Yesterday The Washington Examiner posted an article detailing how the tax proposals of presidential candidate Joe Biden might impact 401k plans. Many Americans put money into 401k plans to help with their tax liability and also because they don’t feel Social Security will be there when they retire. It is quite possible that in the future Social Security will only be available to people below a certain income level, so their fears may well be justified.
The article reports:
Former Vice President Joe Biden’s presidential platform includes a tax proposal that could force some employers to abandon offering retirement options to workers, the industry is warning.
The plan would dramatically change the incentive to save for retirement by replacing the current deferral system with a tax credit.
Most retirement plans, such as 401(k) plans and IRAs, allow taxpayers to delay paying taxes on contributions to accounts until they are retired. By suspending this tax until retirement, workers have been able to grow their nest eggs beyond what they would have been if taxes were paid in the year that the money was received.
The article explains the risk in this proposal:
Biden’s plan would be advantageous for lower-income workers. For example, a taxpayer in the 12% tax bracket investing $100 in a retirement account would receive $114 after paying taxes and receiving the credit.
Some retirement industry experts think Biden’s proposal could force some companies to abandon their retirement plans.
Brian Graff, chief executive officer at the American Retirement Association, cautioned that employers, who normally pay taxes in the upper brackets, could oppose Biden’s plan because they lose much of their tax benefit.
“What we’re worried about is if you are essentially reducing the tax benefit, it’s not going to be worth it for them to keep the plan going,” he said.
Employers who make contributions to a 401(k) must offer that same benefit to their employees. However, some of those bosses might not want to continue offering a 401(k) if their tax benefit is greatly reduced.
“If it’s not worth it to the owner, [why] bother with it anymore?” Graff said.
Richard Rausser, senior vice president of client services at Pentegra, said that such a fundamental change to retirement accounts could be a deterrent to offering a plan.
“To the extent that there’s a change in taxation of salary deferrals … that’s going to be a disincentive for plan sponsors to adopt a plan, or for some of them, quite honestly, to continue to maintain a plan. They may rethink it,” he said.
Redistribution of wealth (which is what this plan is) is not an idea that has a place in a free market system. If you look at the history of the Pilgrims in Massachusetts, you find that they originally adopted a communal system of farming. After the system failed because there was no incentive to work hard and people were starving, they instituted a free market system and prospered. The Joe Biden plan for taxes regarding 401k plans is simply wealth redistribution. It is socialism and should be rejected by the American people.