The Fiscal Cliff

[PaloAltoCougar]

Until you start actually confiscating assets from people, the rich will always find a way to accumulate wealth. Like I have said before, divide all of the assets Americans own right now and hand it out equally. Within 30 years there will be the those that have and those that have not all over again.

Generally, I agree with this, although in your first sentence I'd replace "rich" with "talented and motivated". A portion of the wealthy elite got there because of inheritance or luck (Powerball!), not because of their own skills. I know a few stupid, lazy but very wealthy people who got there because of dad or grandpa. (I'm certainly not advocating taking it away from them, though.) Similarly, there are members of the lower classes who were born into very disadvantaged circumstances. Given an opportunity, they'll rise quickly.

And while taking away writeoffs for contributions to huge personal retirement plans would fall far short of solving our fiscal mess, it'd be a start and would help counter the argument, often specious, that tax policy benefits the wealthy. While we're at it, I still wish they'd do away with the tax break given to carried interests. I heard again this week from a fund manager who says he and many of his colleagues (who benefit from this ridiculous benefit) can't believe Congress won't touch this.

What do they mean when they say they will tax IRAs in excess of $3 million? IRAs will be taxed when the money is withdrawn so are they just saying they will accelerate the taxation? Do they mean they'll tax even the earnings on Roth IRAs? Seems very vague but maybe there are specifics out there.

From what I can tell, they don't know what they mean. I suspect it's someone throwing out the idea generally, with details to be dreamed up later. You know, the kind of careful consideration and analysis we've come to expect from Congress in such matters. As I mentioned above, we should consider eliminating the tax deduction for future contributions (indeed, prohibit future contributions) once one's retirement bundle exceeds a few million bucks, but not tax the plans themselves until distributions are made, and then at the same rate for everyone.

[byu71]

A portion of the wealthy elite got there because of inheritance or luck (Powerball!), not because of their own skills. I know a few stupid, lazy but very wealthy people who got there because of dad or grandpa. (I'm certainly not advocating taking it away from them, though.) Similarly, there are members of the lower classes who were born into very disadvantaged circumstances. Given an opportunity, they'll rise quickly.

And while taking away writeoffs for contributions to huge personal retirement plans would fall far short of solving our fiscal mess, it'd be a start and would help counter the argument, often specious, that tax policy benefits the wealthy. While we're at it, I still wish they'd do away with the tax break given to carried interests. I heard again this week from a fund manager who says he and many of his colleagues (who benefit from this ridiculous benefit) can't believe Congress won't touch this.



From what I can tell, they don't know what they mean. I suspect it's someone throwing out the idea generally, with details to be dreamed up later. You know, the kind of careful consideration and analysis we've come to expect from Congress in such matters. As I mentioned above, we should consider eliminating the tax deduction for future contributions (indeed, prohibit future contributions) once one's retirement bundle exceeds a few million bucks, but not tax the plans themselves until distributions are made, and then at the same rate for everyone.

Definitely I was making a generality. Some of the wealthy would not make it back and some of the poor would. I am going to make another general statement, most of those "some" of the poor will make it to upper class and higher anyway. I hear their stories all the time and it is my opinion Obama and those who think like him will in the long run make it even harder for those in such situations to rise out of it.

Remember that what you call "write offs" for contribution are not really write offs. That taxes will eventually be paid. Qualified plans are not tax free, but are tax deferred. What I may see may be very unique. I am thinking of my clients who are worth over $3 million. I would say that none of them have more than 20% of their net worth in qualified plans. That is why I think this alone is not a big deal. However, I think it sends a serious message about how the Obamaites feel about other peoples money.

Heck even a pauper such as myself has only 20% or less in qualified plans and I am moving the money out as soon as reasonably possible. Why, Obama and the army he and the democrats are appealing too may eventually want to do a surtax on my IRA or at least sur tax it when I pass it onto my kids.

Lastly, I am totally with you on carried interest. What a farce and why isn't Obama and the dems proposing and fighting for this one. I am pretty sure they are in the pockets of these folks every bit as much as the Republicans are.

[Paperback Writer]

Definitely I was making a generality. Some of the wealthy would not make it back and some of the poor would. I am going to make another general statement, most of those "some" of the poor will make it to upper class and higher anyway. I hear their stories all the time and it is my opinion Obama and those who think like him will in the long run make it even harder for those in such situations to rise out of it.

Remember that what you call "write offs" for contribution are not really write offs. That taxes will eventually be paid. Qualified plans are not tax free, but are tax deferred. What I may see may be very unique. I am thinking of my clients who are worth over $3 million. I would say that none of them have more than 20% of their net worth in qualified plans. That is why I think this alone is not a big deal. However, I think it sends a serious message about how the Obamaites feel about other peoples money.

Heck even a pauper such as myself has only 20% or less in qualified plans and I am moving the money out as soon as reasonably possible. Why, Obama and the army he and the democrats are appealing too may eventually want to do a surtax on my IRA or at least sur tax it when I pass it onto my kids.

Lastly, I am totally with you on carried interest. What a farce and why isn't Obama and the dems proposing and fighting for this one. I am pretty sure they are in the pockets of these folks every bit as much as the Republicans are.

There are those (like me) who have around 80% of their net worth in qualified plans and this is a potentially huge issue. For dual income earners who take a disciplined, determined approach to retirement savings and max out their annual 401K contributions over a 30-year career and make reasonable good investment decisions, reaching 2-3 MM is very probable. The concern is two-fold: 1) If my nest egg is at 2.6 MM and my investment decisions (or yours if I'm your client) hits a great year a gains 20%; I'm now over the 3 MM thresehold. That's punishment for making good investment decisions? Instead of making decisions on the typical risk/reward basis; I now invest based on not wanting to exceed 3 MM - that's not very efficient. Worse, I'm forced to withdraw more than I would like so as not to exceed 3 MM in my IRA accounts. 2) Roth-IRAs and estate planning. I now have the option to convert all or portions of my traditional IRA to a Roth IRA if I'm in a favorable tax situation. Once funds are in a Roth IRA, they are never taxed, don't have minimum annual withdrawls, and continue to grow tax free. So I can make minimal withdraws from my Roth IRA if I have other savings or funds with which to live in retirement or I just decide to live off SS, etc. That balanace in my Roth-IRA continues to grow tax free and can be passed to my heirs tax free.

I wonder if Congress will do something about how IRAs are treated with respect to estate planning. Right now, traditional IRAs can be passed to heirs who then pay taxes on it over their lifetime as they are forced to withdraw from it. So the tax liability can be spread out over a couple of generations. Roth-IRAs are never taxed (unless they are large enough to hit estate/death taxes) and make an excellent estate planning vehicle. If Roth IRAs get capped at 3 MMM, there are other investment options that limit taxes.

[Joe Public]

Seems very vague but maybe there are specifics out there.

It is vague, and there is much speculation at the moment. More details should be released with the budget tomorrow.

[byu71]

I wonder if Congress will do something about how IRAs are treated with respect to estate planning. Right now, traditional IRAs can be passed to heirs who then pay taxes on it over their lifetime as they are forced to withdraw from it. So the tax liability can be spread out over a couple of generations. Roth-IRAs are never taxed (unless they are large enough to hit estate/death taxes) and make an excellent estate planning vehicle. If Roth IRAs get capped at 3 MMM, there are other investment options that limit taxes.

My prediction will all depend on how many folks get a pathway to citizenship building the democratic base. Also will depend on if democrats can convince more and more people of the fact that once a person reaches a certain level of wealth, "they don't deserve any more".

If the dems get enough power over a period of time, taxes will be determined on how much you have in addition to how much you earn. Good luck on any of you under 40 years of age not having some sort of tax put on your ROTH's if they are over a certain amount of money. It could be in the form of denying you your social security.

As for the kids spreading the IRA over their lifetime. The government is not going to let them live better than some poor person who parents didn't leave them an income. Their will be a way to even it out.

There will be rich and powerful, they have them in North Korea. However, those rich and powerful will have it because of where they sit in the political structure. Already Obama is handing out goodies to friends. I saw where some gal who is a friend of Barak and Michelle's got a big loan from the government to do some kind of business. A business she has been involved in before and has gone belly up in the business more than once.

No I am not a doomsdayer. I just can't believ the American people won't wake up and see where Obama, Harry, Nancy want to take us.

[Joe Public]

While we're at it, I still wish they'd do away with the tax break given to carried interests. I heard again this week from a fund manager who says he and many of his colleagues (who benefit from this ridiculous benefit) can't believe Congress won't touch this.

Lastly, I am totally with you on carried interest. What a farce and why isn't Obama and the dems proposing and fighting for this one. I am pretty sure they are in the pockets of these folks every bit as much as the Republicans are.

This might get me to bump the carried interest thread.

[Uncle Ted]

There are those (like me) who have around 80% of their net worth in qualified plans and this is a potentially huge issue. For dual income earners who take a disciplined, determined approach to retirement savings and max out their annual 401K contributions over a 30-year career and make reasonable good investment decisions, reaching 2-3 MM is very probable. The concern is two-fold: 1) If my nest egg is at 2.6 MM and my investment decisions (or yours if I'm your client) hits a great year a gains 20%; I'm now over the 3 MM thresehold. That's punishment for making good investment decisions? Instead of making decisions on the typical risk/reward basis; I now invest based on not wanting to exceed 3 MM - that's not very efficient. Worse, I'm forced to withdraw more than I would like so as not to exceed 3 MM in my IRA accounts. 2) Roth-IRAs and estate planning. I now have the option to convert all or portions of my traditional IRA to a Roth IRA if I'm in a favorable tax situation. Once funds are in a Roth IRA, they are never taxed, don't have minimum annual withdrawls, and continue to grow tax free. So I can make minimal withdraws from my Roth IRA if I have other savings or funds with which to live in retirement or I just decide to live off SS, etc. That balanace in my Roth-IRA continues to grow tax free and can be passed to my heirs tax free.

I wonder if Congress will do something about how IRAs are treated with respect to estate planning. Right now, traditional IRAs can be passed to heirs who then pay taxes on it over their lifetime as they are forced to withdraw from it. So the tax liability can be spread out over a couple of generations. Roth-IRAs are never taxed (unless they are large enough to hit estate/death taxes) and make an excellent estate planning vehicle. If Roth IRAs get capped at 3 MMM, there are other investment options that limit taxes.

Well, it could be worse... You could put your hard earned dollars in an offshore bank account (like in Cyprus) to grow tax free only to have it subject to a "deposit tax" to bailout the failing banks there. (In the end, the banks will most likely fail anyway when the large depositors pull out and close their accounts for good.)

[Bo Diddley]

Chained CPI

I'm not a fan, especially since most of my retirement will come from a military pension. So if chained cpi is used to calculate my payments, over time that benefit will be reduced. So if chained cpi is adopted, I will need to enter retirement with a higher benefit, or more money saved than I have previously planned, and save money each month in retirement for later when benefits are reduced.

Has anyone out there done an analysis of how money I will need to save to overcome chained cpi and diminishing returns of my retirement?

[byu71]

Chained CPI

I'm not a fan, especially since most of my retirement will come from a military pension. So if chained cpi is used to calculate my payments, over time that benefit will be reduced. So if chained cpi is adopted, I will need to enter retirement with a higher benefit, or more money saved than I have previously planned, and save money each month in retirement for later when benefits are reduced.

Has anyone out there done an analysis of how money I will need to save to overcome chained cpi and diminishing returns of my retirement?

Please don't take this as speaking of you individually. I have empathy for your situation, especially since you are military.

Regardless, if Social Security is to be saved, who isn't going to be affected. That is the problem with making promises that can't be kept.

Now maybe the military should be exempt from chained CPI and pay for their's by taking more from the rich bastards. However, for everyone else to save the system there has to be some serious sacrifices to what our expectations are. Our benefactors, the government, keeps overpromising.

[Bo Diddley]

Please don't take this as speaking of you individually. I have empathy for your situation, especially since you are military.

Regardless, if Social Security is to be saved, who isn't going to be affected. That is the problem with making promises that can't be kept.

Now maybe the military should be exempt from chained CPI and pay for their's by taking more from the rich bastards. However, for everyone else to save the system there has to be some serious sacrifices to what our expectations are. Our benefactors, the government, keeps overpromising.

I agree that Social Security needs changes. However, setting up a benefit that diminishes over time is probably not the wisest way to go about doing so. I'd go with some means testing as well as another age adjustment.

[Mormon Red Death]

I agree that Social Security needs changes. However, setting up a benefit that diminishes over time is probably not the wisest way to go about doing so. I'd go with some means testing as well as another age adjustment.

Your benefit wont diminish over time. Chained CPI just cuts down on the yearly increase of your payments. Saying that your benefit "diminishes" makes it sound like your benefit will go away when that obviously is not happening.

Here’s the bottom line: Using chained CPI instead of CPI-W means the rate at which those benefits tick up would be slower, because the former reflects substitutions consumers would make in response to rising prices of certain items.Therein lies the “chained” part of the name. The metric utilizes a basket of goods and services that are measured changes from month to month; much like a daisy chain. If the cost of a certain form of transportation goes up, for example, people might switch to another kind. This kind of “substitution” is part of what is factored into chained CPI.

[byu71]

Chained CPI[/URL] just cuts down on the yearly increase of your payments. Saying that your benefit "diminishes" makes it sound like your benefit will go away when that obviously is not happening.

It is just part of the new language. When the politicians talk about spending cuts, they are talking about reductions in the increase in spending, not a real cut in spending.

[Bo Diddley]

Your benefit wont diminish over time. Chained CPI just cuts down on the yearly increase of your payments. Saying that your benefit "diminishes" makes it sound like your benefit will go away when that obviously is not happening.

When your purchasing power goes down, your benefit is dimished. I'm trying to figure out how much more I will need to save in order to overcome the change if enacted. Sounds like purchasing power would fall behind about .28% per year, which compounds over time. I'll have to map it out on paper to really grasp it fully.

[Paperback Writer]

I agree that Social Security needs changes. However, setting up a benefit that diminishes over time is probably not the wisest way to go about doing so. I'd go with some means testing as well as another age adjustment.

SS is already means tested somewhat. If someone has 34K single or 44K joint (including SS) in retirement then 85% of SS earings are subject to income tax.

The problem I have with means testing SS is that it discourages saving for retirment which is already a huge problem. I wouln't have a problem if SS looked at lifetime earnings rather than lifetime savings for the means test. Maybe it would motivate more folks to save for retirement instead of punishing those who do.

[PaloAltoCougar]

SS is already means tested somewhat. If someone has 34K single or 44K joint (including SS) in retirement then 85% of SS earings are subject to income tax.

The problem I have with means testing SS is that it discourages saving for retirment which is already a huge problem. I wouln't have a problem if SS looked at lifetime earnings rather than lifetime savings for the means test. Maybe it would motivate more folks to save for retirement instead of punishing those who do.

I agree with looking at earnings, not savings, but I assume that would be impossible to implement at this point unless the IRS maintains all of its records going back 40+ years. Still, it's patently unfair that the guy who earned $75K a year throughout his life, saved 10% a year and built up a nest egg would have his SS benefits reduced to help cover the SS payments going to the profligate jerk who earned $150,000 a year, lived the high life, but saved nothing.