Uncle Sam Now Wants Your 401(k) And IRA
Investors Business Daily Editorial, Posted 03/01/2013 06:44 PM ET
President Obama stands with Sen. Chris Dodd Rep. Barney Frankafter signing the Dodd-Frank Wall Street Reform and Consumer Protection financial…
Dodd-Frank’s new “consumer protection” agency wants to “help” Americans manage their nearly $20 trillion in retirement savings, and President Obama has tax loopholes in his sights.
It’s mattress-stuffing time.
You probably thought the Dodd-Frank Act was all about reining in greedy big banks and Wall Street predators.
Well then, what is the Consumer Financial Protection Bureau it established doing planning to “help” people manage the $19.4 trillion they’ve managed to save for their retirement?
CFPB director and longtime Democratic politician Richard Cordray earlier this month told Bloomberg News that managing retirement savings is “one of the things we’ve been exploring … in terms of whether and what authority we have.”
Every such new creature legislated into existence by our elected officials wastes little time before seeking to expand its power — always with the best intentions, of course.
There always ends up being an excuse to do things the law doesn’t give you any authority for, and the CFPB’s Office for Older Americans being headed by another big government Democrat, Hubert H. Humphrey III, is further cause for worry.
What business, exactly, does a U.S. government that has rung up over $16.6 trillion in red ink have giving consumers advice on how to save money?
Uncle Sam, Spendthrift
What can a consumer learn about frugality and responsibility from a corrupt, insatiable Washington leviathan that screams about the sky falling when just 2% in automatic spending cuts kick in?
In this context comes the release of a report from the liberal Brookings Institution last week suggesting a 28% cap on “the rate at which deductions and exclusions related to retirement saving reduce a taxpayer’s income tax liability.”
Don’t worry, Brookings says, because “the (mostly high-income) individuals that do alter contributions in response to changes in the return on these investments tend to simply offset these adjustments with changes in other forms of saving.”
And “the available evidence from studies of 401(k)-type programs with automatic enrollment suggests that many would stay with the program and, in turn, increase their saving.”
Elsewhere, the think tank recently argued that “New research suggests that the tax subsidy for contributions to retirement accounts only affects the behavior of certain financially sophisticated households and does not raise overall saving significantly.”
Savings Tax?
As American Society of Pension Professionals & Actuaries CEO Brian H. Graff charged last week, such a cash grab “would more accurately be described as double taxation” in which “a small-business owner in the 39.6% bracket would pay an 11.6% tax on contributions made to the 401(k) plan today, and pay tax again at the full rate when they retire.”
But 401(k)s come behind only the mortgage interest deduction and the employer health insurance exclusion as federal tax breaks go, amounting to “$429 billion in foregone revenue from 2013 through 2017,” as Employee Benefit News points out.
It was inevitable that these popular retirement nest eggs would be targeted for raiding.
We even have the unreal spectacle of the mutual fund industry frantically justifying its existence in the wake of President Obama talking up the closing of tax loopholes.
Investment Company Institute President Paul Schott Stevens said, “we’re trying to counter all of the doom and gloom about the 401(k) system being a failure and that it doesn’t work.”
Doesn’t work?
Mutual funds, especially when shielded from taxes, have, like discount brokerages, opened the door of successful investing to millions of ordinary Americans.
They have brought the American Dream to new heights.
What doesn’t work is the government, which should be told to stuff its offer of help at managing people’s money. Better to have Typhoid Mary run the Centers for Disease Control.