Barack Obama has been very vague about his policy plans for his presidency if he should win the election. Now, I know his supporters will complain that he has laid out an agenda such as “tax cuts for 95% of the people” although even his supporters are skeptical that his tax increases will be limited to the over 250,000 income group. Others doubt that anything like a tax cut will be enacted. Bill Clinton was elected in 1992 promising a “middle class tax cut,” which was discarded even before his inauguration as he claimed that the deficit was worse than he had thought. That was that.
We do have a few clues, however. This week, Argentina announced government seizure of private pension plans, much like the seizure of bank deposits a few years ago. That could never happen here. Could it ?
Well, maybe it could.
House Democrats Contemplate Abolishing 401(k) Tax Breaks
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.
That almost sounds like Bush’s plan to privatize Social Security, but with a difference.
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. . . .
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.
There’s one difference. Obama refers to “gambling with the stock market” so the government would “invest” the funds.
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.”
They will end private pensions and substitute yet another government pension system. We already have one with Social Security.
“I want to spend our nation’s dollar for retirement security better. Everybody would now be covered” if the plan were adopted, Ghilarducci said.
She has been in contact with Miller and McDermott about her plan, and they are interested in pursuing it, she said.
“This [plan] certainly is intriguing,” said Mike DeCesare, press secretary for McDermott.
“That is part of the discussion,” he said.
While Miller stopped short of calling for Ghilarducci’s plan at the hearing last week, he was clearly against continuing tax breaks as they currently exist.
Does this sound like socialism ? It does to me. Pete Du Pont has some predictions for the agenda.
Tags: pensions, Social Security, socialism, tax breaks
[…] post by WP-AutoBlog Import var AdBrite_Title_Color = ‘0000FF’; var AdBrite_Text_Color = ‘000000’; var […]
I believe the more modern term for American capitalism is better phrased as capitulation. I still remember the Brain Drain years that Euro countries went through until they brought their taxes to a less rotten level. Not sure what we’ll name the one that is coming up for the US.
On a side note, I do think I’ve come up with the next Bubble. This morning as I read stuff like you posted here, it dawned on me that it will very likely be an infrastructure bubble funded by global printing press currency. And since it will be quite some time before the non-govt credit machinery returns to even a semblance of its former self, the govts around the world will be the new ‘credit’ facilitators. Except that can’t do it by selling bonds to each other and then create credit on top of those layers as did the institutionals for the last booms.
No, this one will be just like we’re seeing right now. From the Treasury straight to corporate bonds. It’s a slam dunk to me. They get points for pumping the economies by getting people back to work, then using the capital they’ve been stuffing into the failing bank system back into the street by forcing them to loan to whomever the govt tell them to, and the politicians look like saviors…until inflation comes roaring back hard. Plus, with a crumbling infrastructure a bonafide reality, this bubble has much more solid ground under it than housing and mortgages ever did. Gotta love that fiat currency deal.
I’ll take it over WW3 any day, though. That’d be the other historical way these deflationary cycles work themselves out. My hope is for another Bretton Woods type agreement that better suits reality on the ground today. Call it a global monetary do-over. That should keep the idiots busy for at least 5 or 6 years while the world markets fix themselves like they always have.
>>>>very likely be an infrastructure bubble
Didn’t Japan try this? to not much effect on economic growth?
I think an Obama administration will bring out the wealth redistributors like opportunistic bacterial infections: the bug is always there, but in times of stress it jumps up with a big growth spurt. The initial course is not fatal, but further weakness lets in even more invaders. Strap in, everybody.
What worries me the most about Obama is the energy policy implications. He will sit on domestic oil production until we are all walking. The radical left doesn’t worry about the practical effects of ideology. Stalin killed off everyone in Ukraine who knew how to farm. The small business people in the country are the kulaks for Obama. Ayres was willing to kill off 25 million “die hard” capitalists. Obama is not as violent but he and Pelosi can let them starve on the vine. I don’t see any new drilling for oil in this bunch.
Thanks for covering this 401k business, Mike. I’ve been a little perturbed since hearing about it a couple days ago. In my paranoia I imagined them offering a one-time cashout for current penalties, or whoosh, into the new govt plan.
At least someone at the WSJ said it, that the 55-year old losing 20% was taking too many risks. But it will become the mantra that the average worker can’t manage his own funds (probably true) so govt has to step in. Me, I pulled out of equities last year, and have settled for .05 yield every since. I’m almost resigned to just an auto-saving plan, if they will just let me keep the money.
Anyone leaving their money in the market when they are nearing retirement is taking an awful chance. A lot of people put their savings in their home because we hadn’t seen a bear market in housing since 1991. No place is really safe. Still, the stock market is the place to accumulate wealth while you don’t need the money. If the Democrats take that away, it will change our economy radically. I just don’t think they are competent. Where is JP Morgan when you need him ?
[…] Mike K at A Brief History has much more on the 401k […]