Killing 401(k)’s?

It’s still more than two months before the Obama administration takes office, and we are already seeing signs of just how the Democrats intend to govern.

One proposal being floated by Congressional Democrats aims to abolish the tax incentives for individual 401(k) retirement plans. With the recent financial meltdown having hit a lot of people’s funds heavily, those lawmakers think that the time would be ripe to end the private system and fold it into an expansion of Social Security.

The current plan, crafted by Professor Teresa Ghilarducci of the New School of Social Research in New York City, would eliminate tax breaks for these retirement plans. This would be coupled to an increase in Social Security taxes to fund an expanded retirement plan for workers.

The appeal of this plan is very, very shallow. Yes, the financial meltdown has seriously wounded many retirement funds. But over the long term, the stock market is always a good investment. Further, the financial markets are already in serious trouble. If the government eliminates the tax breaks for 401(k) plans and increases the Social Security tax, then the net result will be the diversion of literally billions of dollars out of the financial market and straight into the government’s coffers. That would be another critical blow to the already-shaky financial infrastructure of our nation.

At the same time, the heads of the big three automakers and their unions have been holding meetings with Congressional leadership about a possible bailout for their industry. The auto makers are in critical condition, and are looking for a cash infusion (like the one the financial market got) to keep them from going under.