By the early 1970s it was abundantly clear that people in America were living beyond their means and inadequately planning for their retirement. Social Security alone could not, nor was it ever intended to, provide fully for post-retirement financial security. To address this problem, in 1974 Congress established the Individual Retirement Account (IRA) to encourage individuals to take responsibility for their own future by creating their personal retirement nest egg.
In 1997, Congress created the ROTH IRA, wherein contributions were made with after-tax income as a slightly different vehicle to accomplish the same end.
Both programs created a covenant between the government and citizen taxpayers with clear ground rules. In the case of the traditional IRA, you create a savings plan to provide for your retirement years and we will keep our hands off that money until you use it. In the case of the ROTH IRA, you pay tax on your contributions now and we will not tax those funds, or the income it generates, ever again.
Millions of responsible people took the government up on their offer. For the last 40 years, they have chosen not to rely on the government to fund their retirement, instead postponing current consumption to put away money for later years. But it seems our government is once again striving to see that no responsible behavior goes unpunished. Uncle Sam is threatening to renege on their part of the bargain.
Buried in the Obama Administration's 2014 budget proposal is a provision to place a $3 million cap on IRA accounts. Any excess balances would be required to be distributed and taxed. The proposal serves to change the rules governing IRAs unilaterally and retroactively. It penalizes those that have behaved responsibly and trusted their government to play fair.
To be clear, I believe that the income and wealth gap between rich and poor in America has become dangerous and unsustainable. I also believe that the wealthy have a disproportionate responsibility to fund the obligations of government. I am a believer in the philosophical and moral basis for a progressive tax structure.
But if Congress and the Obama Administration want to raise taxes on the wealthy, they should have the courage to do so directly by raising tax rates, and not by using smoke and mirrors -- all the while violating past commitments upon which taxpayers have relied.
Integrity is a two-way street. There are many types of bankruptcy. Financial is one, moral is quite another.