Some people dislike government for philosophical reasons — “that government is best that governs least” and all that. Others for visceral reasons. People who lived under a totalitarian state are like those who lived through a depression. They see the next jackboot in every law passed as depression babies saw the next crash in every market downtick.
But many people who otherwise approve of government’s role can be taught to dislike it and distrust it for practical, utilitarian reasons. It has done them wrong through incompetence, fecklessness or political chicanery.
We expect business to screw us. Caveat emptor should be tattooed on every consumer at birth. But government is supposed to serve and protect us. From the cop on the corner to the vast power of the armed forces, from the patient schoolmarm to the FDA and the EPA to the courts, we rely on the government to have our backs. When it doesn’t, it really stings.
When I was young, I paid what was for me a lot of money for the first Betamax video recorder. It was a great breakthrough and I loved it and the little box of favorite movies it generated. But by and by Betamax format lost out to VHS as vinyl gave way to CDs. And I was just out of luck. Infuriating to be left high and dry, but the supposed price of progress, competition and innovation. We accept that, without having to like it.
But the Wall street Journal brings me news of a similar sort of alteration that we shouldn’t accept. It concerns proposed changes to the rules governing the IRAs that millions of Americans have dutifully shoveled money into, relying on it to supplement the Social Security that Congress has allowed to become inadequate for the purpose for which it was created.
It should be noted that many IRAs also contain the rolled-over proceeds from our workplace 401ks which have come to replace the pensions that employers used to provide. We have put all that money into these savings vehicles in order not to be a burden on our families or on the state in our dotage, to build a nest egg. And we have been taught that saving is good and investing for the long term better.
We have also been encouraged to defer our gratification and adopt this prudent behavior by the government which has made saving in IRAs tax-advantaged. In short, they offered us a bargain in both senses of the word. A good deal and a compact, a contract. You do that and we’ll do this. You save and we’ll make it worth your while.
Part of the deal is that I must begin taking out my savings annually at a rate based on my life expectancy — no sooner than age 591/2 and no later that 701/2. And one more provision. If I succeed in amassing enough in my IRA account to last out my days, which is the goal after all, I can make my child the beneficiary and the annual RMD (Required Minimum Distribution) will be adjust to their life expectancy, not mine.
This of course is an added incentive to invest. Most of us, in an uncertain world, would like to feel a child — even an adult child — would be left at our death with a little extra income annually to help them along. It isn’t as if we’re creating a hereditary aristocracy, rather providing a child with a little annuity.
But now the tax writing committees in Congress are said to be discussing a bipartisan agreement to renege on the deal and betray the electorate. In a Congress that can agree on nothing, they can agree not to honor their promises? Instead of allowing beneficiaries to slowly delete inherited IRAs over their lifetimes, they propose forcing heirs to take out all the money in the accounts over five years or less.
It is undoubtedly not lost on Congress that this would result in their paying higher taxes in those years by kicking them into higher brackets. And it would get the deferred tax bite into the government treasury now, rather than later. At work is the same sort of short term thinking that has created our deficits and gutted the safety net. Spend now, figure out how to pay for it later.
In other words, the government enticed millions into saving based on a set of rules they now propose to change. If a company did this you’d call it bait and switch. You’d call it dishonorable and underhanded and never do business with them again. Caveat Emptor.
And what is the reason for making such a change? Is it no longer a social good to save for one’s retirement, to be self-sufficient in old age and to help members of one’s family to get on in life and not be a burden on society? If an honest Congressperson could be found to answer, I suppose the answer would go something like this.
“Oh, sure, all those things are good, but we need money for our perpetual wars and to build roads and bridges and to keep other promises we’ve made to our constituents. But since we also promised never, ever to raise taxes to pay for the government service we promised, our only choice besides the hard truth that’s there’s no free lunch is figuring out some sneaky way to impose hidden taxes that you might not even notice if the nosy press would just shut up.
“As usual, we are being really cautious about not screwing the retirement age voters who pay attention and actually vote. Most of he impact of these changes will be on younger people who don’t pay and attention and vote. And by the time they realize they’e been had, we’ll probably be out of office and working for lobbyists.”
Well, I for one have noticed. I would think the politicians’ BFFs on Wall Street would have noticed too, since the whole shift from Social Security and company pensions to 401ks and IRAs has been a gigantic windfall for the investment community. And this change would compel lots of people to pull money out of their accounts sooner rather than later.
But since most politicians don’t care about promises kept or a future beyond the next election, maybe they think their constituents also don’t care what happens to them or their children or their nest eggs if it happens later than 2016.
When companies screw you, you haven’t much recourse, but you can boycott hem, report them to the Better Business Bureau or sue them. All you can do when the government reneges on its promises is throw the bums out. Unfortunately, when Washington is involved, this is usually a case of: Meet the new bum, same as the old bum.