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Feds' sights set on our 401(k)s

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Thursday, April 18, 2013, 12:01 a.m.
 

Smokers, get ready to cough up more.

And if you're hooked on the saving habit, you'll at least be discouraged from overdoing it.

That's if President Obama's budget for next year passes. Let's hope Congress finds and kills some of the worst ideas in a document that approaches 2,500 pages. Two real duds stick out.

One is a near-doubling of the federal tax on cigarettes; the other, a virtual “cap” on 401(k) retirement plans. If you reach $3 million in 401(k) assets, you might as well stop there. Putting more money in wouldn't be tax deductible.

Both are bad public policies, but the slap to smokers might be worse. It hits the more vulnerable people.

Federal tax on a package of 20 cigarettes is already $1.01 (vs. 39 cents when the president took office). The fiscal 2014 budget would raise the federal grab by 94 cents to $1.95. (Not even to mention state taxes, manufacturing, retail and other pieces of the action.)

Millions have, of course, stopped smoking. But they tend to be middle- and upper-income folks, more cued in to health warnings.

Who's left? The poor, mainly. Also, teenagers acting out the foolishness of their years. And hard-core addicts, the yellow-fingered set that “can't quit.” Government, which cannot curb its own addiction to spending every form of money, taxed, borrowed, and printed, is very severe with other sorts of human weakness. It banishes smokers from their desks, eating places, theaters and public transportation. For a nicotine fix, the outcasts must shiver beyond the doors of office buildings.

True, there's a theory that hyper-taxed cigarettes will be the last straw. Everybody will quit and live longer. But chances are, millions will stay hooked and pay more. A total of $7, $8 and more per pack can easily reach $2,500 a year. In a better world, we'd all invest so much.

But Uncle Sam as tax collector shows no mercy. The craving for revenue is paramount. And smokers have no friends, no lobby. They are sitting ducks.

Not so, it's hoped, are the savers.

The 401(k) plan is a stake in the future for workers who don't have a pension plan or who hope to supplement it. A part of their wages can be put aside long-term. They enjoy an immediate saving on current income taxes. Their employer might even throw in a matching amount. Eventually, in retirement, income tax is indeed paid as the “personal pension plan” distributes benefits. It's a fair deal all around.

But now comes Mr. Obama's budget team.

They've figured out that $3 million in 401(k) assets in 2013 should yield $205,000 yearly — “substantially more than is needed to fund reasonable levels of retirement saving,” according to an official explanation. Therefore a tax deduction for anything more would be just a “loophole” for the rich.

Never mind how the Federal Reserve might be inflating future dollars away. Or all the investment benefits to the economy. And the social benefits to families that flow from saving as much of their own money (and needing correspondingly fewer “entitlements”) as they can.

Another thing. When will the $3 million limit become $2 million or $1 million if government decides what's “reasonable?” The 401(k) is in the cross hairs. We're warned.

Email jmarkowitz@tribweb.com.

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