Opinion Forum

More Left-Right Legerdemain

September 14th, 2009

About a year ago, there was a big kerfuffle over what was going to happen with 401(k) plans. Congress held hearings on whether or not to eliminate the tax advantages of the 401(k). Contributions to a 401(k) plan presently defer taxes until the money invested is removed, either in part (as one would do after retirement) or in whole. This only makes sense, as the money contributed is of no present benefit to the person who actually earned it, nor to the employer that spent it as a part of a benefits package to an employee.

Only an insane person or an idiot would argue that not taxing 401(k) contributions is any sort of subsidy, yet that is precisely what Teresa Ghilarducci, the Irene and Bernard L. Schwartz Professor of Economic Policy Analysis at the New School for Social Research, said:

I want to stop the federal subsidy of 401(k)s. 401(k)s can continue to exist, but they won’t have the benefit of the subsidy of the tax break.

It was Ms. Ghilarducci’s plan that intrigued Democrat representatives George Miller and Jim McDermott, and prompted the hearings. As of right now, there have only been hearings, and I don’t believe that there have been any recently. But yesterday, I was talking to a member of the National Apartment Association who had recently been to DC and was told by a congressman (he wouldn’t tell me who it was) that the hearings are likely to lead to legislation. This is anything but good.

He also told me that in spite of Ghilarducci’s assertion to the contrary, there is the possibility that the 401(k) and the IRA will be eliminated altogether. I cannot even begin to imagine what will become of all that money…. Maybe we’ll be lucky and our “leaders” will “permit” us to keep our own money.

Firstly, if this stupidity becomes law, the people who will be hurt the worst are the low-income earners whose employers generally match their employees’ 401(k) contributions. Currently, employers also get to write off/deduct the matches that they make to their employees’ contributions. That will presumably end as well. This aspect does not particularly hurt the wealthy and the high-income earners as they have enough money to invest on their own without the help of their employers.

Secondly, under Ghilarducci’s plan, employees would be required to contribute 5% to a plan guaranteed by…the Social Security Administration. Maybe I’ve been asleep since the day I started working, but I seem to recall that my “contribution” to social security is already around 10%. Those earning over about $90k already “contribute” 13%. In effect, this is going to raise your social security tax to as high as 18%.

I applaud the efforts of those who want to take care of their own retirement plans. Would that everyone were that responsible. Not to be outdone by leftist retards, though, the right is defending the status quo as an issue of freedom of choice. This is partially true, but what too many don’t realize about the stock market anymore is that it is now no different than going to Vegas and playing craps. I recall the days when the big deal in stocks was the Profits to Earnings Ratio (called the P/E ratio). I don’t know of any companies paying dividends on stocks any more (which is what the P/E ratio was about).

When a publicly traded company makes an initial stock offering, it is to raise money to expand the business. It stands to reason that if you own a business, or a share of it, that when the business profits, so should you. Those are what was once known as dividends. Once those initial shares of the company’s stock are all bought, fluctuations in the stock prices were tied directly to corporate performance via the P/E ratios — the greater the profits, the greater the dividends. Those stocks were sought after whose corporations paid the highest dividends. Anymore, stocks are traded with only the thought of increases in stock prices. This was once known as speculation and was frowned upon as little more than gambling (which it most assuredly is). Well, it still is speculation, we just don’t call it that any more. Today, we call it “investing in retirement.”

And this is what the retards in the GOP are defending. Well, so are the retards in the Democrat party, really. Anyone who thinks that the Democrats are not as heavily invested in the stock market as the Republicans are needs to put down the marijuana cigarette for at least a few minutes.

This leaves us in the precarious position of being distracted by another silly and dishonest left v. right campaign of legerdemain. Meanwhile, the raping of our money continues unabated. The Chinese have indicated that they are not going to continue to subsidize the federal budget as they previously have, which leaves one of two alternatives for the federal government: vastly increase the supply of money, or tax us into oblivion, or both. There is a third alternative that is evident to the rationalists among us: pare down the size of government to only those things mandated by the Constitution.

We are now, as we have always been, on our own. One of the few legitimate functions of government is to “punish” those who are deceivers, thieves, and the like. Now, the deceivers are in power and are protecting their own at our expense (to be honest, they have been in power for a long time). Giving the government more power to “correct” this situation is not the solution to this problem, it is the problem. There are always repercussions to what government does, and far more often than not, the repercussions injure us.

If, as I assert, we are on our own, does it not stand to reason that nearly any government effort to “help” us is destined to failure? If it is destined to failure (to be read as “it will bring us injury”), should we not simply expect the government to abstain from doing it? I expect that there are precious few paternalistic Republicans or maternalistic Democrats who can just give up that sort of power. And why should they? Most Americans are going to continue to vote for one or the other.

Articles written by Brian Bagent
Tags: 401(k), IRA, retirement, stocks, taxes
Categories: Economics, News, Politics | Comments (19) | Home

19 Responses to “More Left-Right Legerdemain”

Harvey | September 14th, 2009 at 10:48 pm

Your “third alternative” is, of course, the only way out of the current mess but we might as well wait for the second coming — it might get here sooner.

doris | September 15th, 2009 at 5:36 am

we vote for one or the other,because if you vote the alternative,you are throwing it away,and there’s never anyone you can believe in on the independent partyside,just kooks and Ralph Nader.There just aren’t enough votes to change anything,third alternative sounds great,though.

Anonymous | September 15th, 2009 at 10:15 am

Doris, we call that a “self-fulfilling prophecy.”

We need to remember that in 1860, the fledgling republican party’s candidate only got 38% of the popular vote and still won the election. Had there been only 1 democrat candidate in 1860, the only time we’d ever hear Abraham Lincoln’s name would be in a game of Trivial Pursuit, Jeopardy, or maybe Millionaire. In 1992 and again in 1996, then again in 2004, a president was elected without the popular vote.

As I said earlier, it only takes about 40% of the voting public to want change in order for change to occur. It isn’t a guarantee, of course, but little in politics or life is certain.

Tom | September 15th, 2009 at 11:46 am

Well, let’s not forget Ross Perot in 1992. He got 19 percent of the popular vote, and if he had not been in the race, there are those who think the majority of his votes would have gone to George H.W. Bush, possibly resulting in his re-election and the defeat of Bill Clinton. Then there would have been another election in 1996, Clinton probably wouldn’t have been the Democratic candidate (the losers usually don’t get the nomination again), and he and Hillary would still be in Arkansas chasing skirts and padding law firm billings (respectively). Doesn’t look like Perot did us any favors.

Brian is right in one sense for sure — if you’re going to strike a king, you better kill him. Perot just didn’t hit hard enough; maybe with Brian’s 40 percent, he would have won in 1992. I get the shivers just thinking about it….

Brian Bagent | September 15th, 2009 at 11:53 am

Well, so do I. Perot wasn’t who I had in mind, though he couldn’t have done any worse than our last 4 presidents. At the very least, he has successful executive experience. Obama, Bush 43, and Clinton can make no such claims.

Laurie | September 15th, 2009 at 2:20 pm

I’m writing to question your numbers on the amount of social security taxes you say you pay. Considering the combined tax bite of SS (6.2%)and Medicare (1.45%) is 7.65% from the first dollar up to about $108,000 in 2009 for the SS part, then only Medicare’s 1.45% comes out. I wonder how you came up with the ridiculous amount of 13%? The more you earn the LESS the percentage of your salary has gone to social security!

It really calls into question your other assertions.

doris | September 15th, 2009 at 4:51 pm

This is accurate,Brian from my figures,you guys are soooo picky about details.Artistic license,or just exaggerating?Done that a few times myself,fishing,complaining……

Brian Bagent | September 16th, 2009 at 1:32 am

Laurie, in case you weren’t aware, your employer matches your social security contribution, bringing your total contribution to about 13%. If you are self-employed, then you pay SE tax, which is what you would pay if you were employed plus what your employer would match on your social security payroll tax, again, bringing you to about 13%.

Question away, girl. This is a place to get educated.

doris | September 16th, 2009 at 5:33 am

Oh,I thought you meant you,yourself paid,o.k.teach us,Brian.

Brian Bagent | September 16th, 2009 at 5:35 pm

That’s all of it on the Social Security tax. If the SS deduction on your check is 6%, your employer matches that 6%, bringing you to 12%. How many people are aware of this? I suspect very few, for it is a payroll tax only – no forms to file, no deadlines, people just see the deduction on their check and do not question it.

You were self-employed and apparently were not aware of it. I don’t mean to impugn you, I am merely pointing out that if the folks with the best reason to be aware of this are largely in the dark about it, how much less so for everybody else?

doris | September 16th, 2009 at 8:41 pm

I was aware of it,due to having employees.I thought you meant that you paid,not that which your employer paid.

Laurie | September 16th, 2009 at 9:27 pm

Brian, as someone who spend nearly 20 years self-employed, I am very aware of the 15.30% bite of self-employment tax (of course, this is charged only on net profits) — even though these days it is also offset some by tax credits and adjustments to income. The matching 7.65% your employer pays was never going to go into your pocket — it’s part of a business’s cost of doing business. It certainly might affect the prices you pay for goods and services, but was not your money. I don’t see how you can perceive it to be a “tax” if it is not on money you earn, invest, or spend.

I’m with Doris — you clearly wrote as if it cost you this money out right. One might infer this was to make the tax cost seem significantly higher to individuals than it really is. Your article also indicated a progressive tax rate on social security, which is the reverse of the facts.

doris | September 17th, 2009 at 11:05 pm

Thanks,Laurie,eloquently said.I couldn’t seem to say it right, that’s what I meant,Brian.

Brian Bagent | September 19th, 2009 at 2:05 pm

Laurie, of course it is my money. The fact that you understand that SE tax comes out of your pocket should be an indicator that the rest of the “cost of doing business,” as you put it, is money that belongs to the employee. All it would take would be a tight labor market, and even stingy employers would end up paying that money to their employees.

doris | September 20th, 2009 at 9:57 am

Never,it was a forced payment. I wouldn’t have paid that much to any employee. I would just get another employee who would work cheaper.

Brian Bagent | September 20th, 2009 at 2:08 pm

Doris, that is certainly your option as an employer, but I can tell you that at some point, that money would be going to your employees in a tight labor market (where unemployment is around 5%). That may not be particularly true in your industry, but I can tell you that it is absolutely true in markets that require specialized knowledge/education/training (nursing, programming, engineering, etc). All else being equal, employers in those industries do whatever they can keep retention up because replacement cost is so expensive.

As an example, it cost my employer about $50K to get me trained to be effective and safe by myself (and I was already licensed and educated, at my own expense). When I was a policeman, the cost was even higher – they had to pay us as cadets, plus all of our instructors, plus the cost of the training facilities. They had to pay us as rookies, plus the cost of paying our field training officers and field training supervisors. That 6% is a small price for an employer to pay to keep such a massive investment on the payroll.

doris | September 20th, 2009 at 4:54 pm

Even a trained monkey can be a vendor,filling snack and drink machines,didn’t take a lot of training. It doesn’t take a rocket scientist,so no,I would not raise the salary if I did not have to match that s.s.,withholding tax,I would have just been better off.Your field cannot get or keep nurses, different story. Some would pay more, others would not,just like salaries.

Brian Bagent | September 25th, 2009 at 10:01 am

Well, what would happen is that the ones that didn’t pay it would find themselves chronically short-staffed, or worse, staffed by low-quality employees that couldn’t get the higher-paying jobs.

You’re correct – in labor markets where there is little required in the way of education or training, where the employees are easily replaced, that money would not go to the employee. Six per cent of a professional’s salary, however, is not insignificant, and the professionals and their employers know it. For most of us, it’s at least the difference between a 10 year old beater and a new vehicle.

doris | September 25th, 2009 at 12:38 pm

So true,glad I’m out of the business,before everyone starves to death with such low salaries and such high groceries. I guess a beater is an old car? Good name for it.