Even as many warn of an impending retirement crisis, the Obama Administration wants to impose limits on how much Americans are allowed to save for their own retirement.
The President’s proposed budget, scheduled for release on March 4, once again will include caps on the amount individuals can contribute and accrue in their defined-contribution retirement accounts, such as 401(k)s and IRAs. Last year’s proposal would have capped personal retirement account balances at about $3.4 million.
As if a simple cap wasn’t bad enough, the policy is also needlessly complex and would result in a cap that fluctuates with interest rates. As Boccia and Curtis Dubay have written:
The President’s proposal sets the tax-advantaged savings cap at the maximum benefit a retired worker may receive in any given year from an employer-sponsored retirement plan. The IRS adjusts the maximum benefit annually for inflation. In 2013, it is $205,000. In the President’s proposal this corresponds to a $3.4 million total accumulation for a 62-year-old. Rather than set the cap at a fixed dollar value adjusted for inflation, the cap would fluctuate over time based on actuarial assumptions such as annuity discount rates. This means that the cap could drop to much lower levels [$2.7 million based on 2010 actuarial rates].
The proposal would worsen the already sizable tax bias against saving and investing, as funds saved for retirement in excess of the cap are taxed at least twice—first when the income is earned and then for any investment earnings in the form of interest, dividends, or capital gains once the money is withdrawn. Boccia also explain on Fox Business’ The Willis Report how the proposal can be considered a budget gimmick:
The $9 billion increase in tax revenue over the next decade comes at a loss of future revenue. The government simply shifts tax revenue from the future to the immediate 10-year budget window, shrinking total revenues over the entire period in the process.
Moreover, the proposal is rife with the hypocrisy displayed by a government that imposes financial limits on the governed yet chooses to face none itself. Boccia concludes on the Willis Report:
The one ceiling we do need is a debt ceiling, but Congress actually handed the executive a blank check. So while American families are cutting back to live within their means, the federal government has eliminated—waived—its debt limit for an entire year, and that’s a problem. If we should have one ceiling, it should be on the national debt.