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COLEMAN FOR U.S. SENATE PRESS RELEASE: “FRANKEN PROPOSES REPEAL OF 401(k) AND IRA ACCOUNTS AND CREATES NEW TRIPLE TAX ON RETIREMENT ACCOUNTS”
By Michael B. Brodkorb | October 8, 2008
ST. PAUL – Incredibly, at a time when middle class Minnesotans are struggling to save for retirement, Al Franken has boasted that he will raise taxes on retirement savings by repealing the deduction for 401(k)s and IRAs, the primary retirement savings vehicles for middle class Minnesotans.
“Al Franken’s proposal would eliminate many Minnesotans’ ability to save through 401(k) and IRA accounts, both regular and Roth.†said Cullen Sheehan, Campaign Manager for Coleman for Senate. “Incredibly, Franken proposes to instead impose a triple tax on 401(k)s and Individual Retirement Accounts. Al Franken’s plan would be much worse for Minnesotans saving for retirement, and once again is a reckless, ridiculous and wrong approach to helping middle class Minnesotans.â€
Currently, Minnesotans seeking to save for retirement generally have two basic options. First, taxpayers can use regular 401(k) and IRA accounts. Under that option, taxpayers receive an immediate deduction for contributions made to the accounts, which grow tax-free until withdrawn. Withdrawals are taxed at ordinary income tax rates. Alternatively, taxpayers can use Roth 401(k) and Roth IRA accounts. Under that option, taxpayers do not receive a deduction for contributions made to the accounts. However, once the amounts are deposited, those amounts and the investment returns they generate are never taxed again, even when withdrawn. Under either option, retirement savings are subject to tax only once.
Al Franken has boasted that he will eliminate the deductions for both regular and Roth 401(k)s and IRAs, a move which would devastate middle class Minnesota families. Franken’s proposal also would make it very difficult for low- and middle-income Minnesotans to qualify for the Retirement Savers’ Credit, an important provision included in the 2006 Pension Protection Act of 2006, a bill strongly supported by Senator Coleman. Instead, Franken would establish a so-called ‘401(u)’ account, which would provide a 30% match for deposits made into the 401(u) account for some, but not all, participants. The problem is Franken’s plan is far worse for almost all Minnesotans for two basic reasons. First, for Minnesotans with incomes above about $32,000, the value of the government match Franken proposes is far less than the value of the deduction that would be taken away. Second, Franken’s proposal would tax retirement savings not once, but three times.
Al Franken proposes to tax retirement savings THREE times:
- First, Al Franken will tax retirement account contributions before they are made by repealing the current tax deduction for contributions to regular 401(k)s and IRAs.
- Second, Al Franken will tax retirement account withdrawals, which are not currently taxed if the original contributions were subject to tax, as with Roth 401(k)s and IRAs.
- Third, Al Franken will tax the partial government matches to retirement accounts which he proposes to provide in lieu of both the deductions for contributions to regular 401(k)s and IRAs, and the tax-free withdrawals from Roth accounts.
Because of the lost deductions and triple tax hit, Minnesotans would have far worse retirement savings options under Franken’s proposal than under current law.
Bottom line? Minnesotans will be worse off, not better, under Franken’s plan—often by tens of thousands of dollars, or more. As the attached example demonstrates, a 40-year old Minnesotan earning $50,000 who currently saves through a 401(k) plan could lose a stunning $140,000 in retirement savings at age 65 under Franken’s plan. And that is under a favorable scenario—under Franken’s plan, the loss of retirement savings could easily be much worse.
By dramatically increasing taxes on retirement savings, Al Franken will force Minnesotans to make do with far less retirement savings, work years longer—or both. Franken’s money grab is wrong for the Middle Class, and wrong for Minnesota.
Franken Plan Would Eliminated Deductions For Regular And Roth 401(k)s And IRAs. “Current tax deductions for retirement savings would be replaced with a generous 30% government matching contribution that would be the same for all households. For each dollar that a worker puts into a 401(U), the government would add 30 cents, up to a contribution limit similar to IRAs. The same 30% match would apply to existing retirement savings vehicles such as 401(k)s. This matching contribution would be deposited directly into workers’ retirement accounts. The result for a great number of middle class workers would be a tripling of the incentive to save. Many more workers who currently get no incentive to save – because they pay no taxes – would receive a generous incentive. (The system would be designed to ensure that workers making less than $250,000 are held harmless.)â€Â  (Source: Franken for Senate, http://www.alfranken.com/content/issues_401u/, accessed October 8, 2008)
Senator Coleman’s Work
Pension Protection Act of 2006:
Senator Coleman was a strong supporter of the Pension Protection Act of 2006 signed into law. This law made retirement and savings incentives permanent, encouraging direct depositing into IRAs and encouraging enrollment in defined contribution pension plans. In particular, this law made permanent the Savers’ Credit which provides matching-like support to low and middle income savers through a 50% tax credit for retirement account contributions (PL 109-280, Section 812; Vote 230, August 2, 2008). Senator Coleman worked hard to ensure that the bill worked for steel, airline and iron ore employees and their pensions.
Savings for Working Families
Senator Coleman is a cosponsor of S.871, the Savings for Working Families Act of 2007, introduced by Senator Joe Lieberman (I-CT) and which has the broad bipartisan support of 26 cosponsors. This legislation creates Individual Development Accounts for low-income Americans, savings accounts limited to three uses: buying a home, paying for post-secondary education and starting or expanding small businesses.
Al Franken’s Proposed Repeal of 401(k) and IRA Accounts
Would Impose a Big Tax Hike on Minnesotans Saving for Retirement
Franken Proposal could cost Typical Taxpayer with Income of $50,000
$146,185 in Retirement Savings
Current Law                           Current Law
Regular Retirement              Roth Retirement                   Franken
Accounts                                  Accounts                                  “401(u)â€
Annual amount available to
contribute to retirement account
(current 401(k) maximum)[1] 15,500Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 15,500Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 15,500
Income tax imposed prior to
contribution (32.05%,
i.e., US 25% +Â MN 7.05%)Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â N/AÂ Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 4,968Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 4,968
After tax contribution to
retirement account                              15,500                                  10,532                                          10,532
30% Government Match                   N/A                                        N/A                                               3,160
Total Annual Contribution                15,500                                  10,532                                          13,692
Account assets
after 25 years of contributions
with 10% annual investment return
(approximate historical market
return average)Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 1,844,755Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 1,253,481Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 1,629,574
Tax imposed at
withdrawal (32.05%)[2] 591,244Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â N/AÂ Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 522,278
AFTER TAX
RETIREMENT SAVINGSÂ Â Â 1,253,511Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 1,253,481Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 1,107,296
LOSS TO EACH RETIREE UNDER FRANKEN PLAN:Â $146,185
###
[1] For simplicity purposes, this example assumes that the retirement account holder would contribute each of the next 25 years an amount equal to the 2008 401(k) contribution limit. In reality, the 401(k) contribution will increase substantially as it is adjusted for inflation. If contributions are equal to the higher, adjusted 401(k) limits, the savings shortfall under the Franken “401(u)†proposal would be much greater than shown in the example. The shortfall also would increase if, as is common, a worker contributed to a retirement account over a period longer than 25 years.
[2] For simplicity purposes, this example assumes that the account holder’s tax rate in retirement will equal his or her rate while employed. Typically, the tax rate for retirees declines in accordance with lowered incomes. With a lower tax rate in retirement, the savings shortfall under the Franken “401(u)†proposal would be much greater than shown in the example.
[1] For simplicity purposes, this example assumes that the retirement account holder would contribute each of the next 25 years an amount equal to the 2008 401(k) contribution limit. In reality, the 401(k) contribution will increase substantially as it is adjusted for inflation. If contributions are equal to the higher, adjusted 401(k) limits, the savings shortfall under the Franken “401(u)†proposal would be much greater than shown in the example. The shortfall also would increase if, as is common, a worker contributed to a retirement account over a period longer than 25 years.
[2] For simplicity purposes, this example assumes that the account holder’s tax rate in retirement will equal his or her rate while employed. Typically, the tax rate for retirees declines in accordance with lowered incomes. With a lower tax rate in retirement, the savings shortfall under the Franken “401(u)†proposal would be much greater than shown in the example.
Topics: Uncategorized | 26 Comments »
26 Responses to “COLEMAN FOR U.S. SENATE PRESS RELEASE: “FRANKEN PROPOSES REPEAL OF 401(k) AND IRA ACCOUNTS AND CREATES NEW TRIPLE TAX ON RETIREMENT ACCOUNTS””
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October 8th, 2008 at 2:49 pm
So, instead of saying you don’t have to pay taxes on the account when you load your fund, the Franken plan would provide a financial incentive to people to save for retirement by giving them that money up front to put directly into their retirement account. And it would allow people to tap into their funds penalty-free to pay for new homes and education.
I can see why this scares Norm. It is not only a new idea, it is a good idea.
October 8th, 2008 at 2:51 pm
Press release frenzy today from the Coleman campaign to cover up for this.
October 8th, 2008 at 2:53 pm
Initial look at some of this press release leads me to think Team Coleman made most of this stuff up.
October 8th, 2008 at 3:06 pm
Taxing the retirement savings contributions AND taxing the withdrawals is so fucking stupid only a Democrat/Leroy could view that as an incentive. Even dumber if Franken also proses a government match, only to tax that as well.
If you want to incent people to save, then eliminate taxes on both retirement account contributions and withdrawal. For that matter, eliminate taxes on interest from Certificates of Deposit and Savings Accounts as well.
The current social security plan, where government robs you of 12 percent of your income for your life and then pays back only 65 percent of what they stole if you’re luck enough to live that long doesn’t work. It’s economically, socially and morally bankrupt.
October 8th, 2008 at 3:11 pm
This is pretty funny: “The result for a great number of middle class workers would be a tripling of the incentive to save. Many more workers who currently get no incentive to save – because they pay no taxes – would receive a generous incentive.”
While it’s cute that Franken acknowledges that the bottom end pays no taxes, he describes a massive government handout and wealth redistribution program as “an incentive to save.”
WTF?
October 8th, 2008 at 3:17 pm
… and where pray tell does government get the money with which to offer a “match?”… by taxing the shit out of something…
Here’s an idea you stupid liberal dip shits, try streamlining government programs instead of inventing new ones that can fuck up the country.
October 8th, 2008 at 3:19 pm
Chestnut-
Your boy is the one who brought us the $1 trillion bailout bill.
To paraphrase Dean Barkley, how many more trillion dollar mistakes can we allow republicans to make?
October 8th, 2008 at 3:30 pm
“Your boy is the one who brought us the $1 trillion bailout bill.”
Yeah, George W. Bush has been a terrific Democrat.
October 8th, 2008 at 3:39 pm
Beyond that LeDouche, What does your comment in #7 have to do with a goddam thing.
Franken’s proposal is stupid and counterproductive. It’s just another bloated, ridiculous wealth redistribution program. It penalizes retirement savings for most everybody and attempts to fix the part of the system that’s not broken.
Another stupid fucking Democrat idea. Brought to you by communism.
October 8th, 2008 at 3:42 pm
What inspired Franken was probably the realization that some people have the discipline to save for their retirement.
Liberals just can’t tolerate that.
October 8th, 2008 at 3:48 pm
Yep. And they are putting it all into mutual funds that are withering as the results of Maverick Mccain’s career-long push for deregulation of anything that could be deregulated.
October 8th, 2008 at 3:58 pm
Hey Leroy
Fannie Mae Eases credit To Aid Mortgage Lending-
New York rimes
September 3 0, 1999
Fannie Mae Eases Credit to Aid Mortgage Lending
By STEVEN A, HOLMES
In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae
Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.
The action, which will begin as a pilot program involving 24 banks in 15 markets — including the New York
Metropolitan region — will encourage those banks to extend home mortgages to individuals whose credit is generally not
good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by
next spring.
Fannie Mae, the nation’s biggest underwriter of home mortgages, has been under increasing pressure from the Clinton
Administration to expand mortgage loans among low and moderate in come people and felt stock holders to maintain its
phenomenal growth profits.
In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more
loans to so-called subprime borrowers. These borrowers whose incomes, credit ratings and savings are not good enough
to qualify for conventional loans, can only get loans from finance companies that charge much higher interest rates –
anywhere from three to four percentage points higher than conventional loans.
“Fannie Mae has expanded home ownership for millions of families in the 1990’s by reducing down payment
requirements,” said Franklin D. Raines, Fannie Mae’s chairman and chief executive officer. “Yet there remain too many
borrowers whose credit is just a notch below what our underwriting has required who have been relegated to paying
significantly higher mortgage rates in the so-called subprime market.”
Demographic information on these borrowers is sketchy. But at least one study indicates that l8 percent of the loans in
the subprime market went to black borrowers, compared to 5 per cent of loans in the conventional loan market.
In moving even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk which may
not pose any difficulties during flush economic times. But the government- subsidized corporation mat run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and load industry in the 1980’s.
“From the perspective of many people, including me, this is another thrift industry growing up around us,” said Peter
Williston a resident fellow at the American Enterprise Institute. “If they fail the government will have to step up and
bail them out the way it stepped up and bailed out the thrift industry.”
Under Fannie Mae’s pilot program, consumes who qualify can secure a mortgage with an interest rate one percentage
point above that of a conventional, 30-year fixed rate mortgage of less than $240,000 — a rate that currently averages
about 7 .76 per cent. If the borrower makes his or her monthly payments on time for two years, the one percentage point
premium is dropped.
Fannie Mae, the nation’s biggest underwriter of home mortgages, does not lend money directly to consumers. Instead, it
Purchases loans that banks make on what is called the secondary market. By expanding the type of loans that it will buy,
Fannie Mae is hoping to spur banks to make more loans to people with less-than-stellar credit ratings.
Fannie Mae officials stress that the new mortgages will be extended to all potential borrowers who can qualify for a
Mortgage. But they add that the move is intended in part to increase the number of minority and low income home
(Owners who tend to have worse credit ratings than non-Hispanic whites.
Home ownership has, in fact, exploded among minorities during the economic boom of the 1990’s. The number of
mortgages extended to Hispanic applicants jumped by 57.2 per cent from 1993 to 1998, according to Harvard
University’s Joint Center for Housing Studies. During that same period the number of African Americans who got
mortgages to buy a home increased by 71.9 per cent and the number of Asian Americans by 46.3 per cent.
In contrast, the number of non-Hispanic whites who received loans for homes increased by 31.2 per cent.
Despite these gains, home ownership rates for minorities continue to lag behind non-Hispanic whites, in part because
blacks and Hispanics in particular tend to have on average worse credit ratings.
In July, the Department of Housing and Urban Development proposed that by the year 2001,50 percent of Fannie Mae’s
and Freddie Mac’s portfolio be made up of loans to low and moderate-income borrowers. Last year, 44 percent of the
loans Fannie Mae purchased were from these groups.
The change in policy also comes at the same time that HUD is investigating allegations of racial discrimination in the
automated underwriting systems used by Fannie Mae and Freddie Mac to determine the credit-worthiness of credit
applicants.
October 8th, 2008 at 4:01 pm
Leroy you don’t have a clue what your talking about.
October 8th, 2008 at 4:11 pm
“And they are putting it all into mutual funds that are withering as the results of Maverick Mccain’s career-long push for deregulation of anything that could be deregulated.”
First, that is demonstrable bullshit. Deregulation has nothing to do with the Democrat-created housing crisis.
Even so, the current performance of the stock market in no way justifies the retarded plan that Franken is advancing. It is a communist wealth redistribution plan, that would destroy retirement savings for most everyone.
October 8th, 2008 at 4:14 pm
Here’s my recommendation for Franken. Fix or dismantle the fucking Social Security system.
Keep your goddam hands off the retirement savings options that are actually working.
October 8th, 2008 at 5:17 pm
Do I need to remind you which party favored privatizing social security?
I defy you to find me one senior who would favor that horrible idea now.
October 8th, 2008 at 6:32 pm
Leroy,
I know plenty of senior citizens still in favor or partial privitization. I say “partial” becuase no plan was going to “privatize” it all.
And, I’m under 40. I’m sure in favor of it still. Even after the market fall. I’ll still do better over the next 30 years than the lousy program in place.
You obviously know absolutely nothing about the market or economics.
While the partial privatization of social security may not be wildly popular among those over 50 — it is hugely popular with people under 40. Too bad the GOP did not stick with it becase it is a winner of an issue.
October 8th, 2008 at 6:43 pm
Yeah. People over 50 don’t like it because they don’t have 30 years to gamble on the market rebounding.
If the republicans want to reject the nearly 600,000 Minnesotans over the age of 65 in an effort to privatize social security, I am sure the democrats would not mind absorbing them into their ranks.
The plan stinks, and no amount of republican perfume will change said fact.
October 8th, 2008 at 7:14 pm
“Do I need to remind you which party favored privatizing social security?”
No, you don’t. Republicans offered the preposal. Republicans are the ONLY party recommending actual solutions to the problem.
Privatization was a good idea then. It’s still a good idea… well unless you like the government stealing 12 percent of your income only to give back 65 percent of what they stole — if you’re lucky enough to live that long. Hell if you die early, like most blacks do, the government keeps what they stole.
That’s quite a scheme you libtards cooked up.
October 8th, 2008 at 7:17 pm
“Yeah. People over 50 don’t like it because they don’t have 30 years to gamble on the market rebounding.”
No, people over 50 don’t like it because they believed the DEMOCRAT LIES that were designed to deceive and scare them.
The partial privitization recommendation wouldn’t change anything for anyone over 50.
Why do Democrats take such joy in scaring senior citizens?
Why is Leroy such a goddam dumb piece of shit?
October 8th, 2008 at 7:25 pm
Well, so far over 31,000 people have watched Cullen Sheehan do the ol’ Smokescreen Shuffle, and NOT answer a question:
http://www.youtube.com/watch?v=VySnpLoaUrI
October 8th, 2008 at 7:26 pm
So what? Repeal 401K. After the Dem and Bush bailout of the crooks who bilked the system for billions, there’s nothing left in the 401K accounts anyway!
Even Wall Streeters are on record the bailout will not boost the Dow because the wrong individuals will be getting the money!
In addition, once ol’ Obambi gets in and implements his socialist agenda, your eligibility for SS will be so heavily means tested, you would be better off with your cash in a mattress anyway.
October 8th, 2008 at 9:15 pm
The only real question for Norm of course is “Who paid for those stylin duds?”
Hahahahahahahahahahahhahahahaha!!!!!!!!!!
October 8th, 2008 at 9:56 pm
Aaron, what is made up about this press release. This is the first time I’ve seen Coleman go after Franken on a substantive issue. This is drawing distinctions, not dirty politics. If there’s inaccuracies in Coleman’s take on Franken’s plan, please get specific. I was concerned about his plan also – for exactly this reason.
October 9th, 2008 at 8:55 am
It’s official, every poll except the shitting KSTP poll has Franken in the lead:
http://www.rasmussenreports.com/public_content/politics/election_20082/2008_senate_elections/minnesota/election_2008_minnesota_senate
Michael, I presume you will now start referring to the Coleman campaign as “Floundering” everything you reference it from now on.
Or, are you going to stick to your all of these polls are flawed line?
January 2nd, 2009 at 7:32 am
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