Politics and economic decisions have consequences.
Not enough focus has been shed on the Joe Biden's tax proposals and the impact on our savings.
In the words of humorist, James Thurber (1894-1961), "You can fool too many of the people too much of the time." ("The Owl Who Was God," April 29, 1939 - The New Yorker).
Here's a look the disastrous consequences awaiting your at-risk savings on the Democrat’s tax-chopping-block.
—401K Tax Plan: Biden plans to transform the structure of our retirement plans by repealing the tax deferral advantage of 401(k) and individual retirement account (IRA) contributions.
Biden's proposal introduces a tax credit to "replace" the loss of tax advantaged benefits in making contributions. But this will tax everyone’s income twice by allowing only after-tax contributions in our retirement accounts, and then by taxing income at withdrawal.
The U.S. currently has over 100 million savers (large and small) in defined contribution plans. Biden’s notion to offset this double taxation with a tax credit would prevent present and future retirees from realizing the benefits of a lifetime of compounded returns on their pre-tax retirement account income, making Americans more dependent on the government.
Younger generations are going to live longer lives and when they need it most — will be robbed of the tax advantages older seniors enjoyed to build their retirement wealth over 40 years.
—Tax Cut and Jobs Act: The Trump tax cut of 2017 was the largest overhaul of the tax code in thirty years. The law created a single corporate tax rate of 21%.
Now, according to The Wall Sreet Jounral Biden plans to increase the rate to 28%.
This change will reduce company profits and raise costs of operating abroad.
Economic growth as a result of a 28% corporate tax rate will undoubtedly slow economic growth. Team Biden claims the additional tax revenues will be directed to government stimulus plans which will supposedly pump up the economy.
But, by making corporate American less competitive, job gains and wages decrease.
An economic and market downturn impacts everyone’s savings, retirement plans, and nest eggs.
—Increased Federal Income Tax Rates: Biden plans to roll back President Trump’s tax cuts for individuals making over $400,000 annually from a statutory rate of 37% to 39.8%.
Add on payroll and medicare taxes and double digit state taxes in places like California, New Jersey, and New York, one is looking at over 60% in combined taxes — the highest rates in three decades.
—Increased Capital Gains Tax: For higher wage earners over $1 million, this will rise from current 20% to 39.8% Watch out for major volatility in the market and business environment as millions look to realize gains in 2020. These market swings can unsettle investors, savers and seniors as they worry about safe harbor for their nest eggs.
—Payroll taxes of 12.4% re-applied to workers earning above $400,000. This will not only add new expenses to higher earners but real costs to employers who pay half the payroll tax.
Thus, the risk of job loss appreciably increases if the economy contracts.
—Financial Transaction Taxes: Biden supports the financial transaction tax which impacts all savers including middle-class Americans. It was initially proposed by Sen. Bernie Sanders, I-Vt., and Sen. Kamala Harris, D-Calif., to go "after Wall Street," but it applies a government fee to all investment accounts every time a transaction is made.
—Under Sanders’ version of the financial transaction tax, a typical retirement investor will end up with 8.5% less in their 401(k) or IRA after a lifetime of savings. In dollar terms, the average IRA investor would have $20,000 less at retirement as a result of this tax; that's according to a study by the Center for Capital Markets Competitiveness.
—Illinois "Fair Tax": Biden’s ally, Governor J.B. Pritzker in The Land of Lincoln is backing the "Fair Tax" spending $56 million of his own money. It's a new constitutional amendment on the November ballot replacing the flat income tax system (4.95%) with a graduated income tax. If lawmakers are given the authority to implement new, higher income taxes on a range of taxpayers, how long before they need more money and cast an eye at the juicy nest eggs of retirees?
Currently, Illinois has two million retirement age residents and exempts retirement income from state income taxes. Over the last decade, Illinois has been successful in retaining the senior demographic better than any other age group because of the retirement income advantage.
This will certainly change if a tax is imposed on retirement savings in the years ahead.
One need only look at the rampant senior flight after Connecticut enacted both Social Security and retirement income taxes.
—Arizona Prop 208, Invest in Ed: Biden’s teachers’ union supporters are pushing Proposition 208 which, if passed, would make Arizona the 10th-highest taxing state in the nation. The $1 billion price tag of Prop 208 will put Arizona on par with California and New York as one of the worst taxed states in the country.
Arizona's top tax rate of 4.5% would nearly double.
The cost of Invest in Ed will hit entrepreneurs, small businesses, and senior’s retirement income. Only 13 cents of every dollar from Prop. 208's tax increase will go to classroom teachers. Arizonans are being unfairly burdened just when many are trying to build back business and job opportunity in the wake of COVID-19.
The Tax Foundation’s General Equilibrium Model, estimates the Biden Tax plan would reduce GDP by 1.62% over the long term. In the next decade, the Biden tax plan could lead to approximately 7.7% less after-tax income for the top 1% of taxpayers and about a 1.9% decline in after-tax income for all taxpayers. The human cost could be much more.
To all hardworking taxpayers and savers hoping for retirement security, beware the politician promising to tax only the rich to protect you.
"He'll double-cross that bridge when he comes to it!"
Clara Del Villar is Director of Senior Initiatives at FreedomWorks Foundation. Her financial industry career included senior roles in Investment Management, Private Asset Management, and Capital Markets. Her entrepreneurial ventures involved digital media as Founder, CEO of The Hispanic Post; energy tech as founder of InEnergy and health tech. She is a former advisor at 60Plus Foundation. Currently, she is a Board Director at General American Investors Co. and Executive Committee of Weill Cornell Women's Health Symposium. She earned a BSFS at Georgetown University. Read Clara Del Villar's Reports — More Here.
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