George Miller (D-CA) and Jim McDermott (D-WA) are taking advantage of the public’s fear from the current bear market. They are looking at eliminating the 401(k) tax breaks, about $80 billion, and redirecting it to another mandatory government-run retirement system. The current tax policies empower employers to provide 401(k) matching programs, elimination of this tax break will result in the elimination of these matching programs.
This is a clear case of using the short-term fall of the stock market to take more power from individuals and put it into the hands of the Government. The Democrats are set to take control of both the House and Senate, so this is likely a real possibility in the next session.
The proposed plan would provide a $600 annual inflation-adjusted subsidy from the Government. Workers would also be required to invest 5% of their pay into a guaranteed retirement account that the Social Security Administration would run. That money would be invested in government bonds that would yield 3% a year.
The stock market has never lost money in any 10-year period. In fact, 15-year returns have always been between 18.8% and 4.3% (that’s higher than the 3% the Government wants to give). Now, throw in that companies average 3% of their payroll into matching 401(k) plans (typical is $.50 on $1.00 on the first 6% of employee pay). Without even taking stock market returns into account, a 5% contribution into the average 401(k) plan yields 50%. That’s not even a close comparison to the proposal for a Government-run proposal for a 3% yield, even with the $600 subsidy.
There is no sense at all in this. Why do some of our representatives think that Government can do things better than individuals, regardless of the facts that stare them in the face? The timing couldn’t be worse for this. People are frightened with the market down and some are utilizing fear politics to move towards a policy that would clearly hurt everyone. What ever happened to our representatives working for us instead of for the Government?
Source articles here and here.
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Wall Street opened sharply lower the day after Obama’s Address to Congress. According to Reuters, Wall Street was looking for tangible items in the address but were given none.
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