Monthly Archives: December 2012

More on the Obama Fiscal Cliff

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From Fox News come these tidbits of information.

Signs that a deal was unraveling surfaced by mid-afternoon [Sunday] when Reid said his party could not make a counteroffer to Republicans.

Could not?  Or would not?

Senator Patty Murray (D,WA) said this:

It’s real disturbing we were thrown in a change to Social Security at the last minute.

Aside from the triviality of this, she’s lying about it.   The “change” is a change in the way Social Security payouts are calculated—that chained CPI bit—and it’s been on the table since last summer.

According to Senator Jeff Sessions (R, AL), Senate Budget Committee Ranking Republican,

The biggest obstacle we face is that President Obama and Majority Leader Reid continue to insist on new taxes that will be used to fund more new spending, not for meaningful deficit reduction[.]

Progressive good faith negotiating, indeed.

President Obama’s Fiscal Cliff and 401(k)s

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Are our 401(k)s at risk from the Obama Fiscal Cliff?  To the extent that they are (and I don’t know that they are), consider some ramifications.  Here’s one way such a risk might unroll:

The Bipartisan Policy Center’s Debt Reduction Task Force has one way to help fix the deficit: reduce 401(k) contributions by 64% using a 20/20 Cap.  Under the 20/20 Cap, contributions would be limited to the lesser of 20% of pay or $20,000 a year.  All those pretax dollars designated for retirement will now be taxable income and Treasury will fill with additional tax revenues.

I’ll leave aside BPC‘s cynical assumption that our money actually belongs to the government, that they’re somehow entitled to it (now there’s an entitlement program…).  Here are a couple of those ramifications.

A single employee who earns $60,000 per year can contribute $17,500 to a 401(k) in 2013.

After taking the personal exemption and the standard deduction, the single employee would be in the 15% federal tax bracket. Under the 20/20 Cap, assuming the 401(k) has a 4% match, the same single employee earning $60,000 per year would be limited to a $9,600 401(k) contribution and will now be in the 25% federal tax bracket paying $1,700 more in taxes.

It’s true that those $17.5k represent 29% of his income, but with disciplined budgeting (he’s single, recall) it’s not so far-fetched.  He will be stretched, but getting hit with an additional $1,700 in taxes will hurt—possibly to the point of blowing up his retirement plans.

With a 64% reduction in contributions, many small businesses may terminate their plans–forcing employees to save money on their own.  After all, why pay plan fees and other administrative costs if the amount of income that can be deferred is reduced to basically the amount of an IRA contribution?

Indeed.  I was chairman of my employer’s 401(k) Plan Board of Trustees a number of years ago.  For our 25-employee company, the typical fee for that sized plan ran to $20,000.  Which is why we had a Board of Trustees and ran our own Plan.  Have the fees changed all that much since?

There’s one more, though, with serious long-range implications.  Reduced contributions to our (private) 401(k) plans while we’re working means a smaller nest egg when we retire.  Which means greater dependence on a Social Security System that will be bankrupt by that day.  Which means both we’re being a greater burden on our fellows in our retirement and we’re living much more poorly than we would have had we been able to accumulate a larger nest egg.

Here’s an example, of just 10 years’ duration.  My wife, being older than 50, is able to contribute, presently, $23,000 per year beginning in 2013.  With the 20/20 cap, that would drop to $20,000 per year.  Note that I’m assuming no changes over the 10 years—including in tax treatment and limit increases.  I’m also assuming a 4% real (after inflation) return on 401(k) investments.

After 10 years, that higher contribution rate will have produced a nest egg of a bit over $276,000, while the limited contribution rate will have grown only to a skosh (that’s the technical term) over $240,000.  That’s a 13% reduction in the value of our nest eggs from such a cap.  Blow that up over 20 years—yes, this contribution rate is possible; you’re in your mid-40s and entering your peak earning years at 20 years prior to retirement.  That nearly 13% annual shortfall only expands the deficiency of the capped 401(k)’s outcome—now it’s nearly $89,500, some 150% greater, short by more than four years’ worth of capped contributions.

Some Outcomes of the Obama Fiscal Cliff

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Sudeep Reddy described, in a recent Wall Street Journal op-ed, a few that will occur in the coming year.

  • Jan 1: New provisions take effect including higher payroll taxes, income taxes and investment taxes.

In truth, the payroll tax “holiday” was an act of monumental stupidity by both parties—but then I repeat myself.  With Social Security already nearing bankruptcy (the timing works out to just a Presidential election cycle or two from today), reduce the funding for it by nearly a sixth.  Yeah.

The payroll tax cut also points up the dishonesty of the Progressives in Congress and in the White House.  President Barack Obama, for instance, is on record as saying that such a cut in Americans’ taxes is good for all Americans.  Indeed, he’s gone so far as to propose boosting it to 3% and including businesses by proposing a 3% cut in their side of the payroll taxes.  Yet he, and his fellow Progressives, refuse to consider making those 3% an income tax cut and making the reduction permanent.

  • Jan 2: $110 billion in spending cuts scheduled to begin, hitting domestic and military spending.

This is as inevitable as Obama can make it.  Enormous defense cuts have been a Progressive dream for 50 years.

  • Late February, early March: the US is expected to reach its congressionally mandated borrowing limit.
  • March 27: A deal to fund the federal government expires.
  • Mid-2013: If Congress crafts a two-step deal to avert the fiscal cliff, this could be the deadline for tackling part two, including any unresolved tax and entitlement issues.

The tax and entitlement “issues” are already settled.  Senator Chuck Schumer (D, NY), et al., has already said that there are no entitlement issues; entitlements are not to be cut; they’re not even to be discussed.  Period.  Moreover, Obama has already said he’ll veto any bill that doesn’t include tax rate increases (his latest “flexibility” on that item is just eye-wash for the chattering classes.  That’s clear from his “stopgap” proposal: let taxes rise for those above his originally demand demanded threshold—$200k/$250k.)  The tax question already has been resolved in another way, too: Obama gets his tax rate increases in the absence of a deal.

Progressive Cooperation and the Fiscal Cliff

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In last weekend’s interview with NBC‘s “Meet the Press,” President Barack Obama said this with a straight face, according to The Wall Street Journal:

Singling out the two GOP legislative leaders, House Speaker John Boehner of Ohio and Mr [Mitch] McConnell of Kentucky, the president added that “Congress has not been able to get this stuff done.” The reason, he said, is “not because Democrats in Congress don’t want to go ahead and cooperate, but because I think it’s been very hard for Speaker Boehner and Republican leader McConnell to accept the fact that taxes on the wealthiest Americans should go up a little bit, as part of an overall deficit reduction package.”

Really?  Based on what theory must “taxes on the wealthiest Americans…go up a little bit?”  The revenues collected won’t amount to walking around money compared to your budget deficits.

Democrats want to cooperate?  What was the Senate vote on the fiscal cliff spending solution (albeit for only six months) which the House passed last September?

What were the vote outcomes on the Federal budgets the House passed each of the last two years?

What were the Senate votes on any of the 40, or so, jobs-related bills passed by the House and sent up to the Senate in this Congressional session?

What were the deficits contained in your own budget proposals which you sent to Congress in each of the last three years?  Oh, wait—most of the Democrats (yourself, only, excluded) did cooperate on these: you couldn’t even get a single vote, Democrat or Republican, on any of those “budgets.”

Where are your Democrats on entitlement reform or on spending cuts—real ones, now, not reductions in growth rates that you masquerade as cuts, to occur some time in a nebulous future?

What was it you threatened to do in your 2013 inaugural and State of the Union speeches if you don’t get your way on taxes?  Oh, yeah.  You said

[you] would use [your] inaugural address and [your] State of the Union speech to tell the country the Republicans were at fault.

You berate Republicans for acting against 98% of Americans by holding out for no tax increase on the remaining 2%.  Yet you’re ready—anxious—to blow up our economy and gravely harm honest, hard-working Americans because, having already gotten 98% of what you claim you want, You’re greedy and want more.  Where’s your cooperation?

Where is any Democrat’s cooperation, Mr Obama?  You’ve offered no evidence to support your assertion.

NLMSM Strikes Again

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Just two days before Christmas last week, The Journal News kindly advised all readers of the locations of gun owners, and of the locations of their unarmed neighbors, in the two New York counties of Westchester and Rockland.  The JN‘s Putnam County outing is pending.

They write, with an absolutely straight face, in justification of this invasion of privacy:

Anyone can find out the names and addresses of handgun owners in any county with a simple Freedom of Information Law request….

So they thought they’d do the home robbers, second-story men, and leftist anti-gun kooks a civic favor by outing these private citizens themselves, and save those others the trouble.

The good citizens of New York know better, and they object to this arrogant abuse of journalistic”…practice.

One objected:

Do you fools realize that you also made a map for criminals to use to find homes to rob that have no guns in them to protect themselves?

Another

You have just destroyed the privacy of these law abiding citizens and by releasing this list, you have equated them to that of sex offenders and murders.

And another:

These are law abiding gun owners, they are no danger to anyone except for criminals.  And with this information you have made them targets for both criminals and anti gun lobbyist who i am sure are going to treat them like monsters.

And another:

Tom King, president of the New York Rifle & Pistol Association, said the release of additional pistol-permit information [beyond the currently releasable name and address] would endanger gun owners, some of whom have valuable collections of weapons.

You’re giving a shopping list to criminals.  Does it matter if you own 47 guns or you own one gun?  Everybody likes to think that someone who has all of these guns is evil, that there’s some nefarious reason they have all these guns.  There are collectors.

And another:

Paul Piperato, the Rockland county clerk, said he’s always uneasy providing it.

You have judges, policemen, retired policemen, FBI agents—they have permits.  Once you allow the public to see where they live, that puts them in harm’s way.

Only a fool thinks judges and law enforcement personnel don’t have a plethora of enemies.

And there’s the hysteria and illogic of the anti-gun folks.  Jackie Hilly, New Yorkers Against Gun Violence Executive Director, insists

You don’t have more success with more guns.  You certainly don’t want our schools turned into armed camps.

Never mind that armed guards, or teachers or school staff trained and armed, don’t make the schools “armed camps.”  This is just an hysterical exaggeration.

Never mind that, presently, we give more protection to our banks and the money therein than we do our children.

Never mind that when the bad man comes and seconds count, the police will be only minutes away.  Absent an armed presence at the scene of the murders, the killing just goes on until the police can, finally, get there.

Never mind, even, that guns are not involved at all in one-third of mass killings.

The Journal News, though, in all of its wide-eyed innocence, is careful to point out that their reporter

Dwight R. Worley owns a Smith & Wesson 686 .357 Magnum and has had a residence permit in New York City for that weapon since February 2011.

But his dot isn’t on the map of gun owners and of unarmed homes that the NJ so kindly published.  Oh, wait—Worley isn’t in the counties he outed; he’s in NYC.  How convenient.

Merry Christmas