Reflecting upon developments in Cyprus, where bank savings accounts were to be taxed to pay for an IMF bailout. Glenn Reynolds suggested that some enterprising GOP member of the House or Senate introduce a bill to make such shenanigans illegal — and dare the Democrats to oppose it. At Reason, Nick Gillespie has seconded Glenn’s motion:
I think Reynolds is on to something, though I’d be happy to see legislators of either party start talking up the sort of bill he proposes. For years now, there have been rumors that 401(k) and other supposedly sacrosanct retirement accounts will became game for governments low on funds. However well-based or not those fears are, anything the feds can do to draw clear lines and hem in their future behavior would be a good thing, for all the reasons Reynolds suggests. Massive levels of political and legislative uncertainty have reigned supreme in the 21st century and fear of the future is a great way to strangle it before it begins.
President Obama’s long-awaited budget for fiscal 2014 proposes for the first time to cap the amount Americans can save in these tax-sheltered retirement accounts. The Obama administration is concerned that some taxpayers have squirreled away too much in such retirement accounts.
The White House helpfully explains that some people have accumulated “substantially more than is needed to fund reasonable levels of retirement saving.” So Obama proposes to “limit an individual’s total balance across tax-preferred accounts to an amount sufficient to finance an annuity of not more than $205,000 per year in retirement, or about $3 million for someone retiring in 2013.”
It’s difficult to figure how many taxpayers the administration realistically figures it could tap into with this proposal. According to CNNMoney’s Blake Ellis, as of the end of 2011, “only 0.03%, or 6,180, of the 20.6 million IRA accounts in [Employee Benefits Research Institute]’s database had balances exceeding $3 million, while 0.0041% of 401(k) accounts held $3 million or more by the end of 2012. If the cap is lower in future years, however, more people would likely take a hit.” Even Ellis seems to suspect that Obama’s proposal represents the opening of a door to a larger venture.
The Wall Street Journal has posted an important editorial exploring the thinking behind this proposal. The whole thing is worth reading, but the Journal speculates on the complex mechanics of such a cap:
The budget offers few details on how the government would enforce this cap across a worker’s various accounts, but you can bet it would be complicated. Right now the government doesn’t track all tax-deferred account balances. Financial firms don’t have to send IRS 1099 forms to investors unless there’s a distribution, nor do the firms know how much customers hold at other institutions.
So the IRS would get new power to impose new burdens on millions of taxpayers. And all so the government could raise what the White House claims would be $9 billion more in revenue over 10 years, as if people wouldn’t change their savings habits. After this proposal, only a fool would pay taxes now to transfer to a “tax-free” Roth IRA that the feds may decide to tax someday.
The Journal also touches on the animus implicit in the proposal:
The Administration’s political motive here is two-fold: First, it’s a redistributionist play and a revenue grab. But for many on the left it’s also about reducing the ability of individuals to make themselves independent of the state. They have always disliked IRAs, just as they oppose health-savings accounts, because over time they make Americans less dependent on federal entitlements or transfer payments.
Amazingly, Mr. Obama has surveyed the economic landscape and somehow decided that it’s time to discourage savings if you make more than he thinks is “reasonable.”
The Democrats’ relentless scheming to reduce us to wards of the state calls for an equal and opposite reaction. The University of Chicago’s John Cochrane seems to me to be on to something in calling for an aggregate alternative maximum tax.
Obama is concerned that you may have sheltered too much income from taxation by saving improvidently for your retirement and asks how much is too much. Cochrane’s proposal raises the question from the other side of the equation. When has the government taken enough of your income? Doesn’t justice impose a limit?
The answer that inheres in the liberals’ approach is the one with which Bill Voegeli titles his book: Never Enough. That probably should be Never Enough! (with an exclamation point added).
Cochrane proposes 50 percent as the limit of an alternative maximum tax, but he concedes that the principle matters more than the number. He invites debate on the number.
Cochrane seems to me to have brought forward a highly constructive proposal. The debate it would elicit should be highly illuminating and even educational.