Thursday, April 18, 2013

Greed versus Envy

The White House put out a budget just a couple months late of when it is supposed to, which is a rather good record in comparison to the Senate who hasn't passed a budget in four years. Contained within it was an interesting proposal--capping the amount a person can save for retirement through tax-deferred accounts such as traditional IRAs where taxes are paid only once distributions begin, which is usually during retirement.

The maximum a person could set aside in an IRA would be $3 million--an amount Obama feels is plenty enough. Just when you thought we were doing all we could to punish saving and reward consumption, we get this to up the ante. Here is a voice of concern about the implications for tax-deferred savings accounts in general. Here is another. Seems there might be unintended consequences from the government deciding for us how much deferred consumption is enough.

But you see, deferred consumption amounts to deferred taxation. And that is where the greed angle comes in. Obama would have us believe that greed is good in this case--the greed the government has for tax revenue now rather than later. Yet there are two facts that make me doubt that greed is the true motive here:

  1. The proposal is estimated to generate a negligible amount of $9 billion in tax revenue over the next decade--about 3% of 1% of what the federal government plans to spend over that time. 
  2. If this were really about accelerating tax payments from the future to the present, then part of the proposal would include allowing unlimited Roth IRA contributions where taxes are paid up front. 
The absence of the second component in the budget makes me think this is more about envy than greed.