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Democrats Were Fighting for the Rich in Opposing the GOP's 401(k) Cut Proposal

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By Dave Lindorff

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If you want to understand why the Democratic Party lost to Trump and the Republicans in 2016, why they'll probably fail to take back Congress in 2018, and why they'll probably lose big in the next presidential election in 2020, just look at their obscene stand on the GOP's proposal to slash the taxable employee deduction for contributions to 401(k) plans from the current $18,000 to just $2500.

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Of course the GOP proposal was classic Republican stick-it-to-the-little-guy stuff and in the end the House tax bill announced Thursday dropped it, leaving the deduction standing.

But let's look at what they had been proposing: If you tell someone who makes, say, $80,000 a year, and has been putting away the typical 6% of that, or about $4800 a year, matched by perhaps another $4000 by the employer if lucky, that suddenly he or she will be limited to a tax deductible contribution of just $2500 a year, you are first of all saying you want that worker to be undersaved for retirement, but worse, you're making that employee lose out on perhaps $2000 or so in employer-contributed retirement money each year!

That's outrageous, I'm sure most sentient citizens will agree.

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But what was the Democratic Party's position?

They got up in arms saying that it was outrageous for Republicans to be cutting the tax deductible employee contribution amount from $18,000 to $2500 a year! And they said that instead they want to raise it to $25,000 a year.

This in a country where the average employee who even has a 401(k) plan on the job contributes 6.2% of income, according to the investment firm Vanguard. For a person earning $50,000 a year, that would be $3100, for a person earning $80,000 -- pretty good money for that blue-collar or clerical worker that the Democrats say is their target voter -- it would be $4960, for a person earning $100,00 a year, it's $6200, and for a person earning a whopping $150,000 (putting them in likely Republican voter territory), it's $9300.

How many people do you know among your working-class, middle-class, or liberal friends who could manage to contribute more than $10,000 our of their family paycheck, much less their personal paycheck, in a year?

I don't know any.

So what should the Democrats be proposing as this Republican tax bill gets debated?

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First, as a good bargaining point, that the 401(k) deduction limit should be reduced from the 2017 limit of $18,000 (or $36,000 per couple) to $10,000 a year per person ($20,000 per couple).

Second, the savings from cutting the deduction from $18,000 a year to $10,000 must go towards eliminating the tax on Social Security benefits totally.

What, you say? Eliminate the tax on Social Security? Can they do that?

Not only can they, but when Social Security was established in 1936, and until 1984, the benefits were tax free under law, supported by several court rulings. But in 1983 during the first term of President Ronald Reagan, Democrats in Congress struck a deal with the White House to "save" Social Security by both raising the payroll tax and by taxing retiree benefits. It was and remains a huge hit on the elderly and disabled which has severely diminished the program's ability to prevent poverty among the elderly. You think you're going to get $1500 per month in benefits in retirement -- a typical worker's benefit -- and then they take away 10% or more of it, leaving it at just a net $1350 a month.

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Dave Lindorff is a founding member of the collectively-owned, journalist-run online newspaper www.thiscantbehappening.net. He is a columnist for Counterpunch, is author of several recent books ("This Can't Be Happening! Resisting the (more...)
 

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