Targeting The Savers

The Obama Administration’s budget is due this week.  According to reports, one of the President’s proposals will be to limit how much Americans can keep in IRAs and tax-preferred retirement accounts.

The proposal is being sold as a way to generate revenue — $9 billion over a decade — but also to achieve greater “fairness” in the tax code.  One of those faceless, nameless “senior administration officials” who are always quoted in these articles says that those pesky wealthy Americans can “accumulate many millions of dollars in these accounts, substantially more than is needed to fund reasonable levels of retirement saving.”  Under the proposal, a taxpayer’s tax-preferred retirement account could not finance more than $205,000 per year of retirement, or about $3 million this year.

Interesting, isn’t it?  The government allows tax-preferred accounts to encourage taxpayers to save for retirement, and the programs actually work.  For decades millions of Americans have been patiently putting money away and investing it, hoping to have a pleasant retirement after years of hard work.  Now an unelected bureaucrat has presumed to decide what constitutes “reasonable levels of retirement saving.”  And while $3 million is more than most of us have in our accounts, let’s not kid ourselves:  once the government concludes it can decide what a “reasonable” retirement looks like, no one’s savings are safe.  With the government’s insatiable appetite for revenue, what’s to keep them from deciding that, say, $50,000 per year of retirement is all you really need?

I’m all for getting our federal budget in balance, and although $9 billion isn’t a lot, I think every little bit helps.  But this proposal seems terribly ill-advised.  It targets people who have sacrificed and saved and are trying to plan for the future — in effect punishing qualities that we should be encouraging.  It’s as if, in the tale of the ant and the grasshopper, the government decided it wasn’t fair for the hard-working ant to keep the fruits of his labor and required him to share equally with that indolent, fun-loving grasshopper.  The problem is that, after a while, the ants are going to get the message and take up the fiddle, too.