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Ephemerides (February 2003)
February 28, 2003
National Review's Jonah Goldberg, continuing his career as that publication's enfant terrible, has penned "Two Cheers for 'McCarthyism'", which has predictably attracted a plethora of negative comment. The critics are not appeased by the writer's repeated expressions of distaste for McCarthyism's eponymous founder. He calls Senator McCarthy a "lout", condemns his unfounded accusations and concedes that his irresponsibility did a great deal of damage to the anti-communist cause. All that does not ameliorate his sin, with more than one liberal declaring that the least hint of sympathy for the McCarthyite cause on the part of a single conservative writer exposes the hateful nature of all of contemporary conservatism.
My first thought on reading the piece was that young Jonah had entered into a profitless controversy. Nothing will redeem Joe McCarthy's image, and separating the man from the cause is ahistorical. Senator McCarthy himself saw "McCarthyism" as distinct from commonplace anticommunism, and his enemies at the time, except for the genuine communists among them, insisted that their attacks were motivated by the desire to strengthen the anticommunist camp by ridding it of a foolish and counterproductive figure. Certainly President Eisenhower, who did more than anyone else to discredit the Senator, (pace the Birchers) had no qualms about hunting down Reds and rooting them out of the government.
The passage of time has distorted our image of McCarthyism and our memory of why it roused such violent antipathy. When the Senator from Wisconsin emerged as a national figure, the interwar period was still fresh in men's minds, as near to them as the 1980's are to us. One conspicuous and disastrous feature of that period was Führerprinzip – domination of government by a single, demagogic leader, who ruled without constitutional restraints. Germany and Italy were countries where Führerprinzip gained power, but it was a popular idea in many other places. Europe resounded to mobs cheering a score of would-be Mussolinis, some of them serious political leaders, such as Gil Robles in pre-Civil War Spain, others as farcical as England's Oswald Mosley or Norway's Vidkun Quisling. In the United States, plenty of Republicans believed, however unreasonably, that Franklin D. Roosevelt harbored similar ambitions, as a few of FDR's more unbalanced admirers clearly hoped he did. The conventional wisdom was that a large segment of the public, especially the less educated public, had a yearning for authoritarian leadership.
A lesson learned from the Thirties, then, was that it was dangerous to allow political causes to be personified by ambitious rabble rousers. And Senator McCarthy's career neatly fit the pattern cut by Mussolini. Like Mussolini, McCarthy started as a man of the Left – as late as the 1948 Republican Presidential convention he belonged to the party's liberal wing – then moved opportunistically to the Right. Like Mussolini, he pitched his appeal to nationalistic elements of the working class, emphasizing his personal crusade against enemies within. Beyond a basic catechism of anticommunism, his principles were few and incoherent. Brent Bozell, a young conservative idealist who joined his staff just out of Yale, was appalled by his boss's indifference to free market economics.
When a figure of this kind gathered a substantial public following and put out a book called McCarthyism: The Fight for America (to hear an echo of Mein Kampf in that title was unfair but inevitable), the natural reaction of the political elites was to worry that the Thirties might come again. That fear is forgotten today, but it explains much of the reaction to McCarthy and McCarthyism. It also explains why normally scrupulous men used unscrupulous methods to derail the Senator's progress. Respectable Republicans like Ralph Flanders of Vermont went so far as spread rumors about homosexual McCarthy aides, and the tactics employed by the White House to manipulate the Army-McCarthy hearings would have considered impeachable offenses if used by Richard Nixon against his opponents. (I don't write this to stir up sympathy for McCarthy. The weapons used against him were, in the context of the time, justified by his own lack of scruples.)
Modern conservatives thus have little good reason to defend either McCarthy or McCarthyism. Neither is a victim of condemnation by anachronistic standards. Rather, they were deplorable by the standards of their own day and seem less menacing now only because we know after the fact that there was no real prospect that McCarthyism would develop into an American fascist movement. (At least, we think that we know that, but what if the anti-McCarthyites had played softball and McCarthy's tussle with the Army had gained him a public relations triumph?)
The point about McCarthyism that does, I think, merit further discussion (and which Jonah, let me note, does discuss) is the use made of the concept after it had died out as a political force. Over the past half century, liberal opinion makers have turned "McCarthyism" into a synonym for the whole of Truman-Eisenhower era anticommunism and have used that identification to discredit all internal security measures taken at that time. Forgotten is the fact that President Truman initiated the first serious program to uncover Soviet agents in the federal government and that most liberals endorsed Sidney Hook's aphorism, "Heresy, yes; conspiracy, no".
Throughout what is now called the "McCarthy Era", noncommunist liberals worried that security investigations might punish innocent people and that liberal ideas might be suppressed as "communistic". They had only limited compassion for anyone who actively worked to convert America into a communist state and rarely demurred from the proposition that advocating the violent overthrow of the government was not within the scope of freedom of speech.
Between the mid-1950's and the late 1960's, liberal attitudes toward internal security underwent a reversal, as became evident when only a minority could bring themselves to approve of government action against open treason during the Vietnam War. A major engine of that change was a false history of the role of McCarthyism in the anticommunist movement. Liberals came to "remember" a world split between themselves and the McCarthyites, in which the former advocated free expression of all political opinions and the latter engaged in a vicious campaign of suppression and censorship. Any hindrance to the freedom of action of declared enemies of the Constitution was identified with the McCarthyite "terror". The descensus ad Avernum led ultimately to apologias for murders committed under the aegis of political slogans.
In the midst of war, it is reckless to allow fifth columns, committed to turning democratic polities into Islamofascist dictatorships, to operate unhindered, yet any effective countermeasure is stigmatized as "McCarthyite". To overcome that historical phobia, we need to relearn what McCarthyism actually was. It may then be possible to revive mutatis mutandis the consensus on internal security issues that joined sensible liberals and sensible conservatives in the aftermath of World War II and would be valuable in the struggle against terrorism today.
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February 15, 2003
And so, General Veal, what is your strategy? Having insisted yesterday that it is important, following the fall of Saddam Hussein, that the United States have a clear vision of how it is going to win the War on Terror, I suppose that I have an obligation to offer ideas about what that strategy ought to be. Here is my tentative six-point plan:
1. Define the enemy as all organizations that employ terrorism as a tactic. One of the anti-war clichés is that "terrorism", being an abstract concept, cannot be our "enemy". But terrorists can be, just as the Roman Republic could wage a war on piracy 21 centuries ago by wiping out nests of pirates.
Terrorism is not a method of waging war for which we or our friends have any use. Our enemies employ it partly because they are weak and hope to demoralize us through random atrocities, and partly because they are demented and rejoice when innocents suffer. It is in the best interests of civilization to administer the lesson that terrorism will not win any political victories and will lead to the deaths of those who perpetrate it. The lesson may take a while to sink in – for decades, the West has been "teaching" the opposite: that terrorism is profitable and safe – but once it does, rational enemies will stop employing it, and the number of people willing to accept the insane as leaders will vastly diminish.
Why not be straightforward and identify specific states and organizations as the enemy? The reason is that we have little to fear from Iran, Syria, Saudi-controlled Arabia, al-Qaeda, Hamas, etc. beyond their capacity for attacking civilian targets. If the cost of those attacks is rendered prohibitive and the infrastructure that supports them demolished, we can live at peace with fiercely anti-Western governments. If, on the other hand, we mount a war against Islamofascism in general, we will wind up having to conquer and occupy a large part of the Middle East, a role that Americans would not find congenial.
2. Abandon the United Nations framework. The U.N. has proven itself incapable of authorizing the enforcement of its own resolutions and has dwindled to a mechanism for protecting flagrant enemies of peace from retribution. Future operations should be conducted without asking the U.N.'s blessing or offering it any role whatsoever. It is clear that a resolute America will have no trouble gathering all of the allies that it needs. Going through the U.N. simply gives non-allies the opportunity to create friction.
3. Using liberated Iraq as a base, launch a swift and devastating campaign against all known terrorist camps and centers within reach, without regard to national boundaries.  Al-Qaeda, Hamas, Hezbollah, Islamic Jihad, the al-Aqsa Brigades and their ilk are not invisible, underground, amorphous cells. They have thousands of "soldiers", identifiable leaders and extensive physical facilities. Immediately after post-Saddam Iraq is in a reasonably pacific state, we should demand that the neighboring states expel all terrorist organizations from their territories, with the ultimatum that we will exterminate whomever they do not kick out. (It may be prudent to omit Iran from the first ultimatum, as it is militarily stronger than the other targets and its government more vulnerable to an internal revolution favorable to our interests.)
Once the ultimatums expire, we should attack with precise and overwhelming force, using Pompey's ancient campaign against the Mediterranean pirates as our model. Destroying a couple score of terrorist bases and killing a few thousand terrorist associates within a space of two or three weeks will have a far more salutary impact than the same level of activity spread over several months.
4. Establish a long-term, unobtrusive presence in the Middle East that can stifle terrorist reincarnations in their early stages. The Middle East is not, of course, the only region in which terrorist groups can be born, but it is currently the most fertile. The U.S. will need to watch it closely for many years. The best way to do that is not to set up large, isolated bases of the sort that we now have in Saudi-controlled Arabia and Qatar but to spread out our forces and be active in detecting, infiltrating and quietly preempting future threats. We will not be in the same position as the British in pre-independence India, since we will not control the local governments, but we would do well to emulate certain of the Raj's practices, particularly its development of a large cadre of officers familiar with the local language and culture.
5. Establish active intelligence operations among the Moslem communities in Europe. While American Moslems have shown themselves overwhelmingly, if not unanimously, loyal to their country and hostile to Islamofascism, the same happy situation hardly exists in Europe. Just as the FBI long kept white supremacists in this country under close surveillance, we need to infiltrate and observe Islamic extremist groups abroad. That task will require a high degree of delicacy, for some European governments may be afraid to cooperate openly, despite the fact that damping down the extremists is strongly in their own interests.
6. Remember secondary fronts, but shun distractions. Terrorism is not an exclusively Middle Eastern or Moslem phenomenon, and we should view the IRA, ETA and FARC just as negatively as al-Qaeda. Britain, Ireland and Spain have the first two under reasonable control, but we may at some point have to intervene decisively in Colombia. We should not, however, let the War on Terror become a catch-all for every improvement that we might desire to the political structure of the world.
The biggest potential distraction is the notion of resolving Israeli-Palestinian conflict, which antedates the Islamofascist terrorist threat and doubtless will outlast it. It is not at all likely that the parties will reach a mutually satisfactory compromise for another generation or two, and American efforts to promote an earlier settlement will have a negative effect on the War on Terror. The Palestinian authorities have, after all, firmly aligned themselves with terrorism. They directly promote, praise and subsidize suicide bombing, and their followers gathered by the tens of thousands to cheer the 9/11 attacks. Rewarding such actions to even the smallest degree is folly. If we must have a Palestinian policy, it should be that there will be no self-governing Palestinian state until every Palestinian who was alive on September 11, 2001, has gone to his grave. There would be a fine exemplum of the futility of terrorist deeds.
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February 14, 2003
As the overthrow of Saddam Hussein approaches, there is more and more discussion of what will come next. It is a natural question, but most of the proffered answers view it from a perspective that underscores the fundamental lack of seriousness of opinion makers in Western nations. The great topics that they regard as most pressing are, first, the reconstruction of Iraq after a quarter century of state terror and, second, the resolution of the Arab-Israeli conflict. Left out of account is what ought to weigh most on our minds: What are the next steps in winning the War on Terror? The current preoccupation is as if the Allied leaders had met in 1943 to ponder the post-liberation situation in North Africa and Britain's future role in India.
In the long run, the future of Iraq is in the hands of the Iraqis. The United States does not, by virtue of having rescued the country from tyranny, have an obligation to ensure its transformation into a peaceful, free market democracy, devoutly though we wish for that consummation. In any case, the creation of a utopia in Mesopotamia will not, in and of itself, eliminate the threat posed by al-Qaeda, Hamas, Hezbollah and other terrorist groups. Opponents of deposing Saddam have been shouting for months that Iraq is a "distraction" from fighting terrorism, but they offer no ideas for proceeding with the fight once the distraction is removed. The Senate Foreign Relations Committee held a contentious hearing earlier this week in the Bush Administration's plans for the future of Iraq. Not one Senator asked about its plans for shortening the future of al-Qaeda et al.
Two of the great foreign policy noisemakers, Zbigniew Brzezinski and Brent Scowcroft, have stepped forward to fill the gap. In a Wall Street Journal op-ed, they propose to combat terrorism by compelling Israel to accept a Palestinian state on the West Bank. David Frum has deftly exposed the flaws in their concept. I should like to add that, even if the establishment of Arafatistan would bring peace to Israel, it would not bring peace to America. The late, unlamented Osama bin Laden was our enemy when the Clinton Administration was vigorously pressing Israel to negotiate with the Palestinian thugs. His epigones will be our enemies regardless of what happens in a tiny sliver of the territory that they claim for the House of Islam. If we pressure Israel into yielding to its enemies, that will prove to the terrorists that we are weak and to Moslems who might be inclined to take our side that we are willing to sacrifice our friends in the hope of temporary safety for ourselves.
The President has been quiet about his military plans after Iraq. Silence may be the best course at the moment, since much will depend on the immediate aftermath of the campaign in Iraq. On the other hand, the public is not, I fear, being well prepared for the next phase of the war, which calls for persuading or compelling Iran, Syria, Saudi-controlled Arabia and other Middle Eastern governments to expel terrorist groups from their territories, deny them funding and cooperate in pursuing their operatives. It is likely to be a confusing period, during which victories will be obscure and the occasional defeats highly visible. Unless American strategy is clear, there is a high risk that public opinion will grow demoralized and that demagogues will simple "solutions" along the lines of "throw Israel to the wolves" will gain a substantial audience. It is easy to picture the next Democratic Presidential candidate declaring that the War on Terror has been a "failure", urging the withdrawal of U.S. forces from the Middle East, denouncing "Likud intransigence" and condemning anti-terrorist measures as violations of civil liberties. If the electorate loses its sense of the overall shape of the war and sees nothing but a sequence of unrelated skirmishes, slinking away may become a vote-winning idea.
Unhappily, we will discover, if we adopt it, that, just as we did not choose to enter this struggle, we cannot leave it at will. If the fall of Baghdad is the end of our efforts, there will never be an end to our war.
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February 9, 2003
The Bush Administration’s proposed overhaul of the tax rules for retirement savings is one of those rare policy initiatives on which I can comment as a professional, so I certainly am not going to shirk the opportunity. Readers who think that “IRA” refers to an Irish terrorist group or who are easily bored by technical jargon should click to another page.
The Administration’s proposals affect three areas: individual retirement accounts, employer-sponsored plans that allow pre-tax employee contributions (of which section 401(k) and 403(b) plans are the best known varieties) and defined contribution plans funded with employer contributions. [1] There is not much of a common thread among the three elements. The first is a far-reaching and, I believe, beneficial idea. The second is minor fiddling that will have more effect on form than substance. The last is a revival of a Clinton era proposal that failed under a Democratic Congress and would, if enacted, largely negate the benefits of the first two elements for small businesses and, at best, complicate plan design for larger employers.
With utter predictability, a small cadre of liberal commentators, most notably Karen Ferguson of the Pension Rights Center, Alabama law professor Norman Stein and former Treasury official Ron Pearlman, have denounced the Bush proposals, just as they have denounced every retirement savings initiative for the past 25 years, going back to 401(k) plans or, in some cases, to IRA’s. Almost all of them have a strong ideological bias against making individuals primarily responsible for their own retirement income and a sharp distaste for programs that benefit “the rich”. On specific issues, they tend to be ill-informed,with little notion of how retirement plans work in real life and no interest in finding out. I shall try to deal with their most widely publicized arguments as I review the package.
Individual savings. The individual savings proposals meld two concepts: They will make it possible for the great majority of Americans to stop paying taxes on investment income, and they will spread the revenue “cost” to the government across the period over which the tax-favored income is earned, in place of a system that results in an exaggerated up-front deductions that are partially offset by tax collections years later.
The Administration proposes to replace individual retirement accounts, under which contributions are deductible and withdrawals are fully taxed, with new vehicles that operate in the opposite (but economically equivalent) manner: Contributions will be nondeductible, but withdrawals will be tax-free. [2]
The contribution limits for the proposed “lifetime savings accounts” and “retirement savings accounts” will total $15,000 per taxpayer per year. Since money deposited into an LSA will be eligible for withdrawal at any time without penalty, there will be no reason for anyone to put any but the shortest term savings anywhere else, until the $7,500 annual limit is reached. RSA’s will be slightly less accessible: The principal can be taken out when the owner wishes, but there will be tax penalties for withdrawing earnings before age 59.
The new accounts will shift the economics of savings vs. consumption far more radically than the limited vehicles that they replace. One of the persistent liberal arguments against present day IRA’s is that academic studies generally do not show that they have done much to increase savings. People who are going to put money aside anyway utilize IRA’s first, but they don’t materially increase their total savings, and non-savers have not been much encouraged to alter their habits.
The limited impact of IRA’s is not very surprising, for they are very limited instruments. For a large proportion of middle class taxpayers, contributions are not excludible from income. In 2003, the exclusion starts to phase out (except for taxpayers who do not participate in any tax-qualified employer retirement plan, a minuscule group at upper income levels) at $60,000 for married couples and $40,000 for single taxpayers, and is gone at $70,000 and $50,000, respectively. For taxpayers whose incomes are above those levels, the only advantage to IRA contributions is that tax on the earnings is postponed until withdrawal – a very weak incentive.
Those taxpayers who are able to make use of the IRA exclusion are mostly in very low brackets. Many of them are young and anticipate being in higher brackets someday, but for them the tax benefits of IRA’s may be illusory. If one makes deductible contributions while in the 10 percent bracket and withdraws them when one is in the 31 percent bracket, “tax-free savings” are more like “earnings-free savings”.
Since an LSA does not tie up funds, it is a far more tempting vehicle than an IRA. Some youngsters will, it is true, save for only brief periods before blowing their capital on vacations or cars, but many others will feel a psychological aversion to disturbing accumulating nest eggs. LSA’s and RSA’s will also be useful depositories for the occasional inheritances and other windfalls that can come to people at all economic levels.
Unless one believes (as some innumerate leftists do) that the propensity to save is independent of the rewards for saving, LSA’s and RSA’s are as likely as any measure devised so far to promote longer-term investment thinking by individuals who are not particularly wealthy. They are certainly a great improvement on IRA’s. From the government’s point of view, they also have an advantage. An IRA front-loads its tax incentives. Taxpayers deduct the full amount of the IRA contribution immediately, and the government collects taxes on the back end. The initial revenue loss is greater than the ultimate tax incentive, but the government doesn’t recoup the difference until the IRA owner starts receiving distributions. An LSA or RSA, by contrast, has no up-front revenue cost. Instead, the government forgoes revenue as earnings accrue, so that the savings incentives and the budgetary cost go pari passu. That is a more rational arrangement than the current one. Of immediate practical concern is the fact that the estimated “cost” of LSA’s and RSA’s over the next decade is negative: If implemented, they are projected to add a net three billion dollars to the Treasury’s income between 2002 and 2013, because the government will for several years gain more from the elimination of IRA deductions than it loses in taxes on earnings generated by savings.
Employer Retirement Savings Accounts. “ERSA” is the proposed name for a new type of employer-sponsored plan that would replace all of the existing programs that allow participants to make pre-tax or after-tax voluntary contributions. The present array sounds like to the laymen like alphanumerical soup: 401(k) plans, SIMPLE 401(k) plans, 403(b) plans, governmental 457(b) plans, SIMPLE IRA’s, SARSEP’s (now obsolete, though a few grandfathered plans still exist), thrift plans (a relic of the past) and Roth 401(k) plans (scheduled for introduction in 2006). The draftsmen of the President’s proposal seem to have been overwhelmed by the plethora of names and under the impression that consolidating them will markedly simplify the tax code. Similarly, when I go into a hardware store, I wonder why anybody needs eleven types of screwdriver, but, given the power to do so, I should be cautious about imposing my neophyte concepts of simplification on the carpentry trade.
The point about the ERSA proposal that has drawn the attention of liberal commentators is its minor liberalization of the “nondiscrimination” rules that can limit highly compensated employees’ ability to contribute to 401(k) plans. Their wild claims that employers will respond by cutting back matching contributions sounds ludicrous to anyone with experience in the area, but the proposal writers’ belief that the changes will do much good is little better founded. What the critics overlook is that these slightly less onerous rules will apply far more broadly. Right now, they affect only 401(k) plans and SARSEP’s. For a number of good reasons, 403(b) plans (used mostly by teachers), 457(b) plans (the federal government does not attempt to tell state and local governments what plan designs are “discriminatory”) or SIMPLE IRA’s (which are supposed to be simple) are exempt. The proposal does not probe the reasons underlying the profusion of savings vehicles; it just takes it for granted that simpler is better.
Overall, this element of the proposal falls into the “rearrange the furniture” category. Once 403(b) plan sponsors (primarily universities and hospitals) and state governments realize the consequences for themselves, they will most likely wage a successful battle to keep their peculiar vehicles separate from the common run of 401(k) plans. All the rest will be of interest chiefly to consultants like myself.
Defined contribution plan rules. The last element of the proposal flies, like the second, under the banner of “simplification”, but its purpose is transparently different. A basic principle of employer-sponsored qualified retirement plans is that contributions or benefits cannot be skewed toward highly compensated employees [3]. Some exceptions are allowed, one (“permitted disparity”) reflecting the fact that Social Security benefits are skewed in favor of lower-paid workers and another (“cross-testing”) that a contribution of a given amount has greater value for younger participants (because they can invest the money for a longer time before retirement).
Both permitted disparity and cross-testing have been the targets of a long-running vendetta on the part of tax policy bureaucrats. The Administration’s package includes the repeal of both for defined contribution plans, for which no justification offered in Treasury’s “blue book” beyond, “Defined-contribution plan qualification requirements would be simplified. . . .” Here “simpler” is not better; it is not necessarily even simpler.
The Clinton Administration floated a similar proposal in 1994, but it went nowhere although Democrats controlled both Houses of Congress. The objection was that cross-testing is a central element in retirement plan design for tens of thousands of small businesses. The typical plan of this kind lets the company set aside $40,000 a year for the owner at the cost of a five percent or higher contribution for rank-and-file employees. The numbers don’t always work out quite that well for the owner but are never worse for the other participants.
Repealing defined contribution plan cross-testing would wipe out vast numbers of plans that use the technique. Their successors would be no plan at all or defined benefit plans, which are most complicated to operate but, ironically, often would make benefits larger for the owners and smaller for everyone else. The relative simplicity of defined contribution plans has maintained their competitiveness despite the appeal of DB plans to owners’ self-interest. One might have expected the Fergusons, Steins and Pearlmans to notice this phenomenon and leap to the defense of DC plans. The explanation for their silence is, of course, that they would gladly wipe out DB plans for small businesses, too.
Larger companies have less interest in DC plan cross-testing, but some do make use of it, and a different aspect of the proposal – “simplifying” the section 410(b) coverage test (explanation available upon request) – will create problems for others.
It is hard to believe that any high-ranking Bushite gave more than passing attention to this part of the proposal, and it has already drawn harshly negative comments from employer groups. Were I conspiracy-minded, I should almost suspect that bureaucrats who dislike the LSA/RSA proposal linked this one to it as a “poison pill”. Happily, Congress can draw out the poison by dismissing it as speedily as in 1994.
1. A “defined contribution” plan is one in which each participant has an individual account and receives a benefit equal to contributions to the account plus the return on its investments. The name is not very descriptive.
2. That the two arrangements are mirror images is not intuitively obvious to everyone. Here is an illustration of their identity. Suppose that Alex contributes $1,000 to a Roth IRA (which is taxed just like one of the proposed LSA or RSA accounts), has a marginal tax rate is 25 percent, and earns 8 percent a year. After ten years, the account will be worth $2,159. Now suppose that Becky, with the same tax rate and investment return, makes an equivalent contribution to an IRA. Because the contribution is deductible, she can contribute $1,333 for an out-of-pocket cost of only $1,000, just like Alex. Her account’s value after ten years will be $2,879, but she has to pay taxes on withdrawals. The tax is $720, leaving her, too, with $2,159. Note that the identity does not hold if the account owner’s marginal tax rate changes. If it goes up, the Roth IRA paradigm is better; if down, opposite. Since the era when most taxpayers could expect to be in significantly lower tax brackets after retirement is past, neither way is clearly a better incentive.
3. For purposes of the “nondiscrimination” rules, employees who are paid over $85,000 a year are, as a general rule, defined as “highly compensated”. In another bit of furniture rearrangement, the White House proposal would change that threshold to the Social Security taxable wage base ($87,000 in 2003).
Further Reading: Gregory Kolojeski, "Why the Arguments Against Lifetime Savings Accounts are Wrong"
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