In the Washington Post, Allan Sloan notes that while President Obama wants to cap American citizens’ IRAs at $3 million or substantially less — discouraging saving and investment in the process — Obama’s own-taxpayer-subsidized retirement benefits are worth more than twice as much, a massive $6.6 million. A sweet pension for me, but not for thee, seems to be Obama’s thinking.
Discussing the president’s “proposal to limit the value of 401(k)s, pensions and other tax-favored retirement accounts to about $3.4 million” (or much less, as interest rates rise), Sloan notes that Obama wants “to limit savers’ tax-favored accounts to only about half the value of what he stands to get from his post-presidential package. Based on numbers from Vanguard Annuity Access, I value his package at more than $6.6 million. . . .And that doesn’t include [his] IRA . . . Or the $18,000 (plus cost of living) a year he will get at age 62 for his service in the Illinois Senate.”
Sloan also points out something else overlooked by many in the media: namely, that “the point at which Obama wants to eliminate the ability of you and your employer to deduct contributions to your retirement account isn’t actually the $3.4 million in his budget proposal—that’s just an estimate. The real number is how much a couple age 62 would have to pay for an annuity that yields $205,000 a year. That $3.4 million—which applies to the combined values of your pension and retirement accounts—is subject to a sharp downward change in the future because annuity issuers charge significantly less for an annuity when interest rates are higher than they do today, with rates at rock-bottom levels.”
The Obama administration has discouraged saving in many ways, such as raising taxes on capital gains and dividends, imposing a new Obamacare tax on investment income, and by giving costly bailouts to irresponsible people who, despite ample incomes, saved so little money that they could not “afford” more than a tiny downpayment, and thus ended up with negative equity on their home later on due to declines in the value of their home, qualifying them for the bailouts that certain favored underwater mortgage borrowers have received.
Even before Obama was elected, America already had higher investment taxes on shareholders than most countries, including taxing people based on inflation (when asset values increase on paper—but not in reality—due to inflation), and treating some people as having investment income even when they actually lost money, as a result of one-sided tax rules like the “wash rule.” For all the left-wing whining about how people with savings and investments don’t pay enough taxes, it turns out that Mitt Romney would have paid less in taxes if he lived in Canada or many European countries, which would have taxed his investment income less than America does.
The Obama budget also proposes a “Buffett rule” tax increase on millionaires who earn long-term capital gains, as an economist explains here. The “income cliff” in the Buffett Rule would encourage some wealthy people to work less: under the simplest versions of the Buffett rule, going from $999,000 in income to $1 million could increase your taxes by tens of thousands of dollars, leaving you with less net income than if you worked less and earned slightly less money. Even under less-extreme versions, it would result in marginal tax rates of 90 percent for some people approaching $1 million in income. Economists also say that it would likely discourage capital investment and increase reliance on debt financing.