By Jason Hughey
We’re starting to learn about the worrisome policies that the President will include in his new budget. Although the final details won’t be released until tomorrow, it’s apparent that this budget will present new attacks against our liberty and prosperity.
One of the president’s most concerning policies deals with new rules for retirement savings accounts. The White House budget will include a limit on the amount that individuals can hold in tax-preferred retirement savings accounts. According to the White House announcement, “The budget will include a new proposal that prohibits individuals from accumulating over $3 million in IRAs and other tax-preferred retirement accounts.”
Ultimately, treating all savings as pre-tax is essential for the tax code to be neutral. Otherwise, individuals have to pay tax on both the initial income and the gains that result from their savings. This constitutes double taxation. Pre-tax savings accounts are a small step in this direction. Furthermore, individuals should be allowed to save for any reasons that they choose, without worrying about the tax implications of such a decision. However, President Obama wants to double back in the opposite direction by placing restrictions on the total amount of savings an individual can have in pre-tax saving accounts.
Granted, we are missing some of the policy details for this rule. For instance, we don’t know if this cap is going to be indexed to inflation. We also don’t know if assets above $3 million would be confiscated or if they would simply be taxed at high rates. However, Bloomberg did report that this cap “would apply to the total of an individual’s tax-favored accounts.” We also know that the Obama administration claims that the plan would raise $9 billion over the next ten years.
Consequently, the question naturally arises: since the proposal barely raises any revenue, why restrict savings account holdings to $3 million?
The Obama administration says this yet another effort reign in the excessive wealth of the rich. In reality, this is just another affront to the American people’s self-reliance. By assuming the authority to determine what a reasonable retirement lifestyle should look like, the Obama administration is imposing a uniform standard of retirement on all Americans.
Many will counter this argument, agreeing with the White House that “some wealthy individuals are able to accumulate many millions of dollars in these accounts, substantially more than is needed to fund reasonable levels of retirement saving.” The argument goes: if you have more than a “reasonable amount” to support your retirement, then the government will use its power to make sure your account holdings remain “reasonable.” However, not only is this arbitrary, but it ultimately creates a severe punishment for savers. Whether this punishment comes in the form of confiscation or punitive taxation matters little—either way, the government would punish individuals that want to save over $3 million.
But isn’t this really designed to only punish millionaires? Again, the answer is no. Saving $3 million in your tax-preferred retirement accounts is actually not that “unreasonable.” If someone were to save a $10,000 per year with an average rate of return at 10%, they would have $3 million in 35 years. Hard-working and financially disciplined Americans can feasibly accomplish this goal. This kind of behavior should never be punished by the government.
The federal government already prevents individuals from contributing more than pre-defined amounts to these accounts on an annual basis. AFP believes that these caps should be abolished so that everyone can save as much money as they want. We certainly should not add caps on total account holdings as the Obama administration proposes.
Thus, this proposal is about more than raising revenue or “making the rich pay their fair share.” It’s fundamentally about preventing Americans from rising above their current status through their own effort. Although branded as a “reasonable tax increase on the wealthy,” in reality, this proposal represents an attack on the idea that any of us should be allowed the freedom to better our station in life and provide for our own retirement. It encourages a mindset of dependence on government and punishes individuals responsible enough to look out for themselves. This attack on our freedom should outrage every American.
When President Obama’s budget will be released tomorrow, AFP stands prepared to resist this cap on retirement accounts.