Democrats and 401(k) Plans: Tax, Baby, Tax?

More on the plan to tax retirement funds.

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 "You know, writing about this is dangerous in the current political climate," is what a Democratic congressional aide just said to me concerning my blog posts about how liberal Democrats seem to want to disappear the Investor Class. By "dangerous," I assume he means it doesn't play well with voters. (Indeed, John McCain has picked up on this theme in his stump speech.) If you are tuning in late, let me recap the reasoning behind the accelerating movement to tax retirement plans:

1) Investors tend to be for things liberals don't like, such as big tax cuts, smaller government, and Republicans. This is the political rationale behind Republicans pushing for an Ownership Society.  It's kind of like how government workers tend to prefer bigger government and Democrats.

2)  If the tax preferences for 401(k) plans and other retirement vehicles were removed and a "guaranteed" government retirement plan created—right smack in the middle of a brutal bear market—investors might well opt for the supposed safety of the government plan. On top of that, the aftertax returns for stock investors would be reduced by the higher capital gains taxes Barack Obama and congressional Democrats are promising.

3)  This whole deal is similar to what Dems want to do with healthcare— create an alternative government insurance system that fatally weakens its private sector competitors so that in the end Uncle Sam is the last insurer standing.

4) Wouldn't all this hurt the stock market and the ability of private enterprise to raise capital? You bet, but proponents will try to replace any missing private capital with government "investment" spending.