead of some other company assets, prohibiting companies from giving executive bonuses while cutting worker pensions, and limiting the circumstances under which retiree benefits can be reduced.

Michael T. Townsend, vice president of legislative and regulatory affairs for Charles Schwab & Co. Inc., said Thursday that Congress could include the penalty-free withdrawal and required minimum distribution freeze ideas in a proposed new economic stimulus package expected to be considered, if not in the lame-duck session of Congress, perhaps early in the next session.

''Obviously the financial crisis and the impact that has had — and that the market downturn has had — on people's retirement savings, has really brought this issue much more to the forefront than we might have thought even a few months ago,'' Townsend said. ''There's going to be a lot more attention paid to it.''

Quoted from 191

they gotta get rid of these things and build up the social security so we can stop the richies from grabbing all the moeny from the seniros this is a ripoff

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Sal---people have what people have......there are no safety nets, cushions etc........

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The rich get richer, and the poor have babies.

Quoted from 191

they gotta get rid of these things and build up the social security so we can stop the richies from grabbing all the moeny from the seniros this is a ripoff

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Implementation
Payroll taxes were first collected in 1937, also the year in which the first benefits were paid, namely the lump-sum death benefit paid to 53,236 beneficiaries.[citation needed]

The first monthly payment was issued on January 31, 1940 to Ida May Fuller of Brattleboro, Vermont.[citation needed]