I nearly choked on my cereal when I read in the Boston Globe this morning that John McCain had accused Barack Obama [Note: McCain may not have been specifically referring to Obama; see update below] of proposing to tax individual retirement accounts. Scott Helman and Sasha Issenberg write:
“Watch out, they’re even talking about taxing your 401(k) contributions,” McCain said at Pittsburgh International Airport. “I’m going to protect people’s retirement, not tax it. I’m going to protect Social Security. I’m going to protect Medicare.”
I’ve done some quick research, and, as best as I can tell, McCain’s charge is not true. The slightly longer version is that he’s building assumptions upon assumptions, based in part on a mistake, and accepting the rhetoric of an anti-tax think tank as to what theoretical effect Obama’s tax proposals might have on 401(k)s.
According to the nonpartisan watchdog site FactCheck.org, McCain has been making this accusation off and on since last spring. I have to confess that I hadn’t been aware of it until now. FactCheck says McCain is staking his claim on a “giant blunder,” latching on to Obama’s proposal to raise the capital-gains tax. But 401(k) accounts allow you to invest your money tax-free, and are taxed as ordinary income when you reach retirement age and begin to withdraw money. The capital-gains tax has nothing to do with 401(k)s.
Some on the right argue that raising taxes the capital-gains tax and corporate income taxes will hurt 401(k)s because low taxes are always good for business and high taxes are always bad. That’s the case made by Deroy Murdock at Human Events, who points to a calculator on the Web site of Americans for Tax Reform that shows the value of your 401(k) rising under McCain and shrinking under Obama. I haven’t tried it, but it is transparently based on the assumption that the economy will do better with McCain as president than Obama.
Americans for Tax Reform, by the way, is a vehicle for anti-tax radical Grover Norquist, famous for once having said, “My goal is to cut government in half in 25 years, to get it down to the size where we can drown it in the bathtub.”
Bottom line: McCain’s accusation is false through and through misleading. We’re all familiar with the trickle-down arguments on which it is based. But if you’re McCain, it sounds so much better to say that Obama wants to tax the 401(k)s of “policemen, firefighters, nurses,” as he did last April, than it does to say ordinary people might suffer some theoretical harm if Obama raises taxes on ExxonMobil.
Update: Mike from Norwell reports that there are some congressional Democrats who are proposing a tax on 401(k) accounts. Not Obama’s proposal, and, needless to say, he would be insane to go along with it. He is not insane. But I’ve toned down the headline.
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mike_b1
My only regret is that President Obama won’t bother to sign an executive order that guts the McCain Bill and we find out once and for all what Traitor John has been hiding all these years.
Steve
Mike – it’s ugly when the other side calls Obama “traitor”, and it’s equally ugly when you do it.Healing after this election is going to be almost impossible. You’re not helping.
mike_b1
I’m not trying to be helpful, Steve. Did you read the article?It’s hard to come away with any other conclusion when the man who runs on a campaign of honor, patriotism and transparency is the same guy who wrote the bill to bury the info on America’s MIA and POWs. To me, that’s treasonous.http://www.nationinstitute.org/p/schanberg09182008pt1
Mike from Norwell
Dan:I’d fact check a little furtherhttp://emac.blogs.foxbusiness.com/2008/10/31/beware-of-congresss-threat-to-tax-401ks/http://www.usnews.com/blogs/capital-commerce/2008/10/23/would-obama-dems-kill-401k-plans.htmlI’m in the retirement business. Not a blunder on McCain’s part. Maybe not advocated by Obama, but on the Dem agenda.
Bill Baar
One of the fears with IRAs is they would create an incentive for the Government to get in the business of inflating the stock market to keep everyone’s retirement portfolio healthy.This election is turning out to be a perfect example of that. It looks like IRA losses and Home equity decline turned it for Obama.Local Democratic stratigists I’ve talked with have attribute past GOP dominance to an investor mindset IRAs have encouraged.If you can remember the time when view people held stocks that makes sense.It’s interesting IRAs have turned the tables on the GOP although I suspect there is still a desire among Dems to detach people from ownership society ideas, and latch them back to nationally administered programs as the links above state.
mike_b1
Your darn right the economy turned it, Bill. As well it should have. The GOP made a complete and utter mess of things. Let’s hope this idea that completely unregulated capitalism is the answer to everything never rears its ugly head again.
Bill Baar
A financial crisis is not the economy…. ….but it’s important to note we agree here that what turned the election was deflation of personal assets (and a deserved deflation in my opinion given housing prices).That’s no mandate for social democracy…far from it.It’s what Democrats will do with a victory with taxes and free trade that will decide whether the economy tanks.
mike_b1
Bill, the economy has already tanked.Any why? It was the GOP who wrote the $700B bailout of their buddies’ firms. And it was the GOP who tacked on $150B more in extra funds for whatever the hell reason those are needed for. And it was the GOP who decided we need to spend $20B a month in Iraq.The GOP has absolutely looted the taxpayers. Years from now, when the story is written, we will find out that the Enron and Tyco were just warmups to the real prize: The US Treasury.
Bill Baar
Wait till the Illinois crowd and Rahm Emmanual get into the WH…you’ll see looting on a grandscale…. the 401k talk is a classic Illinois Democrats way of taxing without making it look like a tax… just like Illinois doesn’t pay on Medicaid, or Obama’s endorsed Cook County Prez Stroger slaps a 10% plus sales tax on us…. anything to raise money and take a cut to finance friends and family on the payrolls (watch handouts to U of C Hospital system).The bad thing will be our Gov is almost certain to be indicted and he will sure try to bring Obama down with him e.g.the Gov repeated five times a few weeks ago, Tony Rezko wrote the Judge Sen. Obama and I did nothing wrong.That means our new Prez has to deal with the economy, Biden’s certain to come Foreign Policy crisis and the fear of looking weak, and a cloud of corruption from the get-go……it’s not going to be pretty.
acf
If you don’t want the government to be in the business of trying to inflate the market to protect IRAs, what would you think about privatizing SS, and plowing those dollars into shares of AIG, and Michael Jordan rookie cards?
Dan Kennedy
Acf: Well, Michael Jordan rookie cards, maybe.
Bill Baar
That was the only argument that gave me pause on Bush’s ownership accounts. (Which was far from privatization and in fact has a lot of similarities to what some Dems are proposing now…except they would appropriate your IRA instead of barrowing to fund you one.)You create a vast investor class in a democracy and you create a demand for politicans to keep the markes up…same goes for what happened with Fannie and Freddy on houses… I still think that’s going to be the way to go becuase the fundamental trend is Libertarian.. increasingly we will work multiple jobs, go through multiple family configurations, and live more of our time alone… the systems that work best will be systems focused on individulas that are very flexible.Retirement and Pension systems from an era of little job change, conventional families (and much shorter life spans) aren’t going to work well.That’s the odd thing about the Change our Prez is advocating… if it comes out to be 60’s liberalism (which was 30’s Liberalism), it won’t fit the 21st century.Shortly after 911, I heard Bob Novack speak and he said Conservatism was dead. The response to an attack meant the end of Reagan style conservatism.Now it will be Liberalism’s reality check…it won’t survive either.
Bill Baar
Market Watch on Obama proofing your portfolio…
mike_b1
Bill, that stuff is simply bizarre, especially given US markets have historically risen more under Democrat than GOP administrations.The one thing I would do is fill up your gas tanks tonight, since the oil prices will begin rising tomorrow. OPEC did what it could by dumping prices ahead of the election to aid the GOP cabal, but sometimes fate cannot be overcome.Oh, and I should add that one of McCain’s advisors was on MSNBC today and noted that Obama comes into the WH as an “honest” man “without a hint of corruption.”
tim
Mike B1 GOP wrote the 700b bail out but the dems past it further evidence that both parties shaft the working class
Amused
Worse, on its bottom of the screen crawl, which has generally been a place for breaking news developments, Faux News recently ran a scoll that said simply Obama would tax 401(k) accounts — and it wasn’t presented in the context of a McCain claim it was presented as factAnd the right wing nightbags complain about the liberal media when they hear things they don’t like. I have never seen such a distortion on CNN
Mike from Norwell
Oil: amusing that in a 2-year time period (and a hyperinflated 3 months this spring) where it more than doubled, that we now think that the peak of the bubble (think Hunt Brothers and Silver) is the “norm” for the pricing. Think not.Oil will be likely be back to $50 and most likely stay there for some time. Wouldn’t exactly like to be in Chavez’s or Iran’s shoes right now (or for that matter Russia) counting on this bounty from the West. So much for the “decoupling” theory; anyone give a thought that this supposed insatiable demand by China and India could possibly be tempered when high prices cripple their export markets? Just look back to ’81-’82 for verification.