The election is today. I voted weeks ago but I didn’t want to let the day go by without saying something. If you’ve read my past posts you can put 2 and 2 together and figure out who I voted for president.
To mark the day I wanted to discuss the one piece of news that actually made me feel a physical twinge of pain when I read it. I was so shocked by this proposal, I couldn’t think for a good ten seconds. Congressional Democrats are discussing an end to the preferential tax breaks that make 401(k) plans worth having. But to put that in more alarmist tones – Democrats are plotting to steal your 401(k)!!!
401(k) plans exist because Congress decided the money saved in there would not be taxed until you withdrew it. It encourages people to save for retirement because they can invest the money that would have gone to taxes for several decades. By removing this favorable tax treatment, there’s no reason to contribute to a 401(k). It becomes like any other investment account. You’ll have to pay taxes on your gains each year.
This isn’t even the end. Besides killing 401(k) plans, Congress will require you to contribute to a new “Guaranteed Retirement Account” run by the government. Each worker will have 5% automatically deducted from their paycheck and deposited in the GRA. Our generous and benevolent government would provide matching funds of up to $600 a year. But you don’t even get to decide how your GRA money is invested. Every penny of your GRA will be used to buy government bonds that return 3%; three fucking percent, when holding the S&P 500 index would get you 7.6% during the 1950 to 2007 period. So the best you can look forward to each year is less than half of what you would get if you just bought a simple index fund. Thanks to compound interest if you closed your eyes for the next couple of decades you will have lost more than ten times your retirement money by using a GRA. Don’t worry though. You don’t have a choice.
The Democrats will trot out this plan as protecting workers and saving the middle class, but that’s not the real reason. What this plan does is confiscate 5% of wages for Congress to use to finance debt. That’s what government bonds are! I guess I can’t say exactly what this spending will be for, but I am willing to bet my GRA it will be a massive expansion of social welfare.
This is the sort of news that makes me pound my desk and rage at my LCD. Reading this is when I went from guarded about an Obama presidency to absolute fear. You know if Obama does get elected, this plan is a lock. There will be nothing to stop Democrats from radically altering the economy, and this idea will be a huge step in financing Obama’s spending plans. That national health insurance plan won’t pay for itself.
How much debt can the government finance? I’m glad you asked. I’m getting these figures from 2007 data from the Bureau of Labor Statistics: $695 in median weekly earnings, multiplied by 52 weeks a year, multiplied by 107,339,000 workers multiplied by the 5% deduction.
$695 x 52 x 107,339,000 x 0.05 = $193,961,573,000
That’s a cool $194 billion in captive finance each year. Don’t think of it as some abstract, meaningless concept. Remember that’s your money. If Obama and Pelosi and Frank were traveling around the country campaigning on a “I’ll take 5% of your money” platform, what would you tell them? That’s exactly what this plan will do. Five percent will be taken away and spent however they like.
I wish this news came out a month ago because then I really would have been screaming from the hilltops. I definitely would have been phonebanking for McCain had I known about this plan. It should have been in commercials on TV freaking out the rest of the country just like it freaked me out.
I’ll be watching the election coverage like everyone else. I’ll just be hoping McCain wins so my retirement savings doesn’t get blown away by the winds of change.