You can access a radio interview here conducted by Kirby Wilbur with Professor Teresa Ghilarducci in which she states that the goal behind her plan to “restructure” the 401(k) is “spreading the wealth.” Professor Ghilarducci has authored the plan which is currently under serious consideration by House Democrats. Excerpt from the interview:
GHILARDUCCI: Whatever you have in your 401(k) now will keep its tax break. So everybody who has their 401(k) plan will be grandfathered in. But what I proposed, instead of getting a tax deduction — like a decrease in your taxes by whatever your tax rate is, so if you’re at the very high income, your tax rate is 39%, and if you’re at the very low, you’re at 15%, and 40 million people make so little they don’t pay any taxes at all. Instead of the deduction coming from your tax rate, so whatever you put in your 401(k), like a dollar, let’s say, or a hundred dollars, you get back 39 cents, or $39, if you’re the high rate; 15 dollars, or 15 cents if you’re at the low rate, or nothing if you’re at the low rate. I proposed that we just transfer the deduction to a credit so that everybody gets $600. So I’m not taking away the tax break. I’m actually, um, giving everybody a flat amount so that it’s more equal.WILBUR: Okay, 3%, okay, plus inflation.
GHILARDUCCI: Yes.
WILBUR: So the bonds would be adjusted. As I understand the $600 would be adjusted as well, right?
GHILARDUCCI: It would. It would.
WILBUR: Okay.
GHILARDUCCI: And what’s amazing about this is that it’s actually, um, doesn’t cost the government anything. I’m just rearranging the tax breaks that are available now for 401(k)s and spreading — spreading the wealth.
(Don’t miss Mr. Wilbur’s comments about the interview after it is over.)
Read more about the universal pension movement in previous posts here.
See also Nevin Adam’s eloquent thoughts on the whole movement in this opinion piece: “IMHO: The Pit and the Pendulum.” Excerpt:
It doesn’t take much imagination to see where this kind of approach would take us. IMHO, it’s, at best, just a sneaky way to raise the Social Security tax from 12.7% of wages to 17.7% (and that’s not even counting the cost of the $600/worker the federal government would toss in). And that for an account that you couldn’t tap in a financial emergency, or leave to a spouse or children—because, despite the nomenclature, it wouldn’t be an “account” at all. On the other hand, you’d no longer have to worry about that saving for retirement plan—you’d just have to worry what new plans politicians might develop for your retirement “savings” (in her book, Gilharducci says that the financial risks are “borne by the government, not by the worker”—as though the government has a funding system independent of those workers).Now, as I said before, these are difficult, extraordinary, even unprecedented times—and we find ourselves dealing with them smack dab in the middle of an election year. It is a time that cries out for bold action—and yet it is a time when even those with the best of intentions can do great harm.
The pendulum does, after all, swing back and forth. But if, god forbid, those pendulum swings wipe out the 401(k)—well, IMHO, that would really be the pits.