All of those "spoilers" released by the White House in the weeks leading up to President Obama's scheduled State of the Union Tuesday sure were annoying. I mean, it seems rather pointless to watch the speech now, right?
Because of the GOP's control of both chambers of Congress, the same can be said for a few of the initiatives Obama was expected to bring up, including his old idea to limit contributions in tax-advantaged retirement accounts to about $3.4 million.
This notion hasn't gotten very far in the past and there's hardly any chance it will anytime soon.
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Jim Klein, president of the American Benefits Council, sent out an email Monday pointing out the shortcomings of the president's idea.
The proposal, he said, could easily mean caps on retirement savings far lower than that $3.4 million, an amount that would pay an annuity of $210,000 at age 62 and which must sound like a truly vast sum to all but the wealthiest of Americans.
The fact that only a few of us will ever amass so much in our various retirement accounts misses the point. The problem is that today's low interest rates grossly distort the picture. Once rates rise, as they invariably will, buying that annuity would become cheaper and the cap would drop.
That means many more Americans would be impacted than just the narrow slice of us – and by "us," I don't mean "me" – that somehow have amassed millions in our retirement accounts.
Based on today's low interest rates, the cap for a 35-year-old would be $861,000. However, using the more realistic, 25-year historical average for interest rates that retirement plans use for funding purposes, the cap would be $325,000.
No one knows what might happen to interest rates over the long term. Yes, they're likely to climb soon enough, but we also could see them drop again at the same time that stocks plunge and jobs once again disappear.
In other words, any right-minded 35-year-old trying to anticipate and prepare for life's many unknowns – economic turmoil, ill health, job loss, etc. – wouldn't want to stop at $325,000.
"Politically, it is convenient to target people who have saved $3.4 million," Klein said. "But the devil is in the details when you look at the impact on younger workers and the inevitability that interest rates will rise over the coming decades."
To be sure, under Obama's proposal, billions of dollars will end up in federal coffers rather than retirement accounts. But there are better ways to stop people – yes, Mitt Romney, I'm talking about you – from abusing the tax deductions they get on their retirement plan contributions.
As Klein put it, "We must not erode long-term economic security for short-term (tax) revenue gains."
That's a point the Obama White House apparently doesn't understand. Thankfully, Congress, as it's constituted today, does.
Also read: Corporate tax cuts face corporate backlash
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