Congress Considering Removing Tax Exemption From Retirement Savings

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Our friends on the left give short shrift to the idea that tax increases will harm the economy, yet one of the controversial aspects of tax policy is the capital gains tax rates. We’re supposed to believe that big increases in taxes on capital gains won’t hurt the economy, even when targeted toward “the rich” who, frankly, do the most investing in our economy.

And apparently we’re also supposed to believe that removing the tax incentive for Americans saving for their own retirement won’t hurt either:

For many Americans, it’s the first order of business when they visit the HR department at a new job: enrolling in the 401(k) plan.

The tax-deferred savings plans have been promoted as one of the best ways to prepare for retirement, as traditional pensions become a thing of the past.

But the tax-free part is coming under greater scrutiny, as Congress looks under every couch cushion for the dollars needed to strike a deal on the looming fiscal cliff, and possibly re-write the tax code next year.

It’s been a frequent target of would-be budget reformers across the political spectrum, including the Simpson-Bowles Commission and the Center for American Progress. Even President Barack Obama has eyed changes to the rules governing 401(k)s. …

If the government forced workers to immediately pay tax on the earnings they put in these accounts, the government could put $162.7 billion back into its coffers, in 2014 alone, according to the Joint Committee on Taxation figures.

America already has a major problem with citizens spending far too much, and not saving nearly enough. And Social Security? Our national pension system that is supposed to act as our retirement safety net? It’s in deficit, obligated to pay out more in benefits every year than it collects in revenues, and already relying on a trust fund that is an accounting fiction. What’s worse, revenues for Social Security have been undermined by Obama’s “Making Work Pay” payroll tax cuts which came out of the programs revenues.

And now we’re going to start making Americans pay billions of new taxes, annually, on their retirement savings. Because why not? It’s not enough that the entitlement state has grown so burdensome that younger generations of Americans may never be able to accumulate adequate savings to provide for their own retirements, let’s punish them for putting away what savings they can afford.

Because what else are going to do? Downsize government to something we could, you know, actually afford?

Rob Port is the editor of SayAnythingBlog.com. In 2011 he was a finalist for the Watch Dog of the Year from the Sam Adams Alliance and winner of the Americans For Prosperity Award for Online Excellence. In 2013 the Washington Post named SAB one of the nation's top state-based political blogs, and named Rob one of the state's best political reporters. He writes a weekly column for several North Dakota newspapers, and also serves as a policy fellow for the North Dakota Policy Council.

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  • banjo kid

    They would tax; let me think, nope they already tax everything we use or need .

  • sbark

    How bout’ a focus on the Earned Income Credit……….its welfare on a stick provided by IRS form 1040……..it would save some 250 billion
    Its the line on the 1040 that gives people who dont pay taxes………a refund.
    So its not only that a good number of the 47% dont pay taxes………they actually get welfare via IRS form 1040……….and we wonder why the election swung the way it did

  • sbark

    The GOP is opening the door for leftst word revision………..any deduction will now be a “loophole”…….be it a depletion allowance for exxon, that same deduction the 75 yr old farmer at the end of the road gets for his gravel pit sales……………….or a loophole will be the home mtg. deduction or IRA deduction………
    rich is now be redifined down to 33400.00………which is poor for a family of 5

  • tony_o2

    If they eliminate the tax-deferment on 401k contributions, will they eliminate the tax you pay on disbursements? Or will they tax you twice on your own money? Or are they going to exempt your principal deposits and just make you pay a capital gains tax?

    But how does eliminating the tax benefits for 401k plans effect the employers? It is my understanding that current employee contributions also lower the payroll taxes paid by the employer. If employees reduce their contributions because they are no longer tax-deferred, then employer payroll taxes will go up, and they will try to reduce labor costs elsewhere. And if the tax benefits they receive for matching contributions is also removed, they may also cut back on that as well.

    Currently up to $17,000 of employee contributions are tax deferred (not sure if that amount includes employer match). If you make $50k/yr, 34% of your income can be tax deferred (if you can spare 34% of your income). At $170k/yr, only 10% of your income can be tax deferred. If you make $250k/yr, it’s only 6.8%. The annual cap is meant to maximize the potential benefit for low earners, while minimizing the tax break for the higher earners. It is a progressive tax break geared towards the middle-lower side of the income scale.

    So as they talk about eliminating the tax break for people that save money in a 401k, are they not talking about eliminating a tax break for the middle and lower incomes? How is this not raising taxes for anybody that makes under $250k/yr?

    • brain trust

      Dear Leader Kim Jung O didn’t plan on us figuring that out. Just like all of the hidden taxes in Obamacare.

      • JW -American

        Like he cares, he’s never running again..

        • OldConserv2011

          Don’t be so quick on that assumption. I’ll bet that sometime in 2014, a movement starts to erupt urging the repeal of the 22nd amendment. The gimme generation will chime in and insist that they cannot survive without BO’s handouts and elect him as president for life. Ouila, instant dictator. Obama’s already preparing for that eventuality. Why else is he still actively seekking campaign donations?

        • ellinas1

          When the Reagan administration realized how much revenue was lost
          annually by allowing workers to pay taxes on their savings after
          retiring and moving into a lower income bracket, it tried to eliminate
          the preference. A public outcry saved the tax break, but provisions
          imposing new coverage tests were included in the sweeping 1986 tax
          reform bill. Graff estimates those changes caused thousands of employers
          and employees to terminate their pension plans.

    • LibertyFargo

      +1 Tony. Basic math seems to be an impossible task for federal politicians. It used to surprise me that they didn’t “get” this kind of thing when passing laws but as I get older it has become apparent that they know exactly what they are doing. The hidden goal of Statism on open display.

      “See Billy Idol gets it. I don’t know why he doesn’t get it?” – Adam Sandler (The Wedding Singer)

  • kevindf

    They want everyone dependent on a government check all their lives.

  • ND in MD

    “…promoted as one of the best ways to prepare for retirement…”

    Call me cynical, but do the libs really want people to save and prepare for retirement? The poorer, more destitute a person is forces that person to be more dependent upon government. A win, win for the government: more revenue and more poor people to milk for their vote.

  • JW-American

    ok, lets look at it from His Royal Obummer’s Point of view,

    tax savings, and people save less,>>> people save less, they spend more,

    people spend more, economy turns around >>>>economy turns around,and people hire.

    people get hired, and Obummer gets credit! >>>> Obummer gets credit and poses for Mt Rushmore.

    People don’t have savings, they are dependent on SS>>> when folks are dependent on Gov. they vote Democrat.

    Folks vote Democrat, because of Obummers actions>>>> Democrats repay Obummer by starting the chiseling over of the slave-owner Jefferson, into the First black president, B.Hussien Obummer.

    and folks, that’s what makes Obummer happy.

    you can look at nearly every issue Obummer touches in this same manner. from SuperStorm Sandy, to Israel to gun grabbing, and school lunch programs, if people need Gov, and are dependent >>>>they vote for the Candyman, and the Candyman wants to be smiling on, in the ‘Black’ Hills for the next 10,000 years

  • SigFan

    I’m sure they would like to do this – and make it fully retroactive to when you started your retirement savings. In fact, their real desire is to outright seize your 401K and IRA accounts and “nationalize” them into the new and improved SS – and another big pile of money they can spend.

  • http://Sayanythingblog.com The Whistler

    Obviously there’s no way that the federal government could cut any spending. Instead they need to make it all the harder for people to save for their retirement. Of course the slackers who never work will never be asked to go out and fend for themselves. But the people that do work and pay taxes will have to work as long as they can to support the bums.

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