DawgTalkers.net Forums DawgTalk Everything Else... Uncle Sam Eyeballing Your 401K

Feds eye retirement-fund tax to cut $16 trillion-plus deficit

By GREGORY BRESIGER
New York Post

April 22, 2012

Uncle Sam, in a desperate attempt to fix its $16 trillion-plus deficit, is leering over Americans’ retirement nest egg as its new bailout fund.

Capitol Hill politicians are assessing tax changes that could let the Internal Revenue Service lay claim to a portion of the $18 trillion sitting in 401(k) accounts and other tax breaks used by middle-class workers, including cutting the mortgage tax deduction.

A commission looking for ways to close the deficit, and, noting the extent of 401(k) tax breaks, recommends an examination of the system as one way to prevent government bankruptcy.

Besides 401(k)s, other possibilities include the mortgage-interest deduction on second homes, as well as benefits from employer-provided health insurance, which are untaxed now.

Under current 401(k) rules, total employee/employer contributions can’t exceed $50,000. In the proposed rule change, employer/employee contributions would be limited to 20 percent of the employee’s compensation, with a maximum of $20,000, the so-called 20/20 proposal.

Another proposal being discussed in Congress says all tax deductions on 401(k)s and IRAs to be replaced with an 18 percent credit. The credit, according to a proposal that has been endorsed by economist William Gale, would be placed directly in a person’s retirement account.

“Unlike the current system,” Gale told Congress, “workers’ and firms’ contributions to employer-based 401(k) accounts would no longer be excluded from income and would be subject to taxation, contributions to IRAs would no longer be tax-deductible and any contributions to a 401(k) plan would be treated as taxable income.”

In other words, the employee and employer would no longer get a deduction under the Gale plan, they would qualify for a credit. And the credit would “increase [government] revenues by about $458 billion,” Gale says.

Last week a group of retirement industry experts went to Capitol Hill to criticize these proposed changes in retirement-plan rules. “These changes could have unintended consequences,” warns Lynn Dudley of the American Benefits Council (ABC).

Testifying before the House Ways and Means Committee about the proposals, Randolf Hardock, of ABC’s board of directors, said, “[The idea] could seriously undermine the retirement savings system.”

Jack VanDerhei, research director of Employee Benefit Research Institute (EBRI), believes either of the two proposed 401(k) changes under review would have a “catastrophic” effect on the current retirement saving system.

The 20/20 plan provisions curtailing non-taxable contributions would freeze out many higher-paid employees from signing up for a 401(k), which could lead some companies, according to critics, to question if plans would still be worth offering employees.

Reducing retirement-plan contributions for those at the higher end of the wage scale will inevitably have a bad effect on those in the middle and at the bottom, ABC’s Dudley says.

http://www.nypost.com/p/news/business/plunder_CrD9s6MElVsEIJj2IVgHuK

These would definitely bring the impact of the national debt home for a lot of people who just blow it off now because they pay no taxes.

I am absolutely not in favor of such steps, because 401Ks have replaced pensions almost entirely in this country, and changing the rules mid-stream would really be cheating a lot of people who have done nothing but play by the rules.

However, I am in favor of the impact of the debt via taxes be spread out among the public far more than it is right now. In a time where we have a $16 trillion debt, no one should be paying 0 in taxes, and absolutely no one should be getting free money from the government in the form of tax credits.

Here's a thought for those dolts....... Try SPENDING LESS!

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other possibilities include the mortgage-interest deduction on second homes

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I actually would be Ok with this one. I don't see a reason for someone to be able to deduct anything on a second home, other than it gives incentive for someone to buy more than one.

This proves they have officially lost their minds. This would be he official end of it all IMO. Looks like I should be adding to my arsenal of food and weapons as we are toast if they do this.

How about we decrease spending instead of trying to find ways to get more tax revenue. that is how a normal business would survive. And I'm sure they'd still tax it when you withdrew from it in retirement. If they taxed it now and there was no tax upon withdraw that might be OK.

This is mind boggling.

I'm certain that it wouldn't be noticeable, actually, but I'd still be Ok with it.

Uncle Sam is going to get slapped around by the people pretty soon if he doesn't keep his grubby little hands out of their money.

Tell me about it. I had the pleasure this week of needing to withdraw from savings to buck up my checking account, after writing checks to the IRS and the State of Ohio. Its not a good feeling, at my age. Or any age, for that matter, I suppose.

Oh I was reading that wrong.

I would love to see what would happen if the government proposed taxing pensions.

Unions would set fire to the country.

I'm not joking either.

I like how the first 3-4 paragraphs are crafted to make it sound like they might just consider taking all of the money in 401k's

Here is a thought, start spending less.

Well where is all the money going. I received ? from the goverment last year?

not much.

All of the overspending is on caring for broken families, old age medications, and the military.
We have to cut each by 25% . The size of the goverment shoud be cut too.

HEY UNCLE SAM, HOW ABOUT CUTTING ENTITLEMENT SPENDING!?!?!?!?

Well if they did something like this I would hope they'd offer a reduced or penalty-free withdrawl of funds for those that wish to invest elsewhere if they are going to change the rules drastically.

Between flat interest rates and fairly substantial inflation, your "future" money is already fairly worthless.

That's one reason why I spent some of my money on my house now. The way it looks right now, my money will only be worth less and less into the future.

Currency manipulation is never a good idea. I know why governments do it, for the short term bump in spending ...... but now we have reached the end of the government's ability to use monetary policy to influence much of anything ....... and rising interest rates, which will be a certainty at some future point, will only help to suppress growth whether, and will have a massive impact on the national debt.

Imagine if bonds hit 4% instead of 0% to 0.25%. That's $600,000,000,000 in interest per year on the debt instead of $0 - "only" $37, 500,000,000. So, at that point we would add over a trillion every 2 years even if we do nothing else to add to the debt. More non-existent currency in the market makes everyone's money worth less and less and less going forward.

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...And the credit would “increase [government] revenues by about $458 billion,” Gale says.

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Just how stupid are these people? Wanna bet that this 458b calculation is based on no one decreasing or eliminating their contributions because of the lack of a tax break?

Anyone that supported the bailouts and stimulus programs were either too ignorant to realize the consequences and/or intentionally misled us. They should be called out and voted out of office ASAP. Anyone with an ounce of common sense knew this kind of crap was coming. This is huge, and I hate to see what's next.

I detest our government.

Go root for Buffalo.