Gold Rush

“You’ll get nothing, and like it”!

            —Ted Knight as Judge Smails in Caddyshack


I told you this was coming.

The Obama administration yesterday—two months late, in violation of federal law (again)—released its proposed 2014 budget.  Among the highlights, it calls for total spending of $3.8 trillion.  Yet despite adding a new “Buffett Rule” tax requiring a minimum 30% contribution from those earning $1 million or more, and cutting (actually slowing the increases in) Social Security spending, still doesn’t balance.  As in 2012, and in 2011, I don’t expect this proposal to get any votes for passage from either Republicans or Democrats, so the likelihood of this coming to fruition this year is low.  But buried in there is a nugget I’ve warned you about and it bears watching.

You’ve probably seen the money grab over in Cyprus the last couple of weeks.  To recap, Cypriot banks—almost entirely government-owned—were over-exposed to Greek debt, such that the Cypriot economy was unable to withstand the negative impacts of European Union measures to deal with the debt crisis there.  Facing collapse, as a condition for a bailout the EU forced the closure of the second-largest bank, consolidation into the largest bank, with the result that depositors with holdings above the €100,000 cap may lose as much as 60% of their accounts.  In essence, the EU compelled the government of Cyprus to confiscate over half of many people’s savings.

Yeah, Rusty, but that’s Cyprus.  I can’t even find Cyprus on a map.  That kind of thing could never happen here.

Think again, Amigo.     

Among the proposals in the President’s budget is a cap on 401(K) savings.  Savings in retirement accounts like 401(K) and IRA devices above $3 million would no longer be eligible for tax advantaged treatment.  Currently, money deposited in those sorts of accounts—up to annual limits—is deposited on a pre-tax basis, and that money can sit there and accumulate interest or other investment growth tax free; the money then gets taxed as income as it is withdrawn in retirement.  What the President wants to do is go ahead and tax—read: take—that money now.

It’s an irresistible temptation.  U.S. savers have accumulated some $10 trillion in these retirement accounts based on the government’s promise that they could deposit it and let it grow tax free, and then it would be taxed down the road as ordinary income when they withdrew it in retirement.  But like a 3-year-old on Christmas Eve, Obama simply can’t wait until Christmas morning to open the presents under the tree.  The problem is that isn’t the government’s money, and it isn’t money Santa Clause has brought Obama or even to you.   It’s your money, earned through your labor and investment of time, skill, and expertise.  And Obama wants it.

But Rusty, I don’t have $3 million in my 401(K), and I’m never going to have $3 million in my 401(K), so why should I care?

Well, if you don’t and aren’t, I (depending on your age and lifestyle goals) submit you may want to re-think your retirement plan given that the monetization of our debt through the printing of fiat money is in fact already taxing your savings by devaluing it, but that’s another article for another time.  But regardless of whether you do or don’t (or will or won’t) have $3 million in retirement, you should care very much about the President’s proposal.

And it should scare the crap out of you.  

You see, that $3 million figure isn’t pulled completely from thin air.  It’s actually the amount you would need—under current economic conditions—to purchase an annuity paying you $205,000 per year.  Why that number?

Because that’s the amount the Obama administration, in its infinite wisdom, has decided is a reasonable amount for you to live comfortably in retirement.  In other words, they want you to work and save your whole life, and then in the end they will tell you how much of your own money you should have to live on and the rest of it is subject to the government taking it.

Rusty, that’s what any tax is.

Quite so.  But here we’re not talking about the government taxing your current income; we’re talking about it taking from you a substantial chunk of your money you’ve spent a lifetime saving.  Time you can never, ever replace.  Moreover, it’s taking from you out of accounts the very same government set up the tax breaks to encourage you to accumulate savings in the first place.  At a time when progressives are arguing that Americans already don’t save enough such that we need a second Social Security system, why would you start altering the tax advantages to discourage savings?!? 

What incentive do you have to keep working once you’ve saved $ 2,999,999, if the government can take some or even all of every dollar you save thereafter?  Why would a business owner stay in business—and keep employing his employees?

And it’s naïve to think that because you don’t expect ever to reach the $3 million threshold that you’re immune to the taking.  Once we’re in a universe where government gets to decide how much of your savings you actually get to have based on what government determines is a reasonable retirement income for you, then all bets are off.  Today that’s $205,000.  Tomorrow it might be pegged to the median U.S. income (currently about $50,000).  Next week it might be the median income tied to average life expectancy at retirement.  For a male at 65, today that’s about 13 years; the present value of a $50,000 annuity for 13 years is about $612,000, and anything in your 401(K) above that would be subject to the government taking it.  Furthermore, once they can tax your 401(K) or IRA, it’s only a small additional step for them to tax your regular savings, your checking account balance, or the value of any other investments you might have.

Still feel safe?

Keep this in mind as the Leftists are also looking to take your guns.  The people in Cyprus were already effectively disarmed before the government came to take their money.

I’m just saying.

Now, if Obama thinks his judgment that $205,000 is a reasonable income for you, let’s see him put his money where his mouth is.  I suggest we see legislation that reduces the Presidential salary to $205,000, provides ex-Presidents with a $205,000 annual lifetime stipend, and requires them to surrender all other assets to the U.S. Treasury.

I’ll bet you a million dollars this President would never sign such a bill.  And if he did, he’d never comply with it.  Because it’s never about what’s reasonable; it’s about taking as much from you as possible to buy enough votes to keep him and his ilk living like kings on your nickel.



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