FacebookTwitterGoogle+RedditEmail

How the Affluent Slip Away

Tax-deferred retirement accounts were created under a law passed by Congress in 1974. They strike a bargain between taxpayers and the Treasury: money in the accounts grows tax-free, but taxable withdrawals must be taken yearly after age 70 1/2.

Both sides win. Roughly half of all Americans have gotten a jump on financial security, and now hold trillions in retirement savings. On its part, the Treasury gets an annual influx and is nearing demographic gold. The first baby boomers reach required distribution age in 2016, and a mother lode of retirement taxes should start streaming in.

Congress, though, has proven more than willing to help the affluent slip away from the tax payback. Two examples are the late-December renewal of a 2006 Bush tax break, and a one-year suspension of minimum required distributions.

The starkest instance—and the most costly for the Treasury—stemmed from the financial meltdown. With portfolios plummeting, Congress rushed to freeze mandatory withdrawals for 2009. Only the haves stood to gain. Anyone who actually needed the distribution had to take it and pay taxes; the haves took a pass and saved thousands.

The stock market recovered and the suspension was allowed to lapse. Nobody should expect an encore, but the precedent has been set.

The lame duck Congress passed, among other measures, an extension of the Bush tax cuts for the wealthiest two percent of Americans. Along with it, fitting right in, came a one-year renewal of the IRA charitable deduction.

Holders of Individual Retirement Accounts (IRAs) can direct up to $100,000 of their annual required distribution to charities. No federal or state taxes are paid. Because the money doesn’t count toward income on tax returns, high-income filers could avert hikes in Medicare premiums. According to one estate attorney, the bill is “good for about 10 different reasons.” They’re all about avoiding taxes.

What we have here is a siphoning away of public revenue to private charity. Money may go to good causes, but the transfer violates the payback half of the retirement bargain. In effect, the money is being stolen from the U.S. Treasury (and from every state that has an income tax).

Donors have their hearts in the right place and the law behind them. Charities are thrilled. The thieves are in Congress, always ready to jigger the tax code on behalf of the well-off.

Withdrawal formulas also stiff the Treasury by putting a tight lid on annual increases. While the formulas apply to everybody, they heavily favor those in no need and no hurry. So-called stretch IRAs, an estate planning tool, can string out distributions—get ready now—into the next century.

Brokerage houses distort the tax payback in their own way. They’re making billions on retirement accounts, but they continually bash required distributions. A Fidelity advisory, for example, told clients that at 70 1/2 they’re “required to start raiding” the accounts.

Raiding? Not exactly. Minimum distributions mean it’s time to pay back Uncle Sam for decades of tax deferral. Even after federal and state taxes, affluent Americans over 70 1/2 are likely looking at annual payouts in the healthy five figures. Whatever the number, it got there with a long tax-free ride.

How about a little gratitude. And instead of robbing Uncle Sam, let’s have sensible distribution rules from Congress.

Gerald E. Scorse helped pass a bill that tightens the rules for reporting capital gains.

 

 

More articles by:
Weekend Edition
August 17, 2018
Friday - Sunday
Daniel Wolff
The Aretha Dialogue
Nick Pemberton
Donald Trump and the Rise of Patriotism 
Joseph Natoli
First Amendment Rights and the Court of Popular Opinion
Andrew Levine
Midterms 2018: What’s There to Hope For?
Robert Hunziker
Hothouse Earth
Jeffrey St. Clair
Roaming Charges: Running Out of Fools
Ajamu Baraka
Opposing Bipartisan Warmongering is Defending Human Rights of the Poor and Working Class
Paul Street
Corporate Media: the Enemy of the People
David Macaray
Trump and the Sex Tape
CJ Hopkins
Where Have All the Nazis Gone?
Daniel Falcone
The Future of NATO: an Interview With Richard Falk
Cesar Chelala
The Historic Responsibility of the Catholic Church
Ron Jacobs
The Barbarism of US Immigration Policy
Kenneth Surin
In Shanghai
William Camacaro - Frederick B. Mills
The Military Option Against Venezuela in the “Year of the Americas”
Nancy Kurshan
The Whole World Was Watching: Chicago ’68, Revisited
Robert Fantina
Yemeni and Palestinian Children
Alexandra Isfahani-Hammond
Orcas and Other-Than-Human Grief
Shoshana Fine – Thomas Lindemann
Migrants Deaths: European Democracies and the Right to Not Protect?
Paul Edwards
Totally Irrusianal
Thomas Knapp
Murphy’s Law: Big Tech Must Serve as Censorship Subcontractors
Mark Ashwill
More Demons Unleashed After Fulbright University Vietnam Official Drops Rhetorical Bombshells
Ralph Nader
Going Fundamental Eludes Congressional Progressives
Hans-Armin Ohlmann
My Longest Day: How World War II Ended for My Family
Matthew Funke
The Nordic Countries Aren’t Socialist
Daniel Warner
Tiger Woods, Donald Trump and Crime and Punishment
Dave Lindorff
Mainstream Media Hypocrisy on Display
Jeff Cohen
Democrats Gather in Chicago: Elite Party or Party of the People?
Victor Grossman
Stand Up With New Hope in Germany?
Christopher Brauchli
A Family Affair
Jill Richardson
Profiting From Poison
Patrick Bobilin
Moving the Margins
Alison Barros
Dear White American
Celia Bottger
If Ireland Can Reject Fossil Fuels, Your Town Can Too
Ian Scott Horst
Less Voting, More Revolution
Peter Certo
Trump Snubbed McCain, Then the Media Snubbed the Rest of Us
Dan Ritzman
Drilling ANWR: One of Our Last Links to the Wild World is in Danger
Brandon Do
The World and Palestine, Palestine and the World
Chris Wright
An Updated and Improved Marxism
Daryan Rezazad
Iran and the Doomsday Machine
Patrick Bond
Africa’s Pioneering Marxist Political Economist, Samir Amin (1931-2018)
Louis Proyect
Memoir From the Underground
Binoy Kampmark
Meaningless Titles and Liveable Cities: Melbourne Loses to Vienna
Andrew Stewart
Blackkklansman: Spike Lee Delivers a Masterpiece
Elizabeth Lennard
Alan Chadwick in the Budding Grove: Story Summary for a Documentary Film
FacebookTwitterGoogle+RedditEmail