[quote=UCGal]
What I didn’t see addressed in the article is 401k funds. I would guess that since both plans are kind of tiered flat taxes (eliminating deductions) 401k/IRA contributions would go away. (No deductions so no tax deferred contributions.) But would you still be able to have the money already invested grow tax free?
The SS changes seem reasonable – but maybe I feel that way since I’ll be in my late 80’s/early 90’s when the means testing happens… by that time my assets will be spent down.
[/quote]
Great question on the 401K’s and other retirement plan issues. I can’t find anything in the draft proposal that specifically addresses it. It does say “Reform Mortgage, Health and Retirement Benefits at 80% of current levels”. Not sure what the reform of retirement benefits is even referring to. Other sources have said stuff like “doing away with all deductions”, though I can’t find where they got that from. 401K’s (along with IRA’s and other retirement plan contributions) aren’t technically deductions, but rather adjustments to income. So I don’t know if they stay or go under these recommendations.
I like the elimination of the mortgage deduction, but I’m disappointed that they’re recommending keeping 20%. Though engrained in the current pricing paradigm, eliminating it entirely would probably go a long ways in stabalizing prices by eliminating tax rates from the “affordability calculation”. Currently there are just too many variables for stable prices. Cost, interest rate, tax rate. Eliminating it would make make us more solvent overall, encourage paying off mortgages, discourage ATM HELOC’s and refi’s for consumer spending. I’m thinking it would also serve to keep interest rates lower, by lowering demand for mortgages. People who can afford to pay off mortgages will.
Reducing the marginal tax rates accordingly will theoretically keep the average taxpayers effective tax rate the same. Though it seems the very top income levels will gain a much bigger benefit. Cutting multi-million dollar income earners, many who currently have no meaningful mortgage deduction, to 23% appears to be a humungous bonus for them. Admittedly, that’s a first glance response. I’d like to see more analysis.
I’m not real excited about the higher normal retirement age for SS. While overall life expectancy has increased significantly since SS started, most of that increase is in lower mortality rates at ages lower than 65. Life expectancy at age 65 has not increased much in the last 70 (since SS monthly benefits started). I think only about 3 years, and normal retirement age has already increased 2 to 67 (phased in). There are a lot of industries where working until 70 is just not possible.
But something does have to be done to get the budget under control and reduce the deficit. So overall, after first review, I like the plan. A few tweaks here and there and maybe it will work. At least until the lobbyists get their whack at it.
