Subsidizing private retirement accounts….
Via Demos comes this note on Our enormous retirment subsidies to the rich:
…it behooves us to collectively recall just how much money the federal government is already devoting to subsidizing private retirement accounts. Those in policy circles tend to be aware of this stuff, but it largely escapes the glare of everyone else.
Each year, the federal government puts tax expenditures towards a whole slew of retirement instruments including defined benefit plans, 401(k)s, Keogh plans, traditional IRAs, and Roth IRAs. The Joint Committee on Taxation projects that in the five years between 2013 and 2017, spending on these subsidies will total over $700 billion. If we double that to do the 10-year budget thing everyone does for some reason, we wind up with $1.4 trillion of tax expenditures on just these subsidies.
Who captures these subsidies? The rich of course. According to the CBO, the following is who soaked up the tax expenditures dedicated to net pension contributions and earnings in 2013.
401ks and IRAs are really tax deferrals not expenditures. You will pay taxes on them when you reach the Required Minimum Distribution age. (70.5), or if you go roth you pay taxes on the contributions and pay no tax on the gains when you withdraw. I would agree that retirement products should not be allowed to exist forever. One suggestion is that if you inherit one of these products the original holders required minimum distributions are still required.
I cannot see the point of calling the upper 5th quintile “rich”. These are people who make 100K or greater. That is a nice salary and these are not poor people. But in no way would anyone in the lower part of that range be called rich. And that would not change much until you got to the 1% highest income. It would be interesting to see if the capture of these tax benefits within that upper quintile.
I think what is important here is not simply the tax subsidy, which certainly was designed to increase the benefit as one goes up the income ladder but, just how few below the top 20% can effectively participate in a private pension system. Key word: Effectively
But, that won’t stop further privatize retirement.
Dan uses a CBO chart to make his point. The highest income group gets the most from retirement tax expenditures. Who are these people, and what do they earn?
The highest income quintile starts at $115,00 for a two person household. In 2012 there were 7.6m households who made that amount or more.
The IRS sets $250,000 as ‘high income’ (above this level lots of extra taxes kick in). In 2012 there were 1.6m households with income in excess of $250,000. Therefore, there were 6m who are in the ‘middle income’ that also fall into the highest quintile. As Jim Sanders says above ‘that ain’t rich’.
Two teachers living in a metro area can make $115,000. Why does Dan think that if they have tax deferred savings (or a mortgage deduction) it is a bad thing?
In 2013 the average federal employee salary was $78,500, so if Hubby works for HUD, and the wife takes in $100 a day on the side, this household is in the income quintile Dan seems not to like.
http://www.washingtonpost.com/blogs/federal-eye/wp/2013/04/09/despite-salary-rate-freeze-average-federal-salary-rises/
http://www.socialsecurity.gov/cgi-bin/netcomp.cgi?year=2012
No surprise the idiots on the left believe that individuals will not pay taxes when the funds are drawn down on. That $700MM figure assumes you don’t pay taxes on pension and traditional IRA/401K withdrawals.
Bkrasting,
I seem to have missed the lines where Dan mentioned the quintile he does not like and that having tax deferred savings is a bad thing. He is merely pointing out where the tax savings go.
Jay last I saw you got extra deductions for being 65 and over and most of your SS check isn’t taxable even in the worst of cases.
So I would like to see numbers on how many even moderately well off retirees with pensions and “traditional IRA IRA/401k withdrawels” and BTW Social Security benefits are incurring huge income tax burdens after figuring in double personal exemptions, Roth IRA’s, tax exempt disability and the like.
That is a significant percentage of Romney’s 47% are people who through hard work and proper planning have managed a comfortable retirement but who after that lifetime of paying taxes on their income no longer do. Which for any right thinking Right Thinker would be a good thing. After all they have been intent for decades on establishing all kinds of tax sheltered retirement, health, and education accounts as well as tax-free trusts that mostly benefit their own descendents. I mean in the ideal world a relatively well off Republican ‘maker’ wouldn’t pay any taxes at all. And some don’t. Which in any other circumstance would make them ‘takers’. Except for those invested in tax free muni’s or sheltered trusts or whatever.
“Tax free for me (and mine) and not for thee” has always been the operative principle for the Right. It seems it is only the people who have been poor their entire lifetimes that are blamed for beating the tax man.
That is there is some overlap between the 1% and the 47% who pay o taxes. And the billionaires that fall into both camps are Pleased as Punch.
Critter- Dan points us to the story: “Our enormous retirment subsidies to the rich” – then he copies the meat of the article.
So I conclude that Dan is not happy with this state of affairs. Maybe Dan could clear things up.
My point was that defining ‘rich’ as the top quintile is a mistake. The rich are the top 1%, not a couple making $115k.
Bkrasting,
To believe that you are not rich when you earn more that 95% of the people, (you are part of 5 people out of every 100 people) demonstrates the extreme wealth inequality we have in this country. I also suspect that the majority of those 95% would not agree with you.
Critter – Yes, If one made $30k, they would look at someone else who made 50k and say “I wish”. But that does not lead to the conclusion that a two person family that makes 115K in a metro area are ‘rich’.
This was a discussion about tax expenditures, things like the mortgage deduction and an IRA. Taking that away from the middle class is not a solution to the problem of an under-performing economy with uneven income distribution. It will make things worse, not better.
I would agree that those in the higher income bracket (above $250k) should have these tax advantages phased out or eliminated. But this would not result in a big swing in total tax revenues. We’re talking of just 1% of all workers who would have to lose benefits. Keep in mind that the top 1% already pay 50% of all taxes, and now they will be paying for ACA.
BKasting;
No again on the 1% making $250,000. The 1% of the household taxpayers make > $500,000. 3% of all household taxpayers have incomes > $250,000. Also another no on the 1% paying 50% of Federal Taxes. The top 1% pay 28.1% of all Federal Taxes and ~35% of all taxes. http://www.taxpolicycenter.org/numbers/displayatab.cfm?DocID=2978&topic2ID=150&topic3ID=161&DocTypeID=1
And again you are wrong the PPACA, the PPACA is also funded through efficiencies as I mentioned before. One example is a saving of $12.5 billion by reducing the subsidies to private healthcare companies for the Advantage program which duplicates much of what Medicare offers now. There is more of these efficiencies gained also.
Bkrasting — “…now they will be paying for ACA.”
Well, what do you know! And all along I thought people had to pay premiums for their health insurance. Perhaps I should ask my insurance company for my money back.
If we could get Apple, Google, IBM et al to pay their taxes maybe we could spare Krasting’s poor overburdened 20%ers. http://www.bloombergview.com/articles/2014-07-09/the-u-s-corporate-tax-dodge
Somehow I doubt he’s too keen on it though. As somebody else put it if you can get Fortune magazine riled up about tax dodging that’s saying something…
Jerry- ACA provides subsides for workers who make less than $62k for a two person household. (400% of FPL)
What percent of all workers make less than $62K? 82% made less than that in 2012.
Where does the subsidy money come from? The 3.8% surcharge on incomes over $250,000 (the 1%).
Jerry, what’s your income? Do you make less than $62k? If so, that insurance bill you pay is actually subsidized by someone else.
Bkasting:
You are stomping around in my playground now. PPACA is funded not only by a surcharge; but, by other methods as well. Besides the Individual Mandate penalty/tax, there are numerous NEW or INCREASED taxes and fees to fund all that is required by this law.
• +.9% Increase in Medicare Tax Rate (plus next item…)
• 3.8% New Tax on unearned income for high-income taxpayers= $210.2 billion ($200,000 for individual and $250,000 for joint filers)
• New Annual Fee on health insurance providers = $60 billion (For calculation – Sec 9010 (b) of the PPACA.)[1]
• 40% New Tax on health insurance policies which cost more than $10,200 for an individual or $27,500 for a family, per year = $32 billion (inland tax as opposed to an importation tax)
• New Annual Fee on manufacturers and importers of branded drugs = $27 billion (For calculation – Sec 9008 (b) of the PPACA)[2]
• 2.3% New Tax on manufacturers and importers of certain medical devices = $20 billion
• +2.5% Increase (7.5% to 10%) in the Adjusted Gross Income floor on medical expenses deduction = $15.2 billion
• Limit annual contributions to $2,500 on flexible spending arrangements in cafeteria plans (plans that allow employees to choose between different types of benefits) = $13 billion
• All other revenue sources = $14.9 billion•10% New Tax imposed on each individual for whom “indoor tanning services” are performed.
• 3.8% New Tax on investment income. Includes: gross income from interest, dividends, royalties, rents, and net capital gains. Investment income does not include interest on tax-exempt bonds, veterans’ benefits, excluded gain from the sale of a principle residence, distributions from retirement plans, or amounts subject to self-employment taxes. (The lesser of net investment income or the excess of modified Adjusted Gross Income over a the dollar amount at which the highest income tax bracket, typically $250,000 for married filing jointly and $200,000 filing as an individual).
Add to this expected savings from the implementation of the PPACA.
http://www.alignamerica.com/node/62
Subsidizing is different than “paying for” it.
Healthcare will always be subsidized one way or the other. You can subsidize insurance so people can get care and stay more healthy, or you can pay for the much more expensive hospital emergency care and subsequent unhealthiness.
Or you can subscribe to the republican healthcare plan — Don’t get sick and if you do, die quickly!
Take your pick.
I knew it. I knew this would happen. Saved all my life in an IRA and a few 401ks, and now I am classified as “rich” (ah……hahahahaha….ha) and undeserving of a tax deferral for my retirement savings. Back in, oh, about, 1987, I saw a article in Fortune predicting this, using the childlike cartoon of a tortoise and hare to illustrate the situation in the future (which is now) with the hare whining that he has nothing (because he didn’t save) and deserved to take from the tortoise’s savings pile to survive by way of taxes. And, here we are. The elites just chuckle. You know, the really really rich, those that snicker at the concept of saving in a government subsidized retirement plan (as though they actually work), because they have so much they can’t spend it fast enough and pay no taxes, and their children’s children’s children will be living off the sums they have accumulated.
All I can say is, thank the lord for the IRA and 401k ideas, and the implementation of them, or I’d be working until my grave. Get off my lawn, and leave my savings alone!
The elites are chuckling since you apparently bought the political mythology of the elites Mike M. I have got some 401k myself.
They are laughing at me too. I have watched a tidy little sum accumulate (at significant tax savings fwiw) all the while wondering whether it would be a market crash or the taxman that eventually rendered me broke in later years. The cynic in me has always suspected it would be one or the other.
Which is why I always wanted a way to use that money to write myself a mortgage (out of my own 401K account). Get the mortgage bank off my back and convert my retirement savings into something that actually means economic security (whatever the market does) – a place to live.
I pay the loan back into my account (at market rates of course) and no harm no foul. If I default on the loan (to myself) I end up paying taxes on the “illegal early distribution” of the balance.
Either way I have managed to convert my abstracted mutual-fund/bond portfolio into something that secures my retirement AND supports property values in my community. My own economic security is enhanced because I can’t be foreclosed on if I get thrown out of the labor force unexpectedly (like so many people my age nowadays)…
Why can’t this work?
Wanted to mention another little twist I (sort of) had to learn recently: Among the many options allowed for tax deferred 401K or self-directed IRA investments, what is one statutorily banned option?
Why it’s FDIC insured savings instruments, of course.
(Apologies to all who went “duh” to this but I found it hilariously instructive )
FDIC is the one savings plan that you cannot screw up. It forms a base. They others that you can invest in the market, give you the opportunity to lose completely.
I agree with BK on one, and only one, aspect of his arguments. The use of the fifth quintile in describing income averages across our population is a device that hides the truly extraordinary levels of income at the 2%, of less, portions of that population. It’s also a good way of hiding the egregiously low level of taxation of those whose incomes start at half a million and more.
Granted that no one should shed financial tears for anyone whose income puts them in that fifth quintile. And the rest of the 95% of the population is likely struggling to get by in comparison. Breaking income stats down by fifths is misleading and to the advantage of those who want to minimize income inequality.
BTW, why does the spell check indicate that quintile is spelled incorrectly?