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President Obama and other liberals want to limit your ability to save for retirement and perhaps loot your retirement account to pay for government programs. This sounds ridiculous, but even though the media has paid little attention to it, there seems to be a well-orchestrated drive on the left to loot retirement accounts to cover the increasing cost of government.
Mr. Obama has made a budget proposal that would cap individual retirement accounts (IRAs) at $3 million and generate an additional $9 billion in federal revenues. This effort seems to be prompted by revelations that Mitt Romney had $100 million in his IRA. This is being pushed as a classic “soak the rich” scheme, but it wouldn’t necessarily hurt the rich; instead, it would harm average people.
In today’s world, $3 million isn’t that much; a lot of average people will accumulate that kind of money. Many small businesspeople and successful families will retire with that kind of savings. To add insult to injury, this wouldn’t necessarily raise more revenue from rich people like Romney because they would simply move the funds elsewhere, say to overseas accounts, or make more charitable donations.
Looting of Retirement Accounts Could Come Next
What’s even more frightening is that the wholesale looting of retirement accounts and assets like IRAs, annuities, and pensions could come next. Jesse Jackson Sr. has already called for the use of pension fund money to pay for social programs.
To be fair, the Reverend Jackson didn’t ask for IRAs to be raided to cover the cost of welfare as some conservative bloggers have alleged. Instead, he wants pension fund money to be used as collateral for loans to low-income communities. That sounds like the kind of social engineering that led to the mortgage crisis, when retirement funds were invested in mortgage-backed derivatives designed to help the poor buy homes.
The bothersome thing is that Jackson made this proposal at the Wall Street Economic Summit in front of politicians and investment bankers. What the good Reverend is really proposing is that Wall Street speculators be handed the key to our pension funds. That’s actually worse, because those operators could repackage the pensions into derivatives and sell them off so they could make a nice commission on the deal.
Why You Should Be Worried
A lot of people will say, why should I worry, Jesse Jackson doesn’t represent the leadership of the Democratic Party, and I’m not a millionaire. History shows otherwise; back in 1913, when the federal income tax was legalized by the sixteenth amendment, it was only supposed to affect millionaires. It took just four years for the income tax to be expanded to average people to pay for World War I. More recently the Alternative Minimum Tax, which was also only supposed to affect the rich, now places a burden on average people.
If history follows its course, the tax on retirement accounts will be expanded to cover more and more people. Congress will probably justify it by claiming that funds are needed to cover shortfalls in Social Security and Medicare. Remember, Congress has raided the Social Security trust fund in the past. Another pretext used will be balancing the budget, which Obama is already resorting to.
The Real Beneficiaries: Wall Street and Lawyers
A big reason why the Democrats will push this is that they don’t want America to do what every other industrialized nation has done: switch to a consumption tax system (in other words, a national sales tax), even though many economists tell us such a system would raise enough money to pay for the federal government and eliminate the federal deficit.
The Democrats (and many Republicans) don’t want a national sales tax because of all the campaign contributions they rake in because of the current tax code. Every time a rich person or a corporation wants a loophole in the tax code, a check gets written to somebody in Congress. A national sales tax or flat tax would close the loopholes and cut off the politicians’ gravy train.
Instead of scrapping the present corrupt, unfair, and infective tax system and switching to one that would raise adequate revenue, the Democrats would rather increase the government’s ability to raid citizens’ bank accounts.
This would benefit another major Democratic constituency: tax lawyers who could charge high fees to wealthy people trying to avoid the new tax. It’ll also benefit the investment industry because investment advisors can charge all sorts of new fees for strategies to avoid the tax. So it’s obvious this proposed raid on retirement funds has little or nothing to do with helping the poor or balancing the budget. Instead, it is about helping wealthy special interests that can be relied on to write campaign donation checks.
How to Protect Your Retirement Savings
You might be wondering: How can I protect my retirement savings from such officially sanctioned looting? Well, there are few excellent ways to do it that don’t involve a hoard of gold coins or cash under the mattress.
A good one is to simply avoid IRAs (which are a bad deal anyway because of the 10 percent tax penalty for withdrawals by people under 59½ years old). Instead, pay the regular taxes and put your money into a straight savings account, CD, or money market fund. It isn’t likely that Congress will touch these. If you want to purchase stocks, commodities, or exchange-traded funds, do it directly through your own investment account. There’s no way Congress will touch accounts that rich people use. You’ll have to pay the regular income tax, but you will be less vulnerable to direct looting.
Another strategy is to invest in real estate. Since Congress seems determined to keep the mortgage tax deduction, this is a good way to shield funds from taxes. It’s also one of the ways the rich protect their money; they buy big mansions and penthouses for the tax deduction, not the prestige. If you purchase rental real estate, you can generate extra income and write a lot of your expenses off as business expenses.
Using your extra cash to pay off your mortgage rather than invest for retirement might be another good strategy. At least you’ll have a place to live and a piece of property you can sell to generate income or use as collateral for mortgages or reverse mortgages in the future while collecting the mortgage interest deduction.
Look into Annuities
Annuities and insurance, which are how the rich invest for retirement, are another great way to avoid the looting. Annuities guarantee a regular income; they are insured like savings accounts are, and they are unlikely to be targeted by congressional looters. The reason for this is that business executives and other wealthy people use annuities for their retirement savings. Congress isn’t likely to touch anything that benefits potential campaign donors. You can buy annuities just like rich people do.
Whole life insurance policies provide some of the same benefits as annuities. It should be noted here, however, that annuities and insurance are subject to the same 10 percent tax penalty for persons that are under 59½ years of age that applies to IRAs.
Be Aware of Retirement Savings Confiscation
There’s no guarantee that retirement account confiscation will occur, but it is a possibility. It’s highly likely if we see Social Security and Medicare running out of money and lots of news stories about senior citizens eating cat food. Another possibility is that Democrats will need money to cover all the generous pensions they’ve promised one of their constituencies: government workers. Many state and municipal pension funds are already bankrupt.
So be leery of retirement plans and keep your money out of them, particularly if you’re under forty. There’s no guarantee it’ll be there when you need it.