House Democrats Aim to Remove 401k Tax Breaks

by Duane Lester | October 22, 2008 10:47 am

In Grover Norquist[1]‘s new book, “Leave Us Alone: Getting the Government’s Hands Off Our Money, Our Guns, Our Lives,[2]” he writes:

When Ronald Reagan[3] was elected in 1980, less than 20 percent of American households owned stock directly. Today, 50 percent of households own stock and two-thirds of all voters in the past elections were shareholders.

The reason for the increase is the creation of the 401(k)[4] plan. As people understood the plan and with the expansion of the mutual fund industry, more and more people are taking advantage of this. For those who don’t know, here’s what it is in a nutshell:[5]

Employee 401k contribution are automatically deducted from their paycheck each pay period. This money is taken out before the employees paycheck is taxed. The contributions are invested at the employees direction into one or more funds provided in the plan. Employers often “match” employee contributions, but are not required to do so. While the investments grow in the employees 401k account, they do not pay any taxes on it.

The individual is using his or her property to ensure a prosperous future before the government has a chance to seize it. It is a great plan. I take advantage of it at work, as do many of my co-workers. You should see how attentive some of these folks are to the stock market.

The key part of the plan is found in the last sentence of the above quote. House Democrats are considering abolishing those tax breaks:[6]

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.

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.

So, instead of getting around 15% on my 401k investments, I’ll get a government bond at 3%. Why don’t they just kick me straight in the groin while they are at it? Seriously, this is what passes for a reform to Democrats?

John Belluardo, president of Stewardship Financial Services Inc. said it best when he said, “From where I sit that’s just crazy…If the tax deferral goes away, the employers have no reason to do the matches, which primarily help people in the lower income brackets.”

But the problem with the 401k plan is it’s seated in individual and personal responsibility. And another big factor is the billions of dollars the Democrats don’t get to tax. Both of those run counter to the Democrats philosophy of having government be the nanny of the masses.

The Democrats simply cannot get enough of your property and they won’t hesitate to create new ways to take more of it. Here is a plan, the 401k plan, that is far more credible than Social Security, and they want to take money from it, essentially taking money out of the economy, and give it to government bureaucrats for their failed inter-generational Ponzi scheme.

This is not the change America needs.

This is cross posted at All American Blogger[7], where you can find other great original articles[8]. Sign up for our RSS feed[9] while you are there.

  1. Grover Norquist:
  2. Leave Us Alone: Getting the Government’s Hands Off Our Money, Our Guns, Our Lives,:
  3. Ronald Reagan:
  4. 401(k):
  5. here’s what it is in a nutshell::
  6. House Democrats are considering abolishing those tax breaks::
  7. All American Blogger:
  8. other great original articles:
  9. our RSS feed:

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