Friday, October 14, 2011

Your 401K and IRA deduction is targeted and the Government aims at taking it away

The Senate Finance Committee, headed by Chairman Max Baucus (D-Mont) held a session to consider changing the current 401K and IRA tax exemptions. As its underlying premise, the Committee is utilizing The Brookings Institution's newly drafted proposal which aims at: eliminating the current tax deduction for the 401K and IRA contribution; and, replacing it with one of two options in which the Government credits the depositors account with:
  • either 30% of their contribution,
  • or 18% of the their contribution.
On the surface, their proposal seems reasonable. A casual reader would not believe that they would be affected. However:

Every family or individual 
with an adjusted gross income of 70,000 or greater 
will experience a tax increase 
ranging from $283 to $4,322 per year.

The Brookings proposal contains 2 tables showing this information. The tables are broken down into quintiles of income, which means 20% levels. In their 30% Proposal, those earning less than the top 90% would save on taxes. In their 18% Proposal, those in the lower 80% of earners would save in taxes.

You might say that doesn't affect you. However you would be wrong, because:
  • the 80% threshold is about $70,000 per year,
  • the 90% threshold is about $113,800 per year,
  • the 95-99% threshold is $159,600 per year, and
  • the top 1% is $380,400 per year.
If your household tax form income falls within any of these levels, your taxes will increase.

Remember, the top 25% of tax filers pay about 86% of the total taxes received. And, the top 10% pay 70% of the taxes received by the government.

The Brookings proposal shows tax savings for those in the first 60% of tax filers. But, of this amount, nearly 50% pay NO taxes at all. So they won't save anything. Thus, The Brookings proposal is misleading.

The remainder of us who are still employed and earn more than $70,000 per year (per person or family), will pay more taxes, especially if The Brookings 18% Proposal is adopted.

So don't be fooled. Tell your Congressman or Senator NOT to support this masked tax hike!

Brookings - Proposal to Restructure Retirement Savings
The retirement myth – 1 out of 3 Americans has no savings or retirement account. Half of Americans have $2,000 or less in their retirement account. 401k new name for Wall Street grease.
Summary of Latest Federal Individual Income Tax Data
Are Democrats Eyeing 401(k)s, IRAs for Tax Hit?

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