It doesn’t come as shocking news that the Republicans and Trump have plans to change the tax rules in order to benefit the wealthy.
It is ironic that those of us who fight for economic justice are attacked for advocating government enforced wealth redistribution.
The plan now being discussed in Congress does that in spades. Except the income redistribution plan is to take even more from the working class and give it to the rich and wealthy.
This is not a plan to cut taxes. It is a plan to raise taxes on those who are barely getting by as it is.
President Donald Trump and Republican leaders plan to release a tax framework this week that would dramatically cut taxes for corporations and the wealthy, provide a measure of middle-class tax relief and punish some households in Democratic-leaning states like New York and New Jersey.
Let us now turn and see how the Republican plan impacts retirement savings and pensions.
With the elimination of most private employee pension plans, working families turned to personal savings plans offered at work, such as 401(k)s and, for those of us in the public sector, 403(b)s.
They call these savings plans “tax shelters.” But they don’t keep working people from paying taxes on their income. It just changes when that happens.
I didn’t pay taxes on money I sheltered at the time I earned it. I pay the taxes now as I draw down on my savings in retirement.
I also agreed to defer some of my salary into a public employee pension plan. Teachers in Illinois pay 9% of their salary pre-tax into the Teacher Retirement System instead of 6% into Social Security. As with a 401(k) the money is taxed by the federal government when I receive my monthly pension payment instead of when I earned it.
In Illinois Governor Rauner and some Democrats are trying to force us to hand over all our retirement savings into a 401(k). These are called defined contribution savings. My state pension is called a defined benefit plan because unlike playing the stock market, I can depend on exactly what my monthly pension will be.
Not so with a defined contribution plan. There is a major stock market crash every ten years or so. There is nothing dependable about the returns on a 401(k).
If you read this column regularly and for a while you know that we have been in a major fight to save our public employee pension in Illinois. Thanks to a decision by the Illinois Supreme Court, we current retirees and those currently in the system have won, at least for the time being.
Governor Rauner is still trying to shift public pensions to private investors.
And he wants Congress to usurp state law and overturn the pension protection clause of our state Constitution.
As a candidate and as governor, Rauner had proposed cutting pension costs by transitioning workers to less generous benefit packages or 401(k)-style retirement plans. But past attempts to cut retirement costs have run up against legal problems. The Illinois Constitution stipulates that benefits cannot be “diminished or impaired” once they are bestowed to workers, and the state Supreme Court has stood by those words.
The governor thinks Congress can release the state from that restriction by passing a law that would give states permission to come up with cost-saving changes to their pension programs. The option would be available to states only after they had established that spending money on workers’ retirement plans is hampering other essential services.
Plus, now the Republicans want to reduce the amount workers can save in their 401(k).
The proposals under discussion would potentially cap the annual amount workers can set aside to as low as $2,400 for 401(k) accounts, several lobbyists and consultants said on Friday. Workers may currently put up to $18,000 a year in 401(k) accounts without paying taxes upfront on that money; that figure rises to $24,000 for workers over 50. When workers retire and begin to draw income from those accounts, they pay taxes on the benefits.
These people not only want to do away with our defined benefit savings accounts, they want to do away with the defined contribution accounts as well.
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