Are they this insane?

Matthew Hoy
By Matthew Hoy on October 24, 2008

Last week some House Democrats held a hearing on a plan that would do away with 401(k) plans and replace them with what I'll call Social Security v2.

A plan by Teresa Ghilarducci, professor of economic-policy analysis at the New School for Social Research in New York, contains elements that are being considered. She testified last week before Miller’s Education and Labor Committee on her proposal. 

At that hearing, the director of the Congressional Budget Office, Peter Orszag, testified that some $2 trillion in retirement savings has been lost over the past 15 months.

Under Ghilarducci’s plan, all workers would receive a $600 annual inflation-adjusted subsidy from the U.S. government but would be required to invest 5 percent of their pay into a guaranteed retirement account administered by the Social Security Administration. The money in turn would be invested in special government bonds that would pay 3 percent a year, adjusted for inflation.

The current system of providing tax breaks on 401(k) contributions and earnings would be eliminated.

Read further into the article and you get positive-sounding murmurs from people I wouldn't trust to guard the penny tray at the local 7-Eleven.

U.S. News & World Report's James Pethokoukis does some math on the proposed plan.

Ghilarducci would have workers abandon the stock market right at the bottom of the market. A stupid idea, according to Warren Buffett: "I don't like to opine on the stock market, and again I emphasize that I have no idea what the market will do in the short term. Nevertheless, I'll follow the lead of a restaurant that opened in an empty bank building and then advertised: 'Put your mouth where your money was.' Today my money and my mouth both say equities."

Ghilarducci would offer a lousy 3 percent return. The long-run return of the stock market, adjusted for inflation, is more like 7 percent. Look at it this way: Ten thousand dollars growing at 3 percent a year for 40 years leaves you with roughly $22,000. But $10,000 growing at 7 percent a year for 40 years leaves you with $150,000. That is a high price to pay for what Ghilarducci describes as the removal of "a source of financial anxiety and...fruitless discussions with brokers and financial sales agents, who are also desperate for more fees and are often wrong about markets." Please, I'll take a bit of worry for an additional $128,000.

I will too -- and it gets worse.

The Wall Street Journal's James Taranto notes that: "workers would be able to pass on only half of their account balances to their heirs; presumably the government would seize the remaining half."

You've got to be kidding me? Would these nuts seriously try to put this plan through Congress?

And if you think the stock market is in the tank now, just imagine what would happen as people go and liquidate their 401(k) in order to avoid a government takeover of them.

0 comments on “Are they this insane?”

  1. Are they this insane? - Yes, insane and delusional.

    They do not care if they destroy the American economy, in fact, they want to. They really do see America as EVIL, and they really do want to CHANGE it, and that includes destroying it - which they will do if BO gets elected, and the Dumbocrats gain a super-majority in the senate and congress.

  2. Do these liberal illuminati lefties think that a $600 subsidy and the requirement that we invest 5% of our pay into a retirement account and receive 3% is a great program? These nit-wits are trying to present this ridiculous plan to the American public? How embarrassing to those of us with common sense to have to listen to these supposedly intelligent politicians with their hare-brained ideas.


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