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Will Uncle Sam Takeover Your IRA?
Those engaged in massive strategic maneuvers know all too well that progress is typically made not in one fell swoop but painstakingly inch by inch. With deficits beyond the scope of imagination but oh so very real, I cautioned people to keep a watchful eye on Uncle Sam. Where might the old man go to beg, borrow, or steal money to fill that enormous fiscal hole? Your retirement accounts. I first broached this topic in early 2010 in writing, Blueprint for Government Takeover of IRAs and Will Uncle Sam Takeover Your IRA?. Fast forward and we now witness rumblings around Washington that the drunken sailors disguised as our political leaders are discussing how to make a move on your retirement savings. This tactical assault deserves to be front page news on every credible financial periodical. Regrettably but not surprisingly, the only outlet which I could find carrying this story is The New York Post which wrote, Feds Eye Retirement-Fund To Cut $16 Trillion-Plus Deficit, 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. 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. This component strikes me as merely a tax on savings. When will the nitwits in Washington realize that our nation needs to increase its savings rate not decrease it. But please now break out your vomit bag and then rally the neighbors. 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. What does this mean? You will pay a tax NOW on your retirement savings and be granted a government credit which kicks in LATER. This tactical assault is little more than another government scam. Do you want a government credit which can be massively devalued over time by inflationary policies implemented by the Federal Reserve? “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. My immediate reactions to learning about these discussions last evening are two-fold: 1. Taxation without representation is tyranny. How many people out there who have played by the rules, saved, paid in, and supported our government have had enough? Do not think for a second that these maneuvers by Uncle Sam are the end of his assault on our savings. We are supposed to blindly and willingly accept a change in the rules of the retirement savings operation while the dysfunctional elitists in Washington squander OUR money on prostitutes, boondoggles, gallivanting, and largesse to THEIR political supporters. I Don't Think So!!If you agree with my sentiments I hope you will share this story so we can draw the line and make our stand. What do you think? Larry Doyle Please subscribe to all my work via e-mail, an RSS feed, on Twitteror Facebook. I have no affiliation or business interest with any entity referenced in this commentary. The opinions expressed are my own. I am a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.
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Larry embarked on his Wall Street career in 1983 as a mortgage-backed securities trader for The First Boston Corporation, and was involved in the growth and development of the secondary mortgage market from its near infancy. After close to 7 years at First Boston, Larry joined Bear Stearns in early 1990 as a mortgage trader. In 1993, Larry was named a Senior Managing Director at the firm. He left Bear to join Union Bank of Switzerland in late 1996 as Head of Mortgage Trading. In 1998, after 15 years of trading and precipitated by Swiss Bank’s takeover of UBS, Larry moved from trading to sales as a senior salesperson at Bank of America. His move into sales led him to the role as National Sales Manager for Securitized Products at JP Morgan Chase in 2000. He was integrally involved in developing the department, hiring 40 salespeople, and generating $300 million in sales revenue. He left JP Morgan in 2006.