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  • From: bob ford <bobford79 AT yahoo.com>
  • To: homestead AT lists.ibiblio.org
  • Subject: [Homestead] 'Democratic discuss confiscating 401(k)s, IRAs'
  • Date: Sat, 8 Nov 2008 17:02:58 -0800 (PST)

I am not familiar with "The Carolina Journal"

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Carolina Journal Exclusives
Dems Target Private Retirement Accounts
Democratic leaders in the U.S. House discuss confiscating 401(k)s, IRAs

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 — and convert them to accounts managed by the Social
Security Administration.

Triggered by the financial crisis the past two months, the hearings
reportedly were meant to stem losses incurred by many workers and retirees
whose 401(k) and IRA balances have been shrinking rapidly.

The testimony of Teresa Ghilarducci, professor of economic policy analysis at
the New School for Social Research in New York, in hearings Oct. 7 drew the
most attention and criticism. Testifying for the House Committee on Education
and Labor, Ghilarducci proposed that the government eliminate tax breaks for
401(k) and similar retirement accounts, such as IRAs, and confiscate workers’
retirement plan accounts and convert them to universal Guaranteed Retirement
Accounts (GRAs) managed by the Social Security Administration.

Rep. George Miller, D-Calif., chairman of the House Committee on Education
and Labor, in prepared remarks for the hearing on “The Impact of the
Financial Crisis on Workers’ Retirement Security,” blamed Wall Street for the
financial crisis and said his committee will “strengthen and protect
Americans’ 401(k)s, pensions, and other retirement plans” and the “Democratic
Congress will continue to conduct this much-needed oversight on behalf of the
American people.”

Currently, 401(k) plans allow Americans to invest pretax money and their
employers match up to a defined percentage, which not only increases workers’
retirement savings but also reduces their annual income tax. The balances are
fully inheritable, subject to income tax, meaning workers pass on their
wealth to their heirs, unlike Social Security. Even when they leave an
employer and go to one that doesn’t offer a 401(k) or pension, workers can
transfer their balances to a qualified IRA.

Mandating Equality

Ghilarducci’s plan first appeared in a paper for the Economic Policy
Institute: Agenda for Shared Prosperity on Nov. 20, 2007, in which she said
GRAs will rescue the flawed American retirement income system
(www.sharedprosperity.org/bp204/bp204.pdf).

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 — spreading the wealth.”

All workers would have 5 percent of their annual pay deducted from their
paychecks and deposited to the GRA. They would still be paying Social
Security and Medicare taxes, as would the employers. The GRA contribution
would be shared equally by the worker and the employee. Employers no longer
would be able to write off their contributions. Any capital gains would be
taxable year-on-year.

Analysts point to another disturbing part of the plan. With a GRA, workers
could bequeath only half of their account balances to their heirs, unlike
full balances from existing 401(k) and IRA accounts. For workers who die
after retiring, they could bequeath just their own contributions plus the
interest but minus any benefits received and minus the employer contributions.

Another justification for Ghilarducci’s plan is to eliminate investment risk.
In her testimony, Ghilarducci said, “humans often lack the foresight,
discipline, and investing skills required to sustain a savings plan.” She
cited the 2004 HSBC global survey on the Future of Retirement, in which she
claimed that “a third of Americans wanted the government to force them to
save more for retirement.”

What the survey actually reported was that 33 percent of Americans wanted the
government to “enforce additional private savings,” a vastly different
meaning than mandatory government-run savings. Of the four potential sources
of retirement support, which were government, employer, family, and self, the
majority of Americans said “self” was the most important contributor,
followed by “government.” When broken out by family income, low-income U.S.
households said the “government” was the most important retirement support,
whereas high-income families ranked “government” last and “self” first
(www.hsbc.com/retirement).

On Oct. 22, The Wall Street Journal reported that the Argentinean government
had seized all private pension and retirement accounts to fund government
programs and to address a ballooning deficit. Fearing an economic collapse,
foreign investors quickly pulled out, forcing the Argentinean stock market to
shut down several times. More than 10 years ago, nationalization of private
savings sent Argentina’s economy into a long-term downward spiral.

Income and Wealth Redistribution

The majority of witness testimony during recent hearings before the House
Committee on Education and Labor showed that congressional Democrats intend
to address income and wealth inequality through redistribution.

On July 31, 2008, Robert Greenstein, executive director of the Center on
Budget and Policy Priorities, testified before the subcommittee on workforce
protections that “from the standpoint of equal treatment of people with
different incomes, there is a fundamental flaw” in tax code incentives
because they are “provided in the form of deductions, exemptions, and
exclusions rather than in the form of refundable tax credits.”

Even people who don’t pay taxes should get money from the government, paid
for by higher-income Americans, he said. “There is no obvious reason why
lower-income taxpayers or people who do not file income taxes should get
smaller incentives (or no tax incentives at all),” Greenstein said.

“Moving to refundable tax credits for promoting socially worthwhile
activities would be an important step toward enhancing progressivity in the
tax code in a way that would improve economic efficiency and performance at
the same time,” Greenstein said, and “reducing barriers to labor organizing,
preserving the real value of the minimum wage, and the other workforce
security concerns . . . would contribute to an economy with less glaring and
sharply widening inequality.”

When asked whether committee members seriously were considering Ghilarducci’s
proposal for GSAs, Aaron Albright, press secretary for the Committee on
Education and Labor, said Miller and other members were listening to all
ideas.

Miller’s biggest priority has been on legislation aimed at greater
transparency in 401(k)s and other retirement plan administration,
specifically regarding fees, Albright said, and he sent a link to a Fox News
interview of Miller on Oct. 24, 2008, to show that the congressman had not
made a decision.

After repeated questions asked by Neil Cavuto of Fox News, Miller said he
would not be in favor of “killing the 401(k)” or of “killing the tax
advantages for 401(k)s.”

Arguing against liberal prescriptions, William Beach, director of the Center
for Data Analysis at the Heritage Foundation, testified on Oct. 24 that the
“roots of the current crisis are firmly planted in public policy mistakes” by
the Federal Reserve and Congress. He cautioned Congress against raising
taxes, increasing burdensome regulations, or withdrawing from international
product or capital markets. “Congress can ill afford to repeat the awesome
errors of its predecessor in the early days of the Great Depression,” Beach
said.

Instead, Beach said, Congress could best address the financial crisis by
making the tax reductions of 2001 and 2003 permanent, stopping dependence on
demand-side stimulus, lowering the corporate profits tax, and reducing or
eliminating taxes on capital gains and dividends.

Testifying before the same committee in early October, Jerry Bramlett,
president and CEO of BenefitStreet, Inc., an independent 401(k) plan
administrator, said one of the best ways to ensure retirement security would
be to have the U.S. Department of Labor develop educational materials for
workers so they could make better investment decisions, not exchange equity
investments in retirement accounts for Treasury bills, as proposed in the
GSAs.

Should Sen. Barack Obama win the presidency, congressional Democrats might
have stronger support for their “spreading the wealth” agenda. On Oct. 27,
the American Thinker posted a video of an interview with Obama on public
radio station WBEZ-FM from 2001.

In the interview, Obama said, “The Supreme Court never ventured into the
issues of redistribution of wealth, and of more basic issues such as
political and economic justice in society.” The Constitution says only what
“the states can’t do to you. Says what the Federal government can’t do to
you,” and Obama added that the Warren Court wasn’t that radical.

Although in 2001 Obama said he was not “optimistic about bringing major
redistributive change through the courts,” as president, he would likely have
the opportunity to appoint one or more Supreme Court justices.

“The real tragedy of the civil rights movement was, um, because the civil
rights movement became so court focused that I think there was a tendency to
lose track of the political and community organizing and activities on the
ground that are able to put together the actual coalition of powers through
which you bring about redistributive change,” Obama said.










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