NCPA - National Center for Policy Analysis


November 5, 2008

With Democrats controlling Congress now, what new revenue bills can we see coming down the pipeline?  Probably a bill concerning 401(k)s.  House Democrats are not happy with the loss of investor wealth, the plans' freedom of choice and the size of 402(k) tax deductions for higher-paid workers, and are considering an alternative plan that would replace 401(k)s with a flat tax credit at all income levels, says Investor's Business Daily.

The plan, put forth by Teresa Ghilarducci, an economist teaching at the New School for Social Research in New York, and supported by Reps. George Miller (D-Calif.) and Jim McDermott (D-Wash.) states that:

  • All workers would get a credit of $600 if they invest 5 percent of their pay into a retirement account run by the Social Security Administration and invested solely in special government bonds paying 3 percent plus inflation.
  • Existing 401(k)s would be allowed to remain, but contributions and employer matches would no longer be tax-deductible.

This plan may have a short-term selling point in its risk-free bonds.  Its participants would be in no danger of losing, or making, money in stocks -- but in a few months, the market may look quite a bit brighter and the public may not be so receptive to the idea of trading so much freedom for mediocre, if secure, returns, says IBD.

Source: Editorial, "The War on 401(k)s," Investor's Business Daily, November 3, 2008.


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