Obama Takes Aim at IRAs

Obama proposes tax on IRA retirement earnings.

President Obama’s budget, to be released next week, will limit how much wealthy individuals – like Mitt Romney – can keep in IRAs and other retirement accounts.

The proposal would save around $9 billion over a decade, a senior administration official said, while also bringing more fairness to the tax code.

The senior administration official said that wealthy taxpayers can currently “accumulate many millions of dollars in these accounts, substantially more than is needed to fund reasonable levels of retirement saving.”

Under the plan, a taxpayer’s tax-preferred retirement account, like an IRA, could not finance more than $205,000 per year of retirement – or right around $3 million this year.

That may seem like a lot of money, but for a two income, professional couple, that would be a generous, but not unexpected retirement income.

Romney, Obama’s 2012 opponent, had an IRA several to many times that amount, leading to questions about how the former Massachusetts governor was able to squirrel away so much money in that sort of retirement account.

IIRC, Romney's "trick" was to put stocks in his IRA that he was pretty sure would increase in value over the next decade or so; being a financial whiz he chose stock in his own companies. There's nothing untoward about that; we all wish we had enough knowledge to know the wheat from the trash.  Obama, of course, want to get his hands on some of that money to fund his favorite trash.

What is particularly pernicious is the start of a trend to limit retirement savings earnings (already subject to limits on the input side, to prevent "tax spendings", as democrats prefer to call leaving money in the hands of taxpayers.  I didn't note an inflation clause in the article, so like the personal income tax and the alternative minimum tax (AMT), each originally intended as a tax on unusually high incomes, it's bite will slowly grow to take a piece from everyone.

In 1913, the top tax rate was 7% on incomes above $500,000 ($10 million 2007 dollars) and a total of $28.3 million was collected.

Although the AMT was originally enacted to target 155 high-income households, it now affects millions of families each year. The number of households that pay the tax has increased significantly in the last decade: In 1997, for example, 605,000 taxpayers paid the AMT;by 2008, the number of affected taxpayers jumped to 3.9 million, or about 4% of individual taxpayers. A total of 27% of households that paid the AMT in 2008 had adjusted gross income of $200,000 or less.