America is Saving Too Much
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-Calif., and Rep. Jim McDermott, D-Wash., 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.
So those who actually save via their 401K will now have less incentive to save.
At that hearing, the director of the Congressional Budget Office, Peter Orszag, testified that some $2 trillion in retirement savings has been lost over the past 15 months.
I don’t doubt that this is true and that much of those losses might have occured in the last couple of months. However, I’m not sure this plan is much of an answer. First off, while this would result in more money in the Social Security system it would mean less money in private 401ks. Further, I’m doubtful about the amount of money flowing into Social Security would necessarily offset the losses to 401ks. Yes recently we’ve seen serious losses, but those will likely be recouped in the future.
“I want to stop the federal subsidy of 401(k)s,” Ms. 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.”
What a wonderfully perverse world view. Because something is not taxed it is being subsidized. Never mind that even if we consider this a subsidy it is a subsidy for savings, and long term savings at that when typically in this country savings are taxed.
“From where I sit that’s just crazy,” said John Belluardo, president of Stewardship Financial Services Inc. in Tarrytown, N.Y. “A lot of people contribute to their 401(k)s because of the match of the em-ployer,” he said.Mr. Belluardo’s firm does not manage assets directly.
Higher-income employers provide matching funds to employee plans so that they can qualify for tax benefits for their own defined contribution plans, he said.
“If the tax deferral goes away, the employers have no reason to do the matches, which primarily help people in the lower income brackets,” Mr. Belluardo said.
There you go, Americans, you save too much. Stop it. Give that money to the government. They’ll take oh so much better care of it than you will. Never mind that right now Social Security is in actuarial imbalance, and lets not talk about the neutron bomb better known as Medicare and that it is several tens of trillions out of actuarial imbalance. You can trust the government, they are here to help you.