MyRA. MORE GOVERNMENT CONTROL OF PRIVATE RETIREMENT ACCOUNTS

February 4, 2014

When President Obama introduced in this year’s State of the Union address his proposal to create new retirement accounts for, in the words of the White House, “the millions of low and middle-income households earning up to $191,000,” I seriously raised my eyebrows in suspicion, not to mention raising other things as well.

Obama calls these new accounts “MyRAs.”

I already know Social Security will not be available to me in about ten years. So now, Obama wants to give us another government program that will certainly rob citizens of their retirement savings?

I know you are asking how could enhancing retirement savings not be a good idea? And, even better, it is a free lunch. Again in the words of the White House, “the account balance will never go down in value” and will be totally secure because it will be “backed by the U.S. government.”

President Obama is creating these accounts with the greatest of ease, without even a new law from Congress, by doing what he has done better than any president in American history. Drive the U.S. government into debt.

These wonderful new retirement accounts will receive bonds from the U.S. Government. And who guarantees them?

Please, dear reader, if you are a U.S. taxpayer, look in the mirror and say “me.”

If the State of the Union was really about the president informing Congress and the nation, he would have reported the following from the recent 2013 Long-Term Budget Outlook report of the Congressional Budget Office:

“Federal debt held by the public is now about 73 percent of the economy’s annual output…higher than at any point in U.S. history, except a brief period around World War II, and it is twice the percentage at the end of 2007.”

“CBO projects,” the report continues, “that federal debt held by the public would reach 100 percent of GDP by 2038….even without accounting for the harmful effects that growing debt would have on the economy.”

Meanwhile, as President Obama uses U.S. government bonds to create magical new risk-free retirement savings accounts, there was not a word in the State of the Union of the broken state of affairs of the government’s oldest retirement plan – Social Security.

According to Social Security’s latest trustees report, the revenue shortfall, in today’s dollars, of projected requirements of Social Security to meet its long-term obligations is $9.6 trillion. Beginning in 2033, when those now in their late forties start retiring, there will be only funds “sufficient to pay 77 percent of scheduled benefits.”

If the president really wants to enhance retirement savings of low and middle income Americans, and create real savings and investment while addressing the fiscal disaster of Social Security, let these folks opt out of the Social Security black hole and use those funds to open a real retirement account.

This is what was done in Chile and it worked. The Chilean economy grew because the new retirement accounts directed investments into the real economy (as opposed to creating more government debt) and Chilean workers have achieved real returns and newly created wealth.

Tax reform expert Daniel Mitchell of the Cato Institute says that even though MyRAs would be protected from double taxation, kind of like a Roth IRA, there are some bad features, including the fact that taxpayers would be subsidizing the earnings, or interest, paid to account holders (though this would be a relatively benign form of government spending, at least compared to Obamacare, ethanol, etc, etc).

Simply stated, if Obama was concerned about low returns for savers, he should be directing his ire at the Federal Reserve, which has artificially pushed interest rates to very low levels as part of its easy-money policy.

But more importantly, MyRAs will be very inadequate for most workers with modest incomes. If the President really wanted to help ordinary people save for retirement, he would follow the successful example of Chile and more than 30 other nations that allow workers to shift their payroll taxes into personal retirement accounts.

Critics say it would be very expensive to make a transition to this modern system, and they’re right. If we let younger workers put their payroll taxes in a personal accounts, we’ll have to come up with a new source of revenue to finance benefits being paid to current retirees and older workers.

And we’re talking lots of money, as much as $7 trillion over the next few decades.

But that’s a lot less than the $36 trillion cash shortfall that we’ll have to somehow deal with if we maintain the current system.

In other words, we’re in a very deep hole. But if we shift to personal retirement accounts, the hole won’t be nearly as large.


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