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#40614 - 10/10/08 12:44 AM Re: Only a heartbeat away... [Re: Smike]
Daniel Offline
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Registered: 05/23/01
Posts: 1515
 Originally Posted By: Smike
You could say saving for your kids college education is putting cash into savings account earning 3% while the costs of higher education far out pace that each year. Is that saving? Granted that money will be there in 20 years as long as the FDIC covers it, but the cost for that security would be high.


Yes, it is saving. If the money isn't put away, how would one pay for the kid's college education?

Put away $3,000 a year for 15 years, and that's $45,000 even at zero interest. That's money one wouldn't have available otherwise, regardless of inflation and rising college costs. Just because the money saved can't keep up with rising college costs doesn't mean one isn't saving, or that it's not worth it to save.

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#40616 - 10/10/08 02:12 AM Re: Only a heartbeat away... [Re: Daniel]
Smike Offline
Carpal Tunnel

Registered: 05/01/01
Posts: 3143
Loc: in your backyard
 Originally Posted By: Daniel
 Originally Posted By: Smike
You could say saving for your kids college education is putting cash into savings account earning 3% while the costs of higher education far out pace that each year. Is that saving? Granted that money will be there in 20 years as long as the FDIC covers it, but the cost for that security would be high.


Yes, it is saving. If the money isn't put away, how would one pay for the kid's college education?

Put away $3,000 a year for 15 years, and that's $45,000 even at zero interest. That's money one wouldn't have available otherwise, regardless of inflation and rising college costs. Just because the money saved can't keep up with rising college costs doesn't mean one isn't saving, or that it's not worth it to save.


Most of the time its not worth it to save in traditional methods the government is using to measuring savings rates. Also on the flip side the government outright ignores incomes from 401K's and capital gains as income to calculate the national dept to income ratios. So in the end I find the numbers to be suspect on the financial health of Main St.

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#40617 - 10/10/08 02:35 AM Re: Only a heartbeat away... [Re: Smike]
Daniel Offline
veteran

Registered: 05/23/01
Posts: 1515
 Originally Posted By: Smike
Most of the time its not worth it to save in traditional methods the government is using to measuring savings rates.


Well, as the saving for college example shows, traditional methods are what most people will use unless they're wealthy enough to ride out the ups and downs of the equity market. They don't have much of a choice, do they? And it is "worth it" because if they don't save then there won't be any money to send Jimmy to college.

 Originally Posted By: Smike
Also on the flip side the government outright ignores incomes from 401K's and capital gains as income to calculate the national dept to income ratios. So in the end I find the numbers to be suspect on the financial health of Main St.


401(k)s have been around for some time now. If the national savings rate has continued to decline, and if the government has not changed its methodology, then that decline would be indicative of a reduction in personal savings unless a lot more money is going into 401(k)s than before. One would have to get the hard data and crunch the numbers to see if that's the case.

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#40620 - 10/10/08 01:56 PM Re: Only a heartbeat away... [Re: Daniel]
Dillbag Offline
old hand

Registered: 05/02/06
Posts: 1130
Loc: "The Town"
The 401k argument doesn't hold any weight... Previously, retirement was mainly through pensions and savings!

The pension funds went away as 401k's replaced them... I bet if you did some searching you would find that 401k's are NOT replacing traditional savings.

You can't count a 401k as savings when comparing to past decades because they represent the pension equivalent. If you include them in savings, it would skew your numbers higher and would not be an accurate comparison.
_________________________
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#40621 - 10/10/08 02:11 PM Re: Only a heartbeat away... [Re: Dillbag]
alicex4 Offline
Carpal Tunnel

Registered: 07/05/00
Posts: 3400
Now Congress is thinking of taxing your 401k. I guess when there's $80 billion to be had ... http://www.investmentnews.com/apps/pbcs.dll/article?AID=/20081007/REG/810079894
Chief among them was eliminating $80 billion in tax savings for higher-income people enrolled in 401(k) retirement savings plans.

This was suggested by the chairman of the House Committee on Education and Labor.

“With respect to the 401(k), it appears to be a plan that is not really well-devised for the changes in the market,” Rep. George Miller, D-Calif., said.

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#40622 - 10/10/08 02:35 PM Re: Only a heartbeat away... [Re: alicex4]
Smike Offline
Carpal Tunnel

Registered: 05/01/01
Posts: 3143
Loc: in your backyard

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#40623 - 10/10/08 02:37 PM Re: Only a heartbeat away... [Re: alicex4]
Daniel Offline
veteran

Registered: 05/23/01
Posts: 1515
Alice, look at the article: first, it says it was suggested by one member of the committee. That's hardly an endorsement by "Congress."

Second, what sense does it make to give an incentive to save to those who are already making lots of money and can save on their own? If the program isn't promoting the savings among the people who really need to save, should we keep it in its present form?

Anything that takes the form of a tax deduction automatically gives more benefits to those in the highest tax brackets. If the point of 401(k)s is to promote saving, why give the biggest incentive to those who need the incentive the least when they can easily afford to save already? That's not an efficient use of what is in effect a government subsidy.

What might work better is a tax credit that's phased out towards higher income levels. Perhaps that would provide more of an incentive for those who really need it in order to save while not giving so much to those who don't need the incentive to begin with.

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#40624 - 10/10/08 02:41 PM Re: Only a heartbeat away... [Re: Daniel]
alicex4 Offline
Carpal Tunnel

Registered: 07/05/00
Posts: 3400
"Anything that takes the form of a tax deduction automatically gives more benefits to those in the highest tax brackets."

Yes, because they pay the most taxes.
According to the Office of Tax Analysis, the U.S. individual income tax is "highly progressive," with a small group of higher-income taxpayers paying most of the individual income taxes each year.


In 2002 the latest year of available data, the top 5 percent of taxpayers paid more than one-half (53.8 percent) of all individual income taxes, but reported roughly one-third (30.6 percent) of income.

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#40625 - 10/10/08 03:15 PM Re: Only a heartbeat away... [Re: alicex4]
Daniel Offline
veteran

Registered: 05/23/01
Posts: 1515
Alice, the fact that people who make the most money get the most from tax breaks doesn't address the question of whether they should get a greater subsidy for saving in their 401(k)s. If you're a lower income earner, you might get 15 cents off your taxes for every dollar you put into your 401(k). If you're very wealthy, you'll get 35 cents for every dollar. Is that a good social policy?

The fact that the wealthy pay the most income taxes (largely because they make a lot more money--even under a flat tax system, they'd pay far more income taxes than everyone else) doesn't answer the larger question of whether government subsidies should be put in terms of tax cuts. If one thinks we should have a flat tax (which even Steve Forbes doesn't believe in) or a head tax or some other system, that's a different question. If one thinks lower taxes are better, that's yet another different question. It doesn't address whether structuring programs around tax deductions is a good idea. (If we want to debate the merits of progressive income taxation, I'd be glad to do so in another thread.)

It's true that anything that's proposed as a tax deduction favors the wealthy more. The question is whether that's the way we want to structure certain incentives. If it provides greater incentives to people who need the incentive the least, I'd say that's a bad policy, no?

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#40626 - 10/10/08 03:28 PM Re: Only a heartbeat away... [Re: Daniel]
Smike Offline
Carpal Tunnel

Registered: 05/01/01
Posts: 3143
Loc: in your backyard
Man I have to swallow hard here (well not really)and agree with Daniel. Even Warren Buffet says the ‘Tax rate’ (percentage of tax vs. earned income) is the lower for the upper earners and that in terms of percentage the lower earners pay the most in taxes. Of course when you get to the very bottom then it’s reversed. But the long and the short of it is, that people in the middle by percentage by the most in taxes.

http://www.youtube.com/watch?v=Cu5B-2LoC4s

He even put a 1 million dollar bet out for anyone in Forbes 400 richest to show they pay a higher tax rate then their secretary. No takers.


Edited by Smike (10/10/08 03:39 PM)

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