So now you want to take away most of our 401(k) benefits, do you? That's some way to help out the middle class.
Now, I know the prospects are slim that the House ever dares to try to severely cut the amount of money you can squirrel away into your nest egg.
A cut that dramatically limits how much can be saved without paying the tax man now from $18,000 for most Americans to $2,400, has to be one of the most unpopular ideas I've heard of yet about how to pay for the massive tax cuts that President Trump has assured us to be both more competitive and help the middle class.
The gash to the 401(k) would make a mockery of the prospect of the whole middle-class tax cut concept, with the larger breaks falling to corporations with money that might trickle down to the workers.
Americans have voted with their feet, in favor of the 401(k). They have socked away more than $5 trillion in them. The middle class views them as the bulwark against the possibility of cuts in Social Security -- something the actuary tables say seems like a decent bet, as does the looming gargantuan size of the deficit.
But, more important when it comes to getting tax reform done -- something I am incredibly skeptical about -- you need to have as few natural enemies as possible. You tangle with this benefit, though, you tangle with a principal source of fee for the financial services industry, and they will defend this break until their death. It's their honeypot, and they can make a lot more noise -- and raise a lot more money -- in unison than the beneficiaries themselves.
The defense will be surprisingly easy, because of the rationale of 401(k)s. Basically, Congress did something really right back in 1978, allowing individuals to be able to avoid paying taxes up front, or using pre-tax earnings, to sock away some retirement money, knowing that many companies were discontinuing their own defined benefit or pension plans.
The money would still be taxed, but at the rate of its withdrawal, which really encouraged savings -- something our country had not and still hasn't been all that good at. The notion that you don't have to pay income tax now, regardless of when you paid it or how high the rates would be in the future, is quite a come-on.
By savaging the break now, the Republicans can say that they aren't tampering with the ability to pay into an after-tax Roth account. We know, though, that it is the attraction of the pre-tax break that is the chief reason for the savings success story.
Also, just in terms of percentages, when you get to 50, the pre-tax contribution expands to $24,000 a year, so a hit down to $2,400 is about as unpalatable as it comes. Sometimes I think that the industry lobbyists leaked or even created the $2,400 number, because you need to wield a bloody meat axe to chop a benefit for those in their 50s in this country -- often considered to be the most challenged group for savings ahead of retirement -- knowing that it would then encompass the retirement lobby, too.
So, for all of those reasons I think the 401(k), at least of this size if at all, is dead on arrival.
But let's just be sure of the most important takeaway of this: when you try to cut taxes and find revenues to make up for it, you are going to run into resistance. The interests are powerful, so powerful as to get this story in to print to have the whole country worried about it all weekend. I wouldn't be on the Today Show this morning if it didn't.
The galvanizing is so strong, the reaction so fierce, that you can bet if we get tax reform, it will be nowhere as big as you might think.
Not only can you tell that some seem almost possessed to make this fail. There were no denials about this potential slash by anyone in the GOP. It's on the table. It will end up being on the butcher block and not get done.
But if the president thinks for a minute that this would endear him to the voters and somehow, this hyperbolic communicator could get across that corporate tax, would it help you more?
Forget about it.
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