Skip to comments.Feds eye retirement-fund tax to cut $16 trillion-plus deficit
Posted on 04/22/2012 4:46:02 PM PDT by DeaconBenjamin
Uncle Sam, in a desperate attempt to fix its $16 trillion-plus deficit, is leering over Americans retirement nest egg as its new bailout fund.
Capitol Hill politicians are assessing tax changes that could let the Internal Revenue Service lay claim to a portion of the $18 trillion sitting in 401(k) accounts and other tax breaks used by middle-class workers, including cutting the mortgage tax deduction.
A commission looking for ways to close the deficit, and, noting the extent of 401(k) tax breaks, recommends an examination of the system as one way to prevent government bankruptcy.
Besides 401(k)s, other possibilities include the mortgage-interest deduction on second homes, as well as benefits from employer-provided health insurance, which are untaxed now.
Under current 401(k) rules, total employee/employer contributions cant exceed $50,000. In the proposed rule change, employer/employee contributions would be limited to 20 percent of the employees compensation, with a maximum of $20,000, the so-called 20/20 proposal.
Another proposal being discussed in Congress says all tax deductions on 401(k)s and IRAs to be replaced with an 18 percent credit. The credit, according to a proposal that has been endorsed by economist William Gale, would be placed directly in a persons retirement account.
Unlike the current system, Gale told Congress, workers and firms contributions to employer-based 401(k) accounts would no longer be excluded from income and would be subject to taxation, contributions to IRAs would no longer be tax-deductible and any contributions to a 401(k) plan would be treated as taxable income.
In other words, the employee and employer would no longer get a deduction under the Gale plan, they would qualify for a credit. And the credit would increase [government] revenues by about $458 billion, Gale says.
(Excerpt) Read more at nypost.com ...
Tea Party, to the Bat Cave!
Freakin’ communists really piss me off. Their “government” scam cannot survive without stealing somebody else’s money.
They’ll probably confiscate funds from our retirement accounts but they’ll just spend it. They won’t cut anything. BTW, that 16 trillion is the debt. And you all know they aren’t going to cut that.
They did it in Argentina, and later in Ireland, too.
Oh, I’m SURE a guy who secretly exported machine-guns to DRUG DEALERS (and is probably bisexual, Muslim, and FOREIGN) would neeeeever do it, too, riiiiiight.....?
This was inevitable.
I had a nice 401(k), but I took it on a fishing trip and....
Of course, we know why. They have to pay for all of those entitlements they're buying votes with.
“I see you have some money there. Give it to me.” —Federal Government
I’m reminded of the British Tory Party MP that asked the question in the 80’s - “So no taxation without representation, that was the problem, right? So, how do you like it WITH representation?”
“as one way to prevent government bankruptcy. “
Stop spending would be another way.
If you look at where 98% of the votes from the people that receive welfare go.....
you'll know why they talk about taxing savings, home deductions, etc........but never cutting money to the cancer that is ACTUALLY destroying the country!
Thats a nice 401K plan you got there.
Speaking as a tax preparer, I’m getting to the point where when my clients ask what about next year, I just say - “That depends upon elections and outcomes and I cannot plan for either!”
More tax money = more money for government bailouts (aka, payoffs to friends and benefactors).
Then, they could tax baby piggy banks. After all, those kids don’t really need all those coins and cash.
Ah, yes; in the midst of the Obama recession, let us intensify the war on savings and investment. These people are hopeless.
That said, this would essentially turn everything into a Roth. (I'm assuming the tax deferral on earnings remains as is, and that this proposal applies only to the initial contribution.) That's not the end of the world. But the objectionable thing here is the mindless nickel and diming of useful and constructive things in order to kick the can down the road another year or two on the deficit.
NOTHING that is done on the tax side makes any difference unless we cut spending and reform entitlements.
How's about we let the Republicans know that anyone who supports this Big Gubmint Grab can expect NOT to receive any support (and in fact be opposed) next election?
MEANWHILE, the House Republicans need to be sent the same message (like NOW) that the same applies for anyone who supports the Big Brother Snoop on us Black Boxes for new vehicles Bill which will be winding its way there in the near future.
Cut deficit - stop spending.
There is no way whatsoever that we shall assess enough taxes in any way, shape or manner, that will simultaneously lower the deficit, and continue the same or perhaps even higher level of spending.
Of course, there is the cruelest and most regressive tax of all - to inflate the amount of currency in circulation to such levels that each individual unit of currency will be almost totally worthless. Then, old debts will not be at all onerous.
I will gladly pay you next Tuesday for a hamburger you sell me today.
And both sides of the aisle are using it to buy votes not just the usual suspects.
REPEAL THE SIXTEENTH AMENDMENT
ABOLISH THE IRS
IMPRISON THE CULPRITS
Some Dem congresscritter from CA. I wish I paid more attention at the time.
And people who live in Washington, DC are still taxed with no votes in Congress.
Meanwhile, the amount you are allowed to deduct from income to determine if you have to pay taxes on your Social Security has remained at $25,000 for a single person and $32,000 for a couple. This figure goes back to at least 1998 and probably earlier. The net result is that while people may have had an increase in income due to inflation, more and more of their Social Security is now subject to taxation. This needs to be changed. Call your Congresspeople.
In addition, the amount of $255 which is given as a death benefit under Social Security has not been changed since around 1957. This was supposed to cover a cheap funeral and give a couple of months of support after the death. Surely that ought to be adjusted for inflation as well.
All your 401K’s are belong to us!
Zing! The Brits have a way of putting things, don't they.
You are pissing us off, and we pay most of the government revenue NOW.
Start working on your resumes now. And good luck.
I am too PO'd to type more until later.
When are they going to give up their cushy retirement? I say vote all of them out of office, I don’t care who they are. we have stood for this crap long enough. Make them live like all of us, without all of the perks they vote in for themselves. WAKE UP AMERICA
So what happens if you have your money offshore...or take other diversionary action...wonder if they can still grab it?
They do this and they’ll destroy the housing market....
Obama hates this country so much he’s turning it into something we’ll all hate - if he gets his way.
As a tax preparer, why don’t you tell your clientel about the difference between “Wages” and “Income”.
Foreign real estate.
If more fiscal conservatives had done this decades ago, (when I did) we wouldn't be going over the financial cliff.
Freeze ALL salaries for public employees, including elected criminals (who set their own salaries and raises) to 2008 levels and no raises until 2025.
Don't like it?
Join us in the real world.
That's why they want to put all those accounts into a big federal "lock box" (vomit) and M-A-N-A-G-E it for us. I mean, after all, we're not capable of doing it ourselves. They just want to ENSURE even our IRA's are 'safe, sound and protected' when we get old and retired. (Still vomiting) I mean, what's better for us than the old saw..."I'm from the gobment and I'm here to hep'.
I think that may have been another reason for part of the planned Frank/Dobbs-initiated financial collapse....people lost all those billions in not only interest, but the biggie: the PRINCIPAL, from their IRA's. Why worry about a few hundred a year interest, when they can steal the principal?? Congress's plan is: "Go for the throat, baby. Forget the tail, it's just for fun and games!"
If the Federal government were to tax my 401(k) plan, I'd quit my job, cash it out in stages, and enjoy several years of leisure. Even with the 10% penalty for an early withdrawal, I'd still be paying less in Federal taxes in a lower tax bracket than I am right now.
Anyone see any holes in this plan?
OK, you've got me puzzled - what does that have to do with this topic and why do you insult me by assuming I don't?
Wages are line 7 and are reported with a W-2. Everything else is investment, business, retirement or other income and potentially has different taxability.
Perhaps you are cryptically talking about the pending  loss of the 15% max on Qualified Dividends and LT Capital Gains. If so, say YOUR opinion straight out please.
Its time to abolish the federal government.
Americans need their retirement funds much more than they need their federal government. Any politician who votes to steal the retirement funds of the nation’s workers will be committing political suicide.
I’m 59 this year. Think I’ll take mine and put it under the mattress.
POYBO and all your accomplices in Congress.
You can play the angles on a regular IRA vs. a Roth; as a broad proposition, it's close enough to a wash that I don't think this change would much affect IRA participation. I suspect the same would be true for 401(k)'s; it's the ability to let your money grow tax deferred for long periods that provides the real benefit, not the initial deductibility.
If contributions to all retirement accounts become taxable income, then what’s the incentive for anyone to save for retirement in a retirement account? “
Are you telling us that something saving for retirement is not worth doing without a Gummint subsidy??
I always object when people classify the tax deferral on 401(k) and IRA contributions as a "subsidy." Yeah, you can call it that if you look through one end of the telescope, but from the other end, not so. As a matter of principle, we should shift the tax burden from income to consumption in the interests of encouraging savings, investment, and personal financial security. The current structure of thrift savings plans incorporates a form of a consumed income tax, with income being taxed when it is taken/realized, not when it is earned. That is a perfectly rational tax policy, not a gimmick.
Not that rationality or consistency has anything to do with the U.S. tax code ... but there's still no reason to surrender the rhetorical high ground.
This is the one thing that I think could lead to pitchforks and hot tar and feathers for our Washington overlords. This would REALLY piss off the folks who have worked all their lives to secure their retirements (like me!).
I’m not trying to insult you, just educate you as well as others...
In the last chapter we learned the truth about income tax. In this chapter we will learn the truth about the real definition of income itself! Nowhere in the Internal Revenue Code (IRC) is income defined.
So the big question becomes, what IS income? And did you have any that was taxable?
The word “income” is not defined in the Internal Revenue Code, as the court stated in U.S. v. Ballard 535 F.2d 400 at 404, but the Supreme Court has defined it for us in numerous cases.
Stratton’s Independence v. Howbert 231 U.S. 399 (1913) “As has been repeatedly remarked, the corporation tax act of 1909 was not intended to be and is not, in any proper sense, an income tax law. This court has decided in the Pollock Case that the income tax of 1894 amounted in effect to a direct tax upon property, and was invalid because not apportioned according to population, as prescribed by the Constitution. The act of 1909 avoided this difficulty by imposing not an income tax, but an excise tax upon the conduct of business in a corporate capacity, measuring, however, the amount of tax by the income of the corporation, . . .”
“As to what should be deemed “income” within the meaning of Sec. 38, it of course need not be such an income as would have been taxable as such, for at that time (the 16th amendment not having been as yet ratified) income was not taxable as such by Congress without apportionment according to population, and this tax was not apportioned. Evidently Congress adopted the income as the measure of the tax to be imposed with the respect to the doing of business in corporate form because it desired that the excise should be imposed, approximately at least, with regard to the amount of benefit presumably derived by such corporations from the current operations of the government.”
The Supreme Court defines “income tax”, as an excise tax “imposed with respect to the doing of business in corporate form”. If you are not engaged in any corporate activities then you are not liable for an “excise income tax.” This Supreme Court decision also states that Congress cannot tax an individual’s income directly. All direct taxes must be imposed on the states with apportionment.
U.S. Constitution Art. 1 Sect 2. Cl. 3 and Sect 9 Cl. 4.
The above case applies to corporations, so if you are not a corporation, then the Corporation Excise tax does not apply to you. The important thing here is the clarification that the income tax is an excise tax, imposed upon the doing of business in corporate form. An the tax is determined by how much income is received. But WHAT is income? The Supreme Court again tells us:
Eisner vs. Macomber 252 U.S. 189 pg 205 (1920) The Sixteenth Amendment must be construed in connection with the taxing clauses of the original Constitution and the effect attributed to them before the Amendment was adopted. In Pollock v. Farmers’ Loan and Trust it was held that taxes upon rents and profits of real estate and upon returns from investments of personal property were in effect direct taxes upon the property from which the income arose, imposed by reason of ownership; and that Congress could not impose such taxes without apportioning them among the states according to population, as required by Art 1 Sect. 2 Cl. 3 and Sect. 9 Cl. 4 of the original Constitution.
Afterwards, and evidently in recognition of the limitations upon the taxing power of Congress thus determined, the Sixteenth Amendment was adopted: . . . As repeatedly held, this did not extend the taxing power to new subjects, but merely removed the necessity which might otherwise exist for an apportionment among the states of taxes laid on income. . . . it becomes essential to distinguish between what is and what is not “income’, as the term is there used;
After examining dictionaries in common use we find little to add to the succinct definition adopted in two cases arising under the Corporation (Excise) Tax Act of 1909 (Stratton’s Independence v. Howbert 231 US 399, 415; Doyle v. Mitchell Bros. Co. 247 US 179, 185)
“Income may be defined as the gain derived from capital, from labor, or from both combined”, provided it be understood to include profit gained through a sale or conversion of capital assets, to which it was applied in the Doyle case pp. 183, 185.
“Derived — from — capital”; — “the gain — derived — from — capital,” etc. Here we have the essential matter: not a gain accruing to capital, not a growth or increment of value in the investment; but a gain, a profit, something of exchangeable value proceeding from the property, severed from the capital however invested or employed, and coming in, being “derived,” that is, received or drawn by the recipient (the Taxpayer) for his separate use, benefit and disposal; — that is income derived from property. Nothing else answers the description.
That Congress has power to tax stockholders upon their property interests in the stock of corporations is beyond question; and that such interests might be valued in view of the condition of the company, including its accumulated and undivided profits, is equally clear. But this would be taxation of property because of ownership, and hence would require apportionment under the provisions of the Constitution, is settled beyond peradventure by previous decisions of this court.
Clearly, the definition of corporate income means a gain or profit received from an excise taxed activity. But does this same definition apply to individual income tax? To the Supreme Court again:
Merchants’ Loan & Trust Co. v. Smietanka 255 U.S. 509 (1921) “It is obvious that these decisions in principle rule the case at bar if the word “income” has the same meaning in the Income Tax Act of 1913 that it had in the Corporation Excise Tax Act of 1909, and that it has the same scope of meaning was in effect decided in Southern Pacific Co. v. Lowe 247 U.S. 330, 335, where it was assumed for the purposes of decision that there was no difference in its meaning as used in the act of 1909 and in the Income Tax Act of 1913. There can be no doubt that the word must be given the same meaning and content in the Income Tax Acts of 1916 and 1917 that it had in the act of 1913. When to this we add that in Eisner v. Macomber, supra, a case arising under the same Income Tax Act of 1916 which is here involved, the definition of “income” which was applied was adopted from Strattons’ Independence v. Howbert, arising under the Corporation Excise Tax Act of 1909, with the addition that it should include “profit gained through sale or conversion of capital assets,” there would seem to be no room to doubt that the word must be given the same meaning in all the Income Tax Acts of Congress that was given to it in the Corporation Excise Tax Act, and that what that meaning is has now become definitely settled by decisions of this Court.”
The word “income” has the same meaning in ALL the income tax acts of Congress. That meaning has been declared to be corporate profits and gains and has been definitely settled by the Supreme Court. So, did you have income that is taxable? Did you have a gain or profit from a corporate activity? Remember that the income tax is an excise tax on the doing of business in a corporate capacity. That is the ONLY way that you can receive taxable income, as legally defined by the Supreme Court.
If you relied on these never overturned Supreme Court rulings in your beliefs, does your reliance on these plain rulings constitute a frivolous position? The IRS says it does!
So, if you had NO corporate income tax liability for this year, you had zero “income” as legally defined by the U.S. Supreme Court. A corporation is NOT taxed on ALL its income, from whatever source. It is only taxed on it’s profit. If that is the case then why are YOU taxed on ALL your income from whatever source? You are also allowed to deduct SOME expenses. Does that mean that if you work for a corporation and you exchange 40 hours of your labor for $600, that you had $600 of profit, minus deductions? If a corporation exchanges $600 for 40 hours of your labor, did they also have a profit? NO! They can claim ALL your labor as a deductible operating expense. So why is it that why you exchange one property (your labor) for another property ($600) that in that exchange, you had a profit and the corporation had a deduction? Why is it a profit for you but not for the corporation? The answer is that it is not a profit for EITHER of you! And therefore it is not taxable income, as defined by the Supreme Court.
The Supreme Court has ruled:
Eisner vs. Macomber 252 U.S. 189 pg 205 (1920): “ The Sixteenth Amendment must be construed in connection with the taxing clauses of the original Constitution and the effect attributed to them before the Amendment was adopted. . . .taxes upon rents and profits of real estate and upon returns from investments of personal property (labor) were in effect direct taxes upon the property from which the income arose, . . . that Congress could not impose such taxes without apportioning them among the states”
The Supreme Court has plainly stated that an individual’s income cannot be taxed directly: But an individual’s income CAN be taxed with an excise tax, IF it was received in a corporate activity. More on this later.
Stratton’s Independence v. Howbert 231 U.S. 399 (1913) “As has been repeatedly remarked, the corporation tax act of 1909 was not intended to be and is not, in any proper sense, an income tax law.
Corporate “income” (profits and gains) CAN be taxed with an excise tax, but the income itself is not taxed because it is property. Therefore income tax is not on income, it is on profits. It is not an income tax law, it is a profits tax law. Are you engaged in, or did you receive income in connection with, any corporate activities? Receipts received from labor or private investments are not corporate “income” and therefore do not fall within the legal definition of “income” as defined by the Supreme Court.
“Income” is legally defined as a corporate gain of profit in the Internal Revenue Code. Nowhere is there any different definition.
The definition of income used in the Corporate Excise Tax Act of 1909 is the same definition used in ALL the income tax statutes.
“Gross income” would then be the total income of a corporation, from all sources.
“Taxable income” would therefore be corporate gross income, minus allowable deductions. Also known as profit. If a corporation had no profit, then it had no taxable income. If you are an officer of a corporation, then you had individual income that is taxable.
Anytime the Internal Revenue Code mentions the word “income” it is talking about corporate income.
Well, I can say that if this passes, the next day I would contact HR and stop my funding of IRA at work.
To answer your other questions, you are ASSUMING that they will not raise the penalty to something like 50% or more, or tell you that your money will be sent to you as social security when you retire at their preferred time and place.
“Anyone see any holes in this plan?”
Higher tax brackets resulting from 401K contributions that would now be included in total taxable income, essentially a back door income tax increase.
This term individual is used in sections 26 U.S.C. §1 and 26 U.S.C. §6012(a). It is never defined anywhere in the I.R.C. The reason it is not defined is that it would give away the IRS’ ruse. Therefore, we have to look in the legal dictionary for the definition:
Individual. As a noun, this term denotes a single person as distinguished from a group or class, and also, very commonly, a private or natural person as distinguished from a partnership, corporation, or association; but it is said that this restrictive signification is not necessarily inherent in the word, and that it may, in proper cases, include [be limited to] artificial persons.
[Blacks Law Dictionary, Sixth Edition, on page 773]
Note that this definition above does not necessarily imply a natural (biological) person. Therefore, the Internal Revenue Code cannot be said to necessarily apply to natural persons. Here is the proper definition of “individual” in the context of the IRS form 1040 and within the meaning of the code, as we understand it:
An artificial federally-chartered entity, meaning a federal (but not state) chartered corporation or partnership or trust. Such an entity is a citizen of the United States because it must have a physical presence in the District of Columbia to be subject to the exclusive legislative or territorial jurisdiction of the United States under Article 1, Section 8, Clause 17 of the U.S. Constitution.
This individual is NOT a natural person with income from outside the district (federal) United States who is living and working for a private employer in the 50 united States of America because of the restrictions on direct taxes imposed by Article 1, Section 9, Clause 4, and Article 1, Section 2, Clause 3 of the U.S. Constitution..>
We will now examine the definition of individual found in 26 CFR §1.1441-1(c )(3):
Perhaps...if they become aware of what is actually happening. But remember, this is the same voting public that thought Obama was giving them free healthcare because they deserved it. They are likely to fall for whatever BS the government/media complex comes up with to justify the confiscation ("A guaranteed 8% return on your investment - and those greedy fat cats on Wall Street won't be able to touch your principal!")
No. I asked if it was worthwhile to save for retirement "in a retirement account" (i.e., an IRA or 401k account) without the tax advantage.
I'll save for retirement in any case. It's just that without the tax treatment of an IRA or 401(k) plan, I'll be saving through investment vehicles outside a traditional retirement account. In fact, I've already scaled back my 401(k) contributions dramatically in recent years because I can do a hell of a lot more with my money in the long run outside a retirement account.
One big advantage of a traditional IRA is that it's a "bird in the hand" (i.e., the tax deduction is current, and tangible), while a Roth IRA is "two (at best) in the bush" (i.e., the future tax exemption is always subject to change by Congress before you retire).
This is when the shots start flying. Hell no do they raid my retirements funds. F**k ‘em.
This Administration is banking on making you look like an evil person that has taken advantage of the system to save money you don’t deserve. Never mind we were all encouraged to do this, because pensions were becoming a thing of the past. You will now be the problem because you saved and had tax advantages by doing so. I feel sorry for the young folks that are starting out in life. This will be the price young folks paid for electing a POTUS based on political correctness or “ coolness”. Sad!