- RALEIGH - Democrats in the
U.S. House have been conducting hearings on proposals to confiscate workers'
personal retirement accounts - including 401(k)s and IRAs - and convert
them to accounts managed by the Social Security Administration.
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- Triggered by the financial crisis the past two months,
the hearings reportedly were meant to stem losses incurred by many workers
and retirees whose 401(k) and IRA balances have been shrinking rapidly.
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- The testimony of Teresa Ghilarducci, professor of economic
policy analysis at the New School for Social Research in New York, in hearings
Oct. 7 drew the most attention and criticism. Testifying for the House
Committee on Education and Labor, Ghilarducci proposed that the government
eliminate tax breaks for 401(k) and similar retirement accounts, such as
IRAs, and confiscate workers' retirement plan accounts and convert them
to universal Guaranteed Retirement Accounts (GRAs) managed by the Social
Security Administration.
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- Rep. George Miller, D-Calif., chairman of the House Committee
on Education and Labor, in prepared remarks for the hearing on "The
Impact of the Financial Crisis on Workers' Retirement Security," blamed
Wall Street for the financial crisis and said his committee will "strengthen
and protect Americans' 401(k)s, pensions, and other retirement plans"
and the "Democratic Congress will continue to conduct this much-needed
oversight on behalf of the American people."
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- Currently, 401(k) plans allow Americans to invest pretax
money and their employers match up to a defined percentage, which not only
increases workers' retirement savings but also reduces their annual income
tax. The balances are fully inheritable, subject to income tax, meaning
workers pass on their wealth to their heirs, unlike Social Security. Even
when they leave an employer and go to one that doesn't offer a 401(k) or
pension, workers can transfer their balances to a qualified IRA.
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- Mandating Equality
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- Ghilarducci's plan first appeared in a paper for the
Economic Policy Institute: Agenda for Shared Prosperity on Nov. 20, 2007,
in which she said GRAs will rescue the flawed American retirement income
system (http://www.sharedprosperity.org/bp204/bp204.pdf").
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- The current retirement system, Ghilarducci said, "exacerbates
income and wealth inequalities" because tax breaks for voluntary retirement
accounts are "skewed to the wealthy because it is easier for them
to save, and because they receive bigger tax breaks when they do."
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- Lauding GRAs as a way to effectively increase retirement
savings, Ghilarducci wrote that savings incentives are unequal for rich
and poor families because tax deferrals "provide a much larger 'carrot'
to wealthy families than to middle-class families - and none whatsoever
for families too poor to owe taxes."
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- GRAs would guarantee a fixed 3 percent annual rate of
return, although later in her article Ghilarducci explained that participants
would not "earn a 3% real return in perpetuity." In place of
tax breaks workers now receive for contributions and thus a lower tax rate,
workers would receive $600 annually from the government, inflation-adjusted.
For low-income workers whose annual contributions are less than $600, the
government would deposit whatever amount it would take to equal the minimum
$600 for all participants.
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- In a radio interview with Kirby Wilbur in Seattle on
Oct. 27, 2008, Ghilarducci explained that her proposal doesn't eliminate
the tax breaks, rather, "I'm just rearranging the tax breaks that
are available now for 401(k)s and spreading - spreading the wealth."
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- http://www.carolinajournal.com/cjcolumnists/display_author.html?id=264
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