Coming Soon: Substituting Government Annuities for Your 401(k)?
Back around the last Election Day, far-left Congressmen George Miller and Jim McDermott floated the idea of ending the 401(k) tax break in favor of "redirecting those tax breaks to a new system of guaranteed retirement accounts to which all workers would be obliged to contribute."
The left has always hated private retirement accounts. First of all, they're, you know, private, meaning the government doesn't control them, and we can't have that. Worse still, people with individual accounts aren't beholden to a union for their retirement -- although what good that does anybody who worked for a company that's gone broke, for instance Pan Am, is a question never really answered by old-fashioned pension advocates.
From the perspective of politicians, a private account also means you can't scare people by saying, "If you don't vote for me, those evil Republicans will take away your monthly check." The power to hold that (empty) threat over the heads of seniors is among the most beloved in the Democratic Party's bag of electoral tricks, and the prospect of a populace with its own retirement money clearly drove many Democratic politicians nuts.
But above and beyond those issues, the governmental class really hates IRAs and 401(k) accounts because in their eyes such accounts take all that glorious tax money away from the U.S. Treasury. Billions upon billions, deferred for decades -- or given up completely in the case of Roth accounts -- money that they could be spending to buy votes. It's unconscionable! Who do all those little people think they are?
Last year's stock panic must have looked like a golden opportunity to say, "See, we told you rubes what would happen if you tried to take care of yourselves!" That argument fizzled and the plot quieted down as the markets made back most of 2008's losses, but after a year of madcap spending from the Obama administration and the Democratic congress, it appears to be back.
According to Theo Francis at BusinessWeek, "The Obama administration is weighing how the government can encourage workers to turn their savings into guaranteed income streams following a collapse in retiree accounts when the stock market plunged."
It turns out that Obama appointees Phyllis Borzi (assistant secretary of labor) and Mark Iwry (deputy assistant treasury secretary) are floating the idea of "the conversion of 401(k) savings and Individual Retirement Accounts into annuities or other steady payment streams."
This raises more than a few questions. Why annuities, for instance? As noted later in the article, "Seven in 10 U.S. households would object to a requirement that retirees convert part of their savings into annuities," and the "why" of that opinion isn't that hard to figure out: they're a bad deal for everybody except the guys selling them. Consumer gurus like Clark Howard have been warning people away from high-commission "guaranteed" annuities for years. I bet everyone reading this knows of somebody who's been ripped off by an annuity salesman.
But now ... now the government would be the annuity salesman -- except that if the administration gets its wish, there won't be any "selling," you'll just be forced to take the money you've earned and "convert" it to a construct that they'll allow you to "invest" in. No more of this willy-nilly mutual fund nonsense for you plebeians; we'll tell you how you're going to pay for things, so hand over the cash -- it's your patriotic duty!
It would be plenty bad enough if the "guaranteed" government annuities were limited to bailed-out insurers like AIG. But Karl Denninger of The Market Ticker took a deeper look and found an even scarier outcome. Denninger believes this is really a scheme to prop up the market for Treasury bonds by forcing citizens to "invest" in them.
As Denninger points out, "Forcing people into Treasuries as an 'annuity' is exactly what Social Security allegedly is. Except that Treasury stole the money that was collected in FICA taxes and spent it!"
And he's right. The fictitious "Social Security trust fund" is just a pile of Treasury notes. If we're all forced to buy trillions more of them -- because the government has over-borrowed so dramatically that nobody else will -- all we're going to get in return are more IOUs with nothing backing them up but the promises of politicians.
Those politicians will be retired themselves -- on rich taxpayer-funded pensions that you and I aren't eligible for -- long before the IOUs come due. But they'll have taken your money to pay for their games, and if you think you'll be getting it back, I have some oceanfront property in Atlanta that you might be interested in.