In the opening volley of this traditional Washington ping pong match, the president purposely serves a first volley he knows will be slammed right back. Why? We'll leave the answer to the political pundits. Here's the reality as it impacts retirement advisers and retirement savers:
First, never pay attention to the government until legislation is actually drafted (but not yet passed). Then you know what deals have been made (or are more likely to be made). There's also a definitive line in the sand drawn, so you'll know whether to worry (and fight, if that's what you do) or get excited (and promote it, if that's what you do).
Right now, and until Congress begins to makes its moves, you simply don't know what's going to happen.
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Second, the mood in Washington has definitely changed. Last year we saw whack-o ideas coming out of the Senate (ironically under the guise of "bipartisan"). But, remember, last year the Democrats controlled the upper chamber. This year it's the Republicans and, say what you will about the weak knees of the Establishment, there is a considerable Tea Party element reining the so-called RINOs in.
It's therefore doubtful we'll see a repeat of last year's talk of punishing retirement savers. Look forward to going back to the old-fashioned way to help those less able to save – they earn it, and the government doesn't take it.
Third, despite the apparent defiance on the part of the president, there still may be room for compromise. Some of the elements in his proposal (namely, the tax breaks) may be attractive to the Republican majority (and even a few of the remaining moderate Democrats). In general terms, the Republicans are already on board with wanting to help the middle-class, so that's common ground that exists already.
Fourth, and this is the real issue the retirement industry should take notice of, the threat comes not from tax policy, but from the underlying theme that government can provide better retirement management than the private sector. We tried that with medical services for veterans and it didn't work out so well. What makes anyone think it will be any different for retirement?
I mean, I have two words for you: Social Security Meltdown. OK, that's three, but you know where I'm coming from. And don't be fooled into believing "The Republicans will make sure this never happens." It's already happening at the state level. (See Illinois, then see Illinois' terrible track record managing public employee pensions. Then see why retirement savers should be worried.)
Fifth, and finally, some good news. The president's reprisal of earlier policy pronouncements (i.e., ones that even a Democrat-controlled Congress couldn't pass) reek of the last years of Hoover/first years of Roosevelt.
Any serious post-1980-trained economist knows those proposals led to the Depression by destroying the capital markets. That's why no serious politician is suggesting we return to the tax regime of that earlier era. So, Obama might have put the taxes back on the table again, but the Republicans will just as quickly take them off the table.
Or, as Pat Morita's "Karate Kid" character might have said, "Tax on, tax off."
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Christopher Carosa
Chris Carosa has been writing a weekly article and monthly column for BenefitsPRO online and BenefitsPRO Magazine since 2011 and is a nationally recognized award-winning writer, researcher and speaker. He’s written seven books, including From Cradle to Retire: The Child IRA; Hey! What’s My Number? – How to Increase the Odds You Will Retire in Comfort; A Pizza The Action: Everything I Ever Learned About Business I Learned By Working in a Pizza Stand at the Erie County Fair; and the widely acclaimed 401(k) Fiduciary Solutions. Carosa is also Chief Contributing Editor of the authoritative trade journal FiduciaryNews.com and publisher of the Mendon-Honeoye Falls-Lima Sentinel, a weekly community newspaper he founded in 1989. Currently serving as President of the National Society of Newspaper Columnists and with more than 1,000 articles published in various publications, he appears regularly in the national media. A “parallel” entrepreneur, he actively runs a handful of businesses, including a small boutique investment adviser, providing hands-on experience for his writing. A trained astrophysicist, he also holds an MBA and has been designated a Certified Trust and Financial Advisor. Share your thoughts and story ideas with him through Facebook (https://www.facebook.com/christophercarosa/)and Twitter (https://twitter.com/ChrisCarosa).
