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Old 11-17-2008, 09:44 AM   #1
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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, a lthough 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 th e 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 wante d 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 o f 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 s hould 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 l ink 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 eco nomic 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.

Karen McMahan is a contributing editor of Carolina Journal.
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Old 11-17-2008, 11:02 AM   #2
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This isn't what I fought for.
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Old 11-17-2008, 11:21 AM   #3
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I coudln't find any information on this anywhere other than that article and a bunch of blogs linking to it.

incidentally, the carolina journal is put up by this group:

Quote:
The John Locke Foundation is a free market think tank in North Carolina started in 1990. The organization advocates lowering taxes, decreasing spending on social support programs, and encouraging free markets. John Hood is its current president.

The Foundation is concerned primarily with state and local issues. The greater part of its funding comes from North Carolina conservative grantmaking foundations, some led by Republican party activists.

It is named after the philosopher John Locke, who was a primary contributor to what we understand as the idea of classical liberalism.
Not to mention that house dems didn't say they were going to confiscate the 401k in this article. It was some woman coming to talk about it.

That's like saying me coming here and talking about Obama means you guys are all communists.

god forbid the govt should try to gather information on even the bad ideas...
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Old 11-17-2008, 11:44 AM   #4
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I'm not going to say "It'll never happen," because history has proven that it can.

On the other hand, at this point in time at least, this seems to be little more than very zealous reporter latching onto the testimony of one radical socialist academic (and who here didn't have at least one communist nutjob of a prof in college?) and vibrantly portraying her opinion in such a way as to generate controversy fueled by FUD. In other words, scare tactics sell newspapers.
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Old 11-17-2008, 12:05 PM   #5
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I have to go along with what Yates says on this one.

Realize that the government spends lots of time evaluating many ideas that are "outside of the box". The US government is currently investing something like a million or so per year to consider the possibility of flying cars. How is this relevant? The idea of the flying car being used in the near future is about the same probability as them taking over private 401ks.
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Old 11-17-2008, 12:11 PM   #6
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you can read the rebuttal from the John Birch Society

"Democrat" 401K Confiscation Proposal is "Republican" Mandatory Savings Plan
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Old 11-17-2008, 12:16 PM   #7
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nice scott. funny that all the commenters except one seem to not have read the article.
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Old 11-17-2008, 12:19 PM   #8
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or how about reading Ghilarducci's White Papers on the matter:

http://www.sharedprosperity.org/bp204/bp204.pdf

and forming your own conclusions....
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Old 11-17-2008, 12:48 PM   #9
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nah, i dont really care what she has to say any more than I care to read L Ron Hubbard and learn about scientology.

I wonder if there's a requirement for congress to listen to crackpots?
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Old 11-17-2008, 01:05 PM   #10
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probably. all i know is, I'm renting out my house for the inauguration and making a quick buck.
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Old 11-17-2008, 01:15 PM   #11
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you and the whole DC metro area! even our real estate agent is.
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Old 11-17-2008, 02:07 PM   #12
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Speaking of the dc metro area, I was in arlington on saturday and I'd just like to say the whole north and south street thing is a pain in the ***. Possibly the most confusing street set of street names I've ever seen. On the other hand we went to the Brickskeller and that made everything all right in the end.
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Old 11-17-2008, 02:09 PM   #13
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it's not confusing, North = you want to be there, south = head north!

I much enjoyed it when I lived on North Scott Street. Arlington streets make no sense, technically that location i was at, Scott Street was just a access road to the front of the building, the real Scott Street doesn't connect or is even close to it.

On the street on live on now, all the roads that intersect go in alphabetical order, makes it fun...except there are (3) C's (2) G's, and no F...something like that.
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Old 11-17-2008, 02:25 PM   #14
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Quote:
Originally Posted by johndoe View Post
Speaking of the dc metro area, I was in arlington on saturday and I'd just like to say the whole north and south street thing is a pain in the ***. Possibly the most confusing street set of street names I've ever seen. On the other hand we went to the Brickskeller and that made everything all right in the end.
DC is worse if you dont know your quadrants.

and the brickskeller has rats living off saltines in the walls. next time you're in town, i'll help you find a place that isn't run by jerks and has the beers you want IN STOCK. heh.
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Old 11-17-2008, 02:44 PM   #15
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Quote:
Originally Posted by y8s View Post
DC is worse if you dont know your quadrants.

and the brickskeller has rats living off saltines in the walls. next time you're in town, i'll help you find a place that isn't run by jerks and has the beers you want IN STOCK. heh.
I see you think highly of this place.
I'll take you up on that offer the next time I'm down there.
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Old 11-17-2008, 03:01 PM   #16
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Quote:
Originally Posted by johndoe View Post
I see you think highly of this place.
I'll take you up on that offer the next time I'm down there.
gf quit a job there.
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Old 11-17-2008, 05:04 PM   #17
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DC is a plague on humanity.
Brickskeller is fun, but like y8s says, they advertise 1k beers, and are always out of stock somehow on the ones I order.
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Old 11-17-2008, 05:19 PM   #18
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why are both parties acting like authoritarians?
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Old 11-17-2008, 05:53 PM   #19
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Quote:
Originally Posted by Newbsauce View Post
DC is a plague on humanity.
Brickskeller is fun, but like y8s says, they advertise 1k beers, and are always out of stock somehow on the ones I order.
cuz they r punx.

come to the lost dog, get some beers. it'll be fun time for all.
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Old 11-17-2008, 06:02 PM   #20
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Quote:
Originally Posted by hustler View Post
why are both parties acting like authoritarians?
Cause America has lost its way to ideological monsters.
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