This just in from www.PerotCharts.com. As outlandish as this idea may seem on the surface, some powerful House Democrats are actually considering proposals that would overhaul the twenty-five year old $3 Trillion 401(k) system, including the elimination of most of the $80 Billion annual tax breaks that 401(k) investors receive.

We present this information not because it is directly on point with real estate issues, per se, but more importantly because it represents (perhaps is even a foreshadowing) of what is to come, with respect to our economy and our government.

SO BEWARE >> Sometimes in the midst of a crisis – and this is indeed a crisis of epic proportions – some of the most bizzare solutions are hatched. Here is a proposal that we just discovered that you MUST be aware of, analyze, and perhaps even take action on.

We believe that knowledge is power (which is exactly why we publish www.MarylandCommercialTitle.com). Therefore this post is simply intended to bring the issue to the forefront (and unearth it from the rubble of the 24/7 news cycle), and enlighten all of us as to what is ACTUALLY going on within the bowels of government. As such, we now have all been effectively put on notice ….. 

The current practice of providing tax breaks on 401(k) contributions and earnings would be eliminated under a plan recently presented to two House committees (and remember, with no real check-and-balances in either the Senate or House of Representatives and the President), an idea like this quite possible in a hyper-sensitive period, as we find ourselves in today.

Overhauling the 401(k) System: During the week of October 6, 2008, Theresa Ghilarducci, professor of economic-policy analysis at the New School for Social Research in New York testified before the House Education and Labor Committee chaired by Rep. George Miller, D-California and the House Ways and Means Committee’s Subcommittee on Income Security and Family Support chaired by Rep. Jim McDermott, D-Washington. Components of the plan include the following:

• All workers would receive a $600 annual inflation-adjusted subsidy from the U.S, government but would be required to invest 5 percent of their pay into a guaranteed retirement account administered by the Social Security Administration. This money would be invested in special government bonds that would accrue 3 percent per year. [PerotCharts question: Does this sound vaguely similar to the current Social Security Trust Fund?]
• The current system of providing tax breaks on 401(k) contributions and earnings would be eliminated.
• I want to stop the federal subsidy of 401(k)sGhilarducci said in an interview. 401(k)s can continue to exist, but they won’t have the benefit of the subsidy of the tax break. [PerotCharts note: We already have these types of accounts; they’re called brokerage accounts.]
• To make the plan more palatable, Ms. Ghilarducci offered an incentive, Short term I propose…that Congress allow workers to swap out their 401(k) assets, perhaps at August level for a guaranteed retirement account. [PerotCharts note: The idea here is to induce holders of 401(k) plans to turn over their plan assets to the government in exchange for restoring the balance in their 401(k) plans prior to the stock market collapse in September and October.]
• The plan would allow workers to pass on only half of their account balances to their heirs; presumably the government would keep the remaining half. [Currently, 401(k) balances are fully inheritable.]

Observations by PerotCharts.com:

• Many people contribute to their 401(k) plans because their employers match their contributions. Eliminating the tax break for 401(k)s would make the matching portion taxable to the recipient and subject to additional FICA taxes payable by both the employer and the employee.
• Eliminating tax breaks for 401(k) plans pushes individuals into higher tax brackets even though they have no additional disposable income.
• Apparently, there was no mention as to the rate at which the government would pay your money back to you when you reach retirement age.
• Although the chairman of the House Education and Labor Committee stopped short of endorsing the plan, it was reported that he was clearly against continuing tax breaks for 401(k)s as they currently exist.
• No mention was made of the fact that, under the proposed plan, the government would need to liquidate the stock portfolios of the former 401(k) holders. Neither was it explained how the market could absorb $3 trillion of securities currently held in 401(k) plans.
• There is no indication that the new administration favors this proposal. It is in discussion stages of the two committees mentioned above.

If you agree that this plan is a bad idea after reading the details below, then TAKE ACTION NOW. You can send an email to your elected representatives in Washington, D.C., and the chairmen of the two House committees considering this proposal by clicking here.

Additionally, and since we are quoting Ross Perot of www.PerotCharts.com fame, perhaps this is as good a time as any to raise his favorite issue – U.S. Debt

Yes, we are, in fact, talking about the infamous Ross Perot, who ran against Bill Clinton and Bush 41 (16 years ago). He was notorious for using his charts to explain to the American people our dire economic (debt-laiden) dilemna. Unfortunately for all of us, things are a whole lot worse now, than ever before.

And as citizens (and taxpayers), do yourself a favor and review Mr. Perots 30+ charts. It will take less than 30 minutes. Your time will be well spent (guaranteed), as the information is a real eye-opener. According to Mr. Peort – and more importantly the Government Accounting Office and other official sources — the current federal budget challenges faced by the citizens of the United States of America start and end with spending.  

• During its fiscal year that ended September 30, 2007, the federal government spent a total of $2.730 trillion. 
• The federal government spends more money every year than it did the previous year. This should not surprise anybody. What may be surprising to many, however, is how the money is spent, and more importantly, how it will be spent in the future. 
• Spending did not exceed $100 billion per year until 1962. It reached $1 trillion in 1987. Fifteen years later, the number reached $2 trillion. It is estimated that spending will surpass $3 trillion in 2009.

Tags: 401(K) Overhaul

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