Here are a few excerpts from a current article in the WSJ:
• Rep. Kevin Brady (R., Texas), chairman of the House’s tax-writing Ways and Means Committee, said lawmakers were considering changes to 401(k) plans, despite President Donald Trump’s insistence... [that the] break for retirement savings should be untouched.
• As those details emerge, political resistance is building in the White House and beyond.
• Republicans also discussed state and local tax deductions... one option is replacing the deduction with a tax credit worth between 8% and 20% of a household’s property tax payments.
• in a sign GOP leaders expect they have enough votes, they canceled a late Wednesday meeting aimed at building support from lawmakers from high-tax states.
Comments
Regards,
Ted
That 401(k) Tax Break Shouldn't Be Sacred:
https://www.bloomberg.com/view/articles/2017-10-26/that-401-k-tax-break-shouldn-t-be-sacred
• "The Republican proposals, as they have leaked out so far, involve reducing the amount of pretax income workers can put in their 401(k) tax accounts from the current $18,000 a year ($24,000 for those 50 and older) to as low as $2,400 a year"
• "Only 32 percent of American workers are saving anything in a workplace retirement savings account. In many cases, that's because their employers don't offer one -- most private-sector employers don't."
• "The benefits are skewed toward those with higher incomes."
• "They're inefficient and often poorly managed."
• "there are far more millions of Americans who aren't getting any benefit from the current setup at all. Making it untouchable seems like a bad move."
A very interesting article, Ted. This certainly ought to get a stimulating conversation going. Thanks.
That’s the reason he trumpets the sky-high stock market so often. It’s the Republican plan to encourage more workers to throw their hard earned money at the blazing thing. My shoe-shine boy was saying ...
Or was it the bartender ...
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Thanks @Ted for the thoughtful article. I never understood the logic of every Tom, Dick and Harry having to amass / manage hundreds of thousands of dollars for his eventual old age. Assuming they have the skills, discipline and a bit of good luck, they than become sitting ducks for every sap that wants some of their wealth. And, as mentioned, we don’t all die at the same age. But, for some reason, the concept of having personal control over a small fortune resonates with the little guy. I never understood that or a lot of the other thinking that goes on among those who labor for a living.
In the 10-year budget window by which the tax plan is being evaluated, a switch from regular to Roth has a positive impact on revenue. Over the long run, it's a money loser.
That's wrong. The same argument that's used to show that (assuming tax rates don't change) contributing to a trad or Roth IRA comes out the same can show that the present value of tax revenue is the same either way. (You have to use a discount rate equal to the expected rate of return, though.)
Now it is true that if one maxes out a Roth (whether 401k or IRA) as opposed to maxing out a traditional, one will come out ahead - and thus present value of tax revenue will be reduced. But if workers are interested in maxing out in a Roth 401k, they can already do that; this law doesn't affect those people.
They're expensive. This compares the aggregate tax costs of 401(k)s and EICs, without looking at the number of people participating in each. If 401(k)s cost the government more, perhaps that just means they're available to more people, and not that they're inefficient. Apples and oranges.
Most American workers don't have them. That's why the Obama administration created a rule to enable states to fill the gap by sponsoring retirement plans for the private sector, until that got killed by Congress (50-49 in the Senate).
They're inefficient and often poorly managed. That could be cleaned up with <gasp> regulations, like adding fiduciary duty requirements. Or if this is such a big problem, why not get rid of employer-sponsored plans altogether and increase the IRA cap to add in the current $18K/$24K 401k cap? That wouldn't boost tax revenue, but it would fix this supposed problem.
Really, however, what are the chances our elected officials would pony-up / pay the fiddler / bite the bullet? (you pick the metaphor). Heck, every social welefare program from public education to Social Security and Medicare is currently under assault.
(Unable to get a cut-and-paste to work or I would quote the portion of the article I was referring to.)
"there's the bold plan unveiled last year by New School economics professor Teresa Ghilarducci and Blackstone President Tony James to replace the 401(k) with mandatory, professionally managed retirement savings accounts that are automatically converted to annuities at retirement."
(There’s also a link to that plan in Ted’s article - but rather lengthy.)
This seems to me to be a modification of Republican efforts some years back to convert SS accounts into something similar. That didn't get off the ground, but this approach, a Retirement Savings Account in addition to SS, is interesting. The arguments for and against would certainly include the requirements for the "professionally managed" aspect: expenses, fiduciary responsibility, etc. The usual areas for "professional managers" to pick the low-hanging fruit.
If such mandatory plans did come into being, how long would it be until certain political groups began calling for the complete dismantlement of SS, on the grounds that it was no longer necessary? And then followed (after a "decent interval", of course) by modifications to reduce or eliminate entirely the employer contributions to the RSAs?
And then gutted to remove any requirement for fiduciary responsibility, as "this has proven to be too complex, and to lead to costly and unnecessary legal expenses".
And finally configured to require administrative-appointed mandatory arbitration, again to eliminate "costly and unnecessary legal expenses".
There... that ought to satisfy the bastards.
The entire issue gets quite confusing. One hand giveth and the other taketh away. The “big money” interests do seem more interested in cutting taxes and exacting maximum labor from the proletariat than in making old age easier for those fortunate (unfortunate) enough to grow old. (Orwell does a terrific job with this one in Animal Farm when the loyal old work mare Boxer is hauled away to the glue factory.)
Umm ...I somehow never equated SS with being a “retirement” plan. My understanding is it was pushed through during the Great Depression to keep oldsters from dying of starvation. I receive it, and can tell you SS would provide for a lousy retirement without being supplemented by a decent pension and some personal savings. I don’t think that surprises anyone.
It is a personal savings plan, not a handout. The Plan relies on individually owned retirement accounts and existing government infrastructure to deliver results.
It is built on personal responsibility, personal choice, and effective investment. You accumulate your money in your own account where you have full control. If you die before retirement, your savings are passed on to your spouse.
It is lifelong retirement security. Annuitized returns ensure a consistent standard of living for as long as retirees live.
It is mandatory—but cost-neutral for almost all below median income employees. The Plan creates a $600 tax credit for every worker who contributes to their Guaranteed Retirement Account (GRA). This means that households earning up to $40,000 per year will have their yearly retirement savings fully reimbursed.
It is deficit neutral. The tax credit is fully paid for by redirecting existing government subsidies away from the wealthiest Americans and spreading it evenly over the entire income distribution.
It is not another form of Social Security. This is your own money in your own account. The government can’t ever get at the money. Each individual will buy their own annuity with their accumulated retirement savings—and the system relies upon private insurance company payers.
It is not another new government bureaucracy. The Retirement Savings Plan utilizes existing government infrastructure.
It is not another program run by the government. You contribute to a pooled trust managed by an entity of your choosing, so the returns are higher and fees lower than in an individual directed account. You decide when to retire and convert your savings into lifelong income.
It includes no new taxes.
It will not increase the deficit.
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Personal observation: "The government can’t ever get at the money." surely has to be the most overly-optimistic sentence in the English language.
Will the legislation be crafted to exclude Republican workers???
It is a pleasure to verify your suggestion.
Many times there is no trial, because the charges are dropped, but the confiscation stands. Many documented cases like this... google the subject.
https://www.bostonglobe.com/business/2017/10/26/the-gop-greatest-enemy-taxes-math/mNTeRavM6EVlpeQUkwSxEM/story.html
Unrelated, 'entitlement reform' often means making plumbers and service people work longer so that wealthy white collars don't have to pay higher contribs. Has been analyzed thoroughly.
And I heard that Santa Claus and the tooth fairy are real.
The "new and extra revenue from doing away with deferred savings", if it happens, is going to provide the tax breaks for the famous upper 1%.
Good one. Bogus then, bogus since, bogus now, and more bogus because there has been actual testing of the notion --- Kansas. Not to mention all the graphs of US econ performance vs tax rates.
https://angrybearblog.com/2011/10/laffer-curve-and-kimel-curve.html
(And many others have had similar fun with this.)