Previously, I took a look at “the rich.” Most of us, myself included, have concluded that whoever the rich are, it sure isn’t us. So when the government, who says it intends to only raise taxes on “the rich”, goes looking for money it will “pass over” us and seek prey at higher levels of income; “Nothing of interest to see here; go check out that neighborhood over there.”
Well not so fast. Do you have a 401K? How about an IRA, or a 403B, or a SLEP or Keough, or some other tax-deferred savings plan where the nest egg you have put away for retirement resides? What about a Roth? Remember that promise the government made to you that you could grow that money tax free?
News from Ireland; the Irish government, has recently announced a plan to tax private pensions to pay for “jobs growth.” The tax is a small one; just a miniscule 0.6%, and will last for only four years. And it’s not like you actually need the money right now, if you aren’t retired. And if you are, well, it isn’t much. The Government, the people, the country, needs it much more than you do. So you should feel good about giving up a piece of your pie; after all, it was the government that made it possible for you to save it in the first place.
Need is the operative word here. Predictably, the Irish Insurance Federation, which provides many of the private pension plans, is against the idea. Of course, they are just greedy; they have a “vested interest.” And also predictably, the Trade Unions in Ireland think it is a great plan that “should be seen as the beginning to a ‘concerted drive to create jobs and get people back to work.’”
Isn’t it amazing what politicians are willing to do in the name of “helping out the little guy”, and the “needs” of “the people?” What about the people they are taking the money from? Don’t they have “needs” too? Or are they just “greedy.”
But that’s Ireland. How does this affect me, here in the United States? Before we answer that question, let’s take a look at a few other places. For example, Hungary, Bulgaria, Poland, and France.
Back in December 2010 (just in time for Christmas), Hungary instituted a “plan” whereby the good citizens with private retirement savings could either send in their money to the state, or lose their rights to the basic state pension (think “Social Security”), even though they would still be required to pay into the state pension. If this were done by a private entity, the word “theft” or “extortion” would come to mind. But governments have the power that emanates from the barrel of a gun to back them up.
Bulgaria came up with a similar idea. In Bulgaria however, the trade unions protested and they only got away with about 20% of their original plans. In Poland a different method was tried. There the government wants to seize 1/3 of all future contributions to IRAs into their state-run social security system. They don’t want to steal what the Poles have already saved – at least not yet. They just want to steal a third of what they want to save in the future.
Then of course, there is France. What leftist progressive doesn’t love France? France has simply gone raiding its future pension funds to pay for current debts. As they put it, France has “merely decided to bring forward ‘mobilisation (sic)’ of the FFR (pension) funds from 2020-2040 to 2011-2024” to “plug holes” in the social security deficit. That’s nice. Of course, what happens in 2020-2040, when the people who were depending on that money need it to retire? I suppose then they will just go raiding the pension funds for the 2040-2060 year groups. In any event, the politicians responsible will be long gone from the public scene by then; most will be pushing up the daisies in some French version of Flanders Fields.
Now, finally, we turn to the United States. Surely, such a thing could never happen here.
Well, there is a real nice lady here in the U.S. who has been pushing this idea for years. Her name is Teresa Ghilarducci, and from looking at her picture, she is just a sweet looking lady. I’m sure she just has the best in mind for you and your children, and her motives are pure as the driven snow. And she has the best in mind for your savings too, all based on need. Not your need, but the need of “the people.”
I’m going to do something I rarely do. I am going to include her picture here. I don’t normally do pictures, but I am this time, because I think you need to see what this person who wants to confiscate the money she thinks you don’t need looks like. Because she doesn’t look like an ogre. She looks like someone you might meet at the supermarket.
Ms Ghilarducci is no newcomer to this idea; she has been touting it for years. According to her website, she is a “labor economist and nationally-recognized expert in retirement security.” And she only has the best in mind for you. Markets, she notes, are inherently unstable. And most people do not have the time or ability to properly look after their investments. Therefore, such investments should be entrusted to the government to manage in carefully selected “safe and guaranteed” accounts; protected from market downturns. Of course, this will protect them from market upturns as well, and put them in reach of government “raiding parties.” However Ms. Ghilarducci sees this as a small price to pay for the “safety” and peace of mind you will have knowing that the government is looking out for you. Like the governments listed above, Ms. Ghilarducci subscribes to the notion that “all your money are belong to us.”
Now we might disregard Ms. Ghilarducci as just one more ivory tower academic. And to be fair, her plan, at least at this time is voluntary. However one only has to look at what other countries are doing, and at our own politicians, to see where this could rapidly head.
The fact is, raids on pension plans in the U.S. have been proposed before. Back during the Clinton administration, the idea was floated of a one-time tax of 1% on all private pension funds to close the then-existing budget deficit; a deficit much lower than the one we have today. The idea went nowhere then; of course, we weren’t running a $1.6 trillion deficit back then, coming off a serious market downturn, with unemployment at 9% either.
In November 2008, Democrats in the House of Representatives were looking at a plan which would “nationalize” IRAs and 401Ks and convert them to accounts managed by the Social Security Administration, similar to the TSP accounts currently available to government workers. Testimony in support of the plan was provided by none other than the redoubtable Ms. Ghilarducci. The plan, called a Guaranteed Retirement Account (GRA), would guarantee a fixed 3% annual rate of return. Additionally, all workers would have 5% of their pay deducted from their paychecks and deposited to the GRA. Of course, you would still have to pay Social Security and Medicare taxes as well. And of course, you would lose the tax write off you get from contributing to a 401K.
Fortunately, this one went nowhere either. Most people understand that it is better to own their own retirement plan, despite potential market downturns, than it is to turn the money over to the government to “manage.” The market average over the long run is around 8% per year. At any particular time of course, the market can be up or down. It is up to you to plan ahead and safeguard your money accordingly as you reach retirement age. At a rate of 8% per year, money doubles in 9 years. At a rate of 3%, money takes 24 years to double – nearly three times as long! So much for the “value” of the “guarantee” from the government; and at 3% it is likely that the money you have saved for retirement will have less buying power at retirement time than it did when you “invested” it.
Meanwhile, what has the government been doing with your money; perhaps the same sort of thing that the government of France is doing with its pension funds?
Beware government promises. They are not worth the paper they are printed on; or the breath that a politician exhales to pronounce them.