(The top half of this message tries again to explain why the increase in the maximum contribution caps of IRAs and 401Ks is regressive, i.e. mind-numbing wonky wonk stuff. But something people should try to understand before dismissing it as "pure BS" or "just absurd". The bottom half of this message is about the Marie Antoinettes of the Democratic Party and growing inequality).
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Progree writes Aug-18-06 03:55 AM (Original message)
> Pension reform bill - higher IRA & 401 K contribution limits favor wealthy
(etc. etc.) <
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FILAM23 writes Sun Aug-20-06 10:17 AM
>>8. Not really considering the top 8% exceed the income limits to contribute the original post is pure BS <<
ProudNavyRetiree
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Tsk, Tsk.
Anyway, I hope my message Sun Aug-20-06 12:19 AM:
"5. Only the wealthy can benefit from the INCREASED contribution limit"
http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=114x21813#21821explains it better than my original post.
But to clarify one point -- anyone no matter how rich, or poor (as long as they have some earned income), can contribute to an IRA and a 401 K. There are no maximum income limits to qualify to contribute to an IRA or 401 K as you might? be thinking. Whether you make $5,000 or $5,000,000,000,000, you are eligible to contribute.
(Exception -- there are income limits for contrbuting to *ROTH* IRAs. But there are no income limits to contributing to Traditional IRAs or Traditional (non-Roth) 401 K's.)
Other than the Roth cap, the only cap is a MAXIMUM amount one can CONTRIBUTE to these plans. (I.E. NOT an INCOME limit but rather a CONTRIBUTION limit).
Under the old pre-Bush tax law, and the one that we would have reverted back to in 2011 -- had Bush not signed this foul "Pension Protection Act (PPA)" bill -- the combined cap on IRA and 401 K contributions would be $12,000 in 2011.
But because Bush signed the bill, the combined IRA and 401 K cap will be $22,900 ($29,700 over age 50) in 2011. (Assuming 3% inflation from now until 2011).
People who are unable to put aside more than $12,000 / year long-term do not benefit from this increase in the contribution cap. If Joe Average can't come up with $12,000 to contribute, how is increasing the contribution limit to $22,900 going to help him? It won't.
But if Richie Rich can contribute tens of thousands of dollars, than the increase in the contribution limit from $12,000 to $22,900 is something he is able to, and likely will, take advantage of and pay lower taxes as a result.
If you don't understand this, please read the above four paragraphs again and think about it until you do. Rather than firing off a "pure BS" response for something you don't understand. Or do some research or ask people who understand taxes and finances.
People who are able to put aside $12,000 / year or more, maybe 10% of us, maybe 1/3 of us if we really really try, will benefit from this increase in the contribution cap.
Its just class warfare by the rich and upper middle class (and maybe even the middle middle class) on the bottom 2/3 or so of us. And what is really troubling is that fancy-pants elitists Marie Antoinette Democrats are part of the problem.
For those of you who think its great that the top 10% or top 1/3 are getting an additional tax break while the bottom 90% of 2/3 or whatever are not, I ask you, how much inequality is enough? Can you tell me what the target level of inequality we should be aiming for? This bill clearly increases inequality by giving a tax break to the top 10% and nothing to the rest.
(And no, it probably doesn't increase savings. No research that I know of on IRAs or 401 K's indicate they increase savings -- rather they shift savings from taxable accounts to these tax-deferred accounts).
Whatever higher level of inequality the Marie Antoinettes of the Democratic Party are looking for, we are well on our way, according to Mortimer Zuckerman in US News and World Report November 18, 2002:
"Average annual salaries in America, adjusted for inflation, have grown only 10% from 1970 to 1999, while after-tax income for the top 1% rose by 157%. The bulk of all income gains were concentrated in the top 20%."
Unfortunately, I haven't been able to find an update for this statistic. But I understand the top 1% fell during the recession / slowdown of 2001-2003 and now is rapidly rising again. Anyway, the updated picture would not be qualitatively different.
Who is Marie Antoinette? She is the French Queen, who, upon hearing that the peasants had no bread and were starving, said, "well, then, let them eat cake!"
Who are the Marie Antoinettes of the Democratic Party? These are the pseudo-progressives fancy-pants elitists who say,
"what, the bottom 90% don't benefit from a tax change that benefits only those who save more than $12,000 per year long term? Well, let them save more!"
Not to mention that there are several other tax-deferral (and even tax-free) programs that have begun or grown under Bush such as educational savings accounts and health savings accounts (the latter is like the best features of the traditional IRA and Roth -- in effect a tax deduction on contributions, and then tax free on withdrawal including tax-free earnings).
So its not just increased caps on 401 K's and IRA's were talking about, its the increased caps on all these other plans as well. So probably Richie Rich can put aside as much as $40,000 ? tax deferred (some of that taxfree) in all these programs combined. While the bottom 90% who can't even max out their 401 K and IRA don't really benefit from these new programs at all -- because any contributions these "bottom 90-percenters" make to these new programs must come out of contributions they would have otherwise made to their 401 K and IRA.
All of this along with the lower (15% maximum) tax on dividends and capital gains for amounts one can't defer in some form of retirement account means we're getting to a much lower level of taxes on capital than on labor.
Again, how much inequality should we try to achieve? How much of a birth tax should we pass on to the unborn? Are you at all aware that ALL projections out beyond 2030 are a fiscal disaster, e.g. last year the GAO forecast that by 2040 all federal revenues would be absorbed simply paying interest on the national debt? And this wasn't some "outlying" forecast. I have not seen a forecast that is qualitatively any different.
No, no, greed is not good. No, no, greed is not right. Greed does not work. Greed is leading us straight to a fiscal disaster.
Its time true progressives learned about what the Repugs are doing with the tax code. And those that think greed is good should get the hell out of DU and go over to "Free" Republic or TownHall.com or some-such. Adios.
Progree