Dems Target Private Retirement Accounts

dave_donhoffNovember 10, 2008

Dems Target Private Retirement Accounts

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By Karen McMahan

November 04, 2008

RALEIGH - Democrats in the U.S. House have been conducting hearings on proposals to confiscate workers personal retirement accounts including 401(k)s and IRAs âÂ" and convert them to accounts managed by the Social Security Administration.

The current retirement system, Ghilarducci said, exacerbates income and wealth inequalities because tax breaks for voluntary retirement accounts are skewed to the wealthy because it is easier for them to save, and because they receive bigger tax breaks when they do.

Lauding GRAs as a way to effectively increase retirement savings, Ghilarducci wrote that savings incentives are unequal for rich and poor families because tax deferrals provide a much larger carrot to wealthy families than to middle-class families and none whatsoever for families too poor to owe taxes.

GRAs would guarantee a fixed 3 percent annual rate of return, although later in her article Ghilarducci explained that participants would not earn a 3% real return in perpetuity. In place of tax breaks workers now receive for contributions and thus a lower tax rate, workers would receive $600 annually from the government, inflation-adjusted. For low-income workers whose annual contributions are less than $600, the government would deposit whatever amount it would take to equal the minimum $600 for all participants.

In a radio interview with Kirby Wilbur in Seattle on Oct. 27, 2008, Ghilarducci explained that her proposal doesn't eliminate the tax breaks, rather, I'm just rearranging the tax breaks that are available now for 401(k)s and spreading the wealth.


Dave here;

Clearly, whether these ideas are loony-bin "trial balloons" sent out explicitly to be shot down so that "lesser demons" will later be accepted (a "good cop, bad cop" kind of theory,)... or whether the new regime would actually go so far as to confiscate and "spread the wealth around" from the savings of those who were diligent enough to perservere and gather them over the years....

IN EITHER CASE, the writing is on the financial planning wall! NOW is the time to get your funds OUT of the jaws of any potential confiscation, and into protected accounts least likely to be unilaterally "modified" by legislators.

Now is the time to aggressively play defensively!

Dave Donhoff

Leverage Planner

Here is a link that might be useful: Dems Target Private Retirement Accounts

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Confiscate? Nope, the thesis as laid out by Ghilarducci says SWAP,not is a link to her thoughts

nevertheless,something i don't support...

Here is a link that might be useful: swap not confiscate

    Bookmark   November 10, 2008 at 6:12PM
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Since the 401k system has not been able to replace private pensions for the middle class, yes, something probably will need to be done. However, a white paper to a Congressional committee isn't going to achieve much, if anything, at a time when the Republicans have managed to run up huge deficits, cripple the financial system, entangle us in two wars which are impossible to win, and left the incoming administration with rising unemployment and a severe loss of tax revenues.

This makes for a sensationalist headline, but I'd sincerely doubt it's high on the priority list of 2009 Obama government action items. Maybe as a voluntary program, but there'll be no big "money grab". Brazil did something very similar, I believe, a while back - I remember reading an article about it when they were discussing privatizing Social Security.

    Bookmark   November 10, 2008 at 7:29PM
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What would such a swap from privately held 401k plans invested in stocks and mutual funds to a Federal held retirement plan invested in government bonds do to the stock market?

Plus, the proposed plan sounds like every worker who didn't have a 401k or similar plan would be required to put 5% of their pay into the government plan. If people can't afford to put money into a 401k or IRA plan now, what is going to change to allow them to afford to make that mandatory contribution?

I don't want the government messing with my retirement money.

    Bookmark   November 10, 2008 at 7:58PM
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Thanks for the link.

This lady is loony...

To wit;

High-income earners get a much higher subsidy than anyone else because they are more likely to have a 401(k) and contribute more. This design has shocking results: 6% of taxpayers with incomes over $100,000 per year get 50% of the tax subsidies.

"Shocking"???? Really????

Question; What percentage of the actual TAXES are paid by the 6% of taxpayers with incomes over $100k?

If one group PAYS more than other groups, then wouldn't make no-brainer common sense that the same group gets an equivalent in tax breaks, when breaks are available?

You can't drive a parked car... and you can only get tax breaks to the degree you actually PAY taxes.

And, for all this effort, the nation gets no extra savings and workers no extra retirement security (see Appendix).

The nation is in extremely deep DEBT... none of our politicians have even WHISPERED any hope of cutting back real spending below revenues to the point where we can even get OUT of debt, let alone accumulate SAVINGS as a nation.

As for the actual WORKERS... we all have as much savings as we've been committed to having. Nothing any government can actually do about that.

She goes on & on majestically describing the benefits of a Life Annuity. FINE! If you are REALLY hellbent on annuities, do it with a company that is answerable to its shareholders, a publically traded life insurance company. The danger in this author's proposals is the idea of letting the POLITICIANS mind the till of the funds for the annuities.

We can't even get the Federal Reserve to honestly disclose RIGHT NOW how they are spending our so-called "bailout money" we've authorized for them.....

HOW ON GODS GREEN EARTH are we to expect Congress-Critters to disclose the full management of the accumulated annuity funding? That cookie jar is just WAY to massively tempting to the larsenous thieves we send to Capital Hill.

Once again, you can't "legislate" good habits for the unwashed drabble. The people who do not have the desire to build themselves a secure nest egg will not respect any system that forcefully does it for them, and the costs of their disrespect (which will be far greater than just the monetary deposits) will be wrongfully shouldered by those who ARE self-respectful....

... At least until the self-respectful "get the name of the game" and learn to circumvent the legislated lunacy... as has always been the ultimate results.

You can't fight the laws of economics any more successfully than you can fight the law of gravity. Everything eventually reverts to its natural cycles.


    Bookmark   November 10, 2008 at 8:24PM
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as stated above this was a white paper mostly dealing with the issues of inequality with the tax subsidies of 401ks.

why do workers with 401ks get to put in $15.5k a year but only $5k in an IRA which is usually the only option for poor workers. some will mention variable annuities & other life insurance "savings" but these are very expensive for the features it provides.

there is no way that any admin or congress would force the removal of subsidies of 401ks or force workers to invest in new govt retirement plan unless social security is completely changed.

with companies either removing or not offering pensions there is going to be a real issue in the next 15-20 years on what to do with those who never saved or have minimal savings for retirement not including social security.

i do believe there should be a system of matched savings for those making under a certain salary (

    Bookmark   November 10, 2008 at 9:57PM
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tishtoshnm Zone 6/NM

jlhug, I believe that many can afford to save for retirement but it would also mean they would have less money for other things (which of course would further dampen the economy). Dh works for our state government and as a condition of employment, 7% of your paycheck goes to the pension fund. Because it is not negotiable and we never see the money, we live on what is leftover. In a way it is almost like a tax. There are plenty of ways we could spend that money but we don't get that choice.

I also would not like the government controlling my retirement money that way. It makes me very wary of the amount of money we contribute to the pension fund and what our benefits will actually be when he retires in several years. I do wish that there were more ways to encourage retirement savings. Perhaps part of that would be to decide what they are going to do with Social Security so that people have a better idea of what they can expect when they retire.

    Bookmark   November 11, 2008 at 12:43AM
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Tish, I understand what you are saying. Military allotments are the same way. You never see the money, so on some strange level, you sort of forget that you have it.

My concern is the people who are already living paycheck to paycheck barely making utility payments, car payments and rent. What happens when Uncle Sam says "In addition to the taxes that are being withheld from your paycheck, we are going to take an extra 5% for retirement." How do those people who have alrealdy tightened their belts survive?

I think everyone should be saving for retirement, but am realistic enough that, unfortunately, there are many who simply don't have any extra money to do so.

    Bookmark   November 11, 2008 at 6:49AM
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Hi mnk,

why do workers with 401ks get to put in $15.5k a year but only $5k in an IRA which is usually the only option for poor workers.

Great question... the "WHY" questions typically spin into endless spirals....

If we know that one law of economics is that whatever gets taxed gets repressed....
WHY do we tax savings (at all, at ANY amount???)

WHY not allow people to shelter against taxation entirely by doing what we (as society) *WANT* them to do; Save for their own personal security?


some will mention variable annuities & other life insurance "savings" but these are very expensive for the features it provides.

"Very expensive" is relative I suppose... are insured-principal strategies (cash value life (tax free) and annuities (tax deferred),) which incur the insurance premium fees themselves REALLY more expensive than trying to get the same results with the government managing the insurance coverage? I suspect not.

AGAIN, we simply have to decide what we REALLY want, as a society, and simply APPLY the laws of economics;

TAX what you wish to repress,
SUBSIDIZE what you wish to increase.

Not all that incredibly complicated, really. The problem occurs when people decide they want to use taxation as a "fairness" and a "redistribution" weapon on the population. That's where the corruption of economics occurs.


    Bookmark   November 11, 2008 at 1:00PM
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When higher income tax-payers have saved/invested in 401ks, and start pulling out their earnings, is that not treated as income and taxed, and at a certain level reduces their SS payment? If so, I would call that one way that the system re-balances. As much as you can balance a Ponzi scheme like Social Security, anyway.

    Bookmark   November 12, 2008 at 12:15PM
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All my money is in TSP which every administration and politician has been slavering to borrow from. Now that we have run up a huge debt, gotten rid of all our jobs and socialized banks and industry and are still short with every company and state running to the govt for a bailout (latest is Ohio wanting a govt bailout for unemployment) I doubt anyone will be able to stave off the govt "borrowing" my govt 401k money. Course my "pension" is tiny. Don't know what will happen or what to do.

    Bookmark   November 12, 2008 at 3:33PM
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Now I have a different question on this topic.

Who says the government has any right to either swap or take away 401's, Roths's and IRA's? Are not these items considered private property?

It's my money in those accounts. No one else put any of their money in. Therefore, I consider them like my savings and checking accounts - private property - MINE! The government can't take my checking and savings accounts unless I'm sued or something. There has to be due process and legal recourse. I would think the same would occur in this scenario.

So Ghilarducci may be throwing up a smoke screen, but the thought of the government taking something that is not theirs is a bad sign of things to come.

Enjoy the journey.
eal51 in western CT

    Bookmark   November 12, 2008 at 3:57PM
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Again, this is a white paper. The suggestions simply won't fly in the real political world, so there's no need to get excited over what is Dave's rather sensationalist title, but in the end will be a non-issue.

Like privatization of SS accounts, anything like this will only come into being on a voluntary basis. In the end, you would still be responsible for making the decisions about your own retirement.

There are some people who would no doubt feel better if they got a guaranteed government return, as opposed to gambling in equities. Why else were panicked people buying Treasuries when short-term rates were .31%?

    Bookmark   November 12, 2008 at 6:11PM
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Interesting, I can see many constitutional challenges in the next few years. Surely, it has to be a smoke screen for some other foolishness-just talk of raiding another massive trustfund in order to distribute the "wealth". Since when was the concept of sacrifice and saving become so unpatriotic? Has massive debt been better?

We will never be able to compete globally with this mindset.

    Bookmark   November 14, 2008 at 12:50PM
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good reason to shoot the politicians 1st, the lawyers 2nd, and the preachers 3rd.

    Bookmark   November 15, 2008 at 11:26PM
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What would be wrong with telling people the truth - you and you alone are responsible for your retirement. If you want to have money for that, then save it. It's up to you. No tax breaks, no tax credits.

I also don't understand the concept of not taxing some income. If we are going to pay taxes on earned monies, should it matter if that money is earned through our labor, savings accounts, capital gains, etc? I don't think so.

In other words, get the government out of it altogether - no 'incentives' no 'subsidies'. Just get out and let people do their own thing.

I do understand we cannot allow people to simply starve if they haven't provided for themselves. What I do think, though, is that people need to understand they won't be living a very easy life when they get old, if they haven't provided for themselves.

It would take a total reeducation of the people of this country, but that's the only fair way.

Couple that with about a 75% reduction in government, and government involvement in every aspect of our lives and I don't think it would be so hard for people to save.

    Bookmark   November 20, 2008 at 8:29AM
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hide your money soon! b-4 our new marxist regime takes over.

    Bookmark   November 20, 2008 at 7:08PM
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>>b-4 our new marxist regime takes over.Inflammatory and inaccurate.

    Bookmark   November 20, 2008 at 10:48PM
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Inflammatory and inaccurate.
if it walks like a duck and it quacks like a duck, well then, ITS A DUCK!

    Bookmark   November 21, 2008 at 7:43PM
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Okay... but a duck is not a Marxist regime.

    Bookmark   November 21, 2008 at 8:59PM
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"b-4 our new marxist regime takes over."

must be the 45% that believe the Mcain commercials.
lets be serious, there is no way that is ever going to happen.

a marxist regime would entail the government being in charge of all means of production. central planning for what, when & where things should be produced.

i do believe taxes will have to be raised at some point to pay back all the govt debt that will be needed to get us out of this mess.

    Bookmark   November 22, 2008 at 12:31PM
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>>b-4 our new marxist regime takes overConsidering the fact that the Republicans have done their darndest to spend taxpayer funds on socialism for the rich, I fail to see how the middleclass would be any worse off under the Democrats - even assuming I believed Obama to be a Marxist, which I don't.

My father was a long-time Socialist and voted for Eugene Debbs every election. Amazing how people throw around words like "Marxist" and "Socialist" without really understanding what that means. The Republicans have been fighting Medicare for decades as a "Socialist" program - which one can argue that it is....but would you like to be without it in your old age?

As a member of the Socialist Party of America said about Obama, "He's not a Socialist. No Socialist would hang around with Warren Buffett!"

    Bookmark   November 22, 2008 at 4:50PM
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i see little diff. between the rep. or dem. party, both a bunch of hacks. i have nothing but contempt for washington politicians.

    Bookmark   November 22, 2008 at 6:26PM
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>>b-4 our new marxist regime takes over.Ummmmm. Last I checked it was the BUSH administration putting the government in the business of bank ownership? And it's the BUSH administration and the rest of the Republocrats handing over OUR tax $$$ to a bunch of their cronies like GM and Citibank whose firms are going to go bankrupt because of their poor foresight and inability to meet market demands while paying their CEO's billions?

And lets see, it's the BUSH administration took a budget surplus in 2000 and turned it into a record-breaking deficit, while creating the biggest government and government debt in history, including an entire new cabinet-level beaurocracy (Dept of "Homeland Security") to suck billions of dollars towards creating an atmosphere of fear? Are you safer now than you were in 2000? Think again.

And the NEXT guys are the "marxists" and crooks who will create big government and mishandle our tax dollars? What planet are you on?

I'm just glad BUSHCO didn't get their hands on privatizing my Social Security. At least the money I'm losing in my 403b isn't my social security for the future, just my own damn money. Perhap I'll have something to live on in my old age, thanks to FDR.

I hope that Obama can provide us with the "Next Deal" to get us out of the Great Depression II that Bush has pushed us into. World War I was just known as the "Great War" until World War II came along. Now we'll have the "Depression I" and the "Depression II" to tell our grandkids about.

    Bookmark   November 23, 2008 at 11:29PM
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tishtoshnm Zone 6/NM

ED,I certainly don't find Obama to be Marxist and I'll save any discussions over what will happen with the bailout etc under him for the hot topics forum but last time I checked, the money that comes out of my paycheck for social security and medicare is indeed, my own d***d money as you so succintly put it. You are correct that Bush did not privatize Social Security so without a doubt, every paycheck I still continue to lose my money.econdary

Perhaps I am a bit on the cynical side, but I am not overly confident that when I retire that I can count on that money and hope for a secure future, irregardless of who is in office during the next 30-40 years. I highly suspect that benefits will be reduced during that time or taxes will go up significantly (again taking MY money).

    Bookmark   November 24, 2008 at 1:32AM
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>>when I retire that I can count on that money and hope for a secure futureI'm not sure everyone is aware of this, but Social Security was ALWAYS designed as a pay-as-you-go system, not as a government oversight of what individual monies you paid into the system. This is why a declining birthrate worries economists so much.

I think the system will end up in slightly better shape than people think - the birthrate amongst my younger friends/co-workers is noticeably higher than in the Boomer generation. I worked at a dot-com for three years, and at one point more than 25 employees were expecting their first or second child (the company only had 300 people max at its highest count).

Remember that we Boomers were told back in the '70's that overpopulation was the biggest evil that would use up resources: everyone was advised to have no more than one kid, two at the most.

    Bookmark   November 24, 2008 at 7:36PM
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well i didnt have any kids, so i should get a bigger share of the pie. none of my spawn sucking up resources.

    Bookmark   December 2, 2008 at 5:58PM
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"...none of my spawn sucking up resources."

yes, bill, and no kids to contribute to the system either.

    Bookmark   December 7, 2008 at 5:31PM
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