House Democrats recently invited Teresa Ghilarducci, a professor at the New School of Social Research, to testify before a subcommittee on her idea to eliminate the preferential tax treatment of the popular retirement plans. In place of 401(k) plans, she would have workers transfer their dough into government-created “guaranteed retirement accounts” for every worker. The government would deposit $600 (inflation indexed) every year into the GRAs. Each worker would also have to save 5 percent of pay into the accounts, to which the government would pay a measly 3 percent return. Rep. Jim McDermott, a Democrat from Washington and chairman of the House Ways and Means Committee’s Subcommittee on Income Security and Family Support, said that since “the savings rate isn’t going up for the investment of $80 billion [in 401(k) tax breaks], we have to start to think about whether or not we want to continue to invest that $80 billion for a policy that’s not generating what we now say it should.”
Read the rest.
Mark Pravitt, writing on
Why Congress Matters, posts on the question of oversight:
Oversight: You thought the Democrats did a great job advocating for oversight for Freddie Mac and Fannie Mae? You ain’t seen nothing yet. The Democratic leadership by and large still refuses to acknowledge the existence of problems with Freddie and Fannie (Pelosi is reported to have promised some in leadership that she won’t permit any “witch-hunt” inquiries into both organizations’ problems). Barney Frank’s still trying to distract from these economic issues by calling critics of old Freddie and Fannie regulations racists. With increased federal powers in the wake of the financial crisis, Democrats will have even more to exercise their (lack of) oversight over. As the power of the federal government expands (over the short term at least), is it really in the interests of the American people to give complete power to a party that seems to have failed so much in regulating itself? Think of the mortgage deals for Congressional regulators, tax issues for the Chair of the House Ways and Means Committee, the campaign coffers stuffed with funds from organizations (such as Fannie and Freddie) that these Democrats were supposed to be overseeing, etc. Is this crew to be trusted with unchallenged power of oversight and regulation over the next two or more years? If we want to deal with the current crisis, we’re going to need flexibility and fairness and a real interest in getting at the facts—not people interested in demagoguing issues only to extend their own political power.
Moe: You are one election away from having your 401(k) taxed. (emphasis added):
- The Democrats are proposing to end the tax breaks on 401(k) plans. That means no incentive for employer matching funds, which will promptly go away: you will instead be given up to $600 dollars a year by the government. Hope that you weren’t counting on your employer’s matching funds for your retirement!
You will also be required to contribute 5% of your gross income per year, which will be locked into a 3% annual rate of return via government bonds. And, no, you do not have a say in how they invest the money. Based on what I can tell about Teresa Ghilarducci – the genius who apparently came up with this exercise in applied looting, and who briefed the Democrats on it last week – she’s about as interested in actual middle-class opinions as the rest of the New School for Social Research.
God save us from academic economists.
- Yes, this is a welfare system. Of course, this hurts the poor disproportionately. Indeed, this is a rather drastic, socialist notion that reminds many people of the games that Argentina is contemplating playing with with regard to nationalizing their private pension fund system. And, yes, the difference in what you’re being forced to invest in the government, and what the government will deign to give back to you, can be significant.
- That’s why the Democrats are doing it – particularly Representative George Miller, Democrat from California, and Rep. Jim McDermott, Democrat from Washington. They think that they know better than you do about how to spend your money.
This goes through, and you can kiss the investor class good-bye.