Responsibility #55

<body topmargin=0 leftmargin=0 marginheight=0 marginwidth=0> <table cellpadding=0 cellspacing=0 border=0><tr> <td valign="top" colspan=2 height=110 BGCOLOR="#666699" TEXT="#080000" bgproperties="fixed" background="04900840erlcjm.png"> <div> <FONT SIZE="5" COLOR="#FFFFFF" FACE="Arial" ><B>NATIONAL SECURITY--Structural,Moral,Economic,Domestic,International</B></FONT><B>     |     </B><A HREF="index.htm" TARGET="_top" TITLE="NATIONAL SECURITYStructural,Moral,Econom"><U><B>home</B></U></A></div> <div> <A HREF="id33.htm" TARGET="_top" TITLE="Responsibility Contents"><U>Responsibility Contents</U></A>   |   <A HREF="id34.htm" TARGET="_top" TITLE="Responsibility 1"><U>Responsibility #1</U></A>   |   <A HREF="id35.htm" TARGET="_top" TITLE="Responsibility 2"><U>Responsibility #2</U></A>   |   <A HREF="id36.htm" TARGET="_top" TITLE="Responsibility 3"><U>Responsibility #3</U></A>   |   <A HREF="id37.htm" TARGET="_top" TITLE="Responsibility 4"><U>Responsibility #4</U></A>   |   <A HREF="id38.htm" 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to President, et al,"><U>Health Care Letters to President, et al, 8/24/94</U></A>   |   <A HREF="id123.htm" TARGET="_top" TITLE="Arguments for Delay in Enactment of a He"><U>Arguments for Delay in Enactment of a Health Care Bill</U></A>   |   <A HREF="id124.htm" TARGET="_top" TITLE="Post WORLD WAR IIPost COLD WAR Deja Vu"><U>Post WORLD WAR II--Post COLD WAR Deja Vu</U></A>   |   <A HREF="id125.htm" TARGET="_top" TITLE="Responsibility 89"><U>Responsibility #89</U></A>   |   <A HREF="id126.htm" TARGET="_top" TITLE="Responsibility 90"><U>Responsibility #90</U></A>   |   <A HREF="id127.htm" TARGET="_top" TITLE="Responsibility 91"><U>Responsibility #91</U></A>   |   <A HREF="id128.htm" TARGET="_top" TITLE="Responsibility 92"><U>Responsibility #92</U></A>   |   <A HREF="id129.htm" TARGET="_top" TITLE="Responsibility 93"><U>Responsibility #93</U></A>   |   <A HREF="id130.htm" TARGET="_top" TITLE="Responsibility 94"><U>Responsibility #94</U></A>   |   <A HREF="id131.htm" TARGET="_top" TITLE="Responsibility 95"><U>Responsibility #95</U></A>   |   <A HREF="id132.htm" TARGET="_top" TITLE="Responsibility 96"><U>Responsibility #96</U></A>   |   <A HREF="id133.htm" TARGET="_top" TITLE="Responsibility 97"><U>Responsibility #97</U></A>   |   <A HREF="id134.htm" TARGET="_top" TITLE="Responsibility 98"><U>Responsibility #98</U></A>   |   <A HREF="id135.htm" TARGET="_top" TITLE="The Structure of Our Nation is Unsound"><U>The Structure of Our Nation is Unsound</U></A>   |   <A HREF="id136.htm" TARGET="_top" TITLE="Ltr. to Editor, 3/19/96, Property Taxes "><U>Ltr. to Editor, 3/19/96, Property Taxes and Education Funding</U></A></div> <div> </div> </td> </tr><tr> <td valign="top" width=190 BGCOLOR="#CCCCFF" TEXT="#080000" background="04311c00egdysm.png"> <bR> </td> <td valign="top" height=370 BGCOLOR="#FFFFFF" TEXT="#080000"> <div> Responsibility #55</div> <div> (written prior to July 1992)</div> <bR> <div> To the People of the United States of America:</div> <bR> <div>      We continue with the shelling against the federal government giveaways to retirement plans, or closely related, to family estates.</div> <bR> <div>      Tax deferred retirement plans (see Responsibility #54) are not the only means of letting the other taxpayers be the suckers.  The life insurance industry has for generations jealously exerted its power and money, to hold onto the preferential treatment of its products.  Some particularly brave or patriotic members of Congress from time to time introduce bills to overcome the favoritism shown the behemoth, but to little avail.</div> <div>  </div> <div>      They did win one in the early 1980s.  The accountants, lawyers, and agents of the insurance industry (and Wall Street, mutual funds, banks, S&Ls, etc.) are aces at finding ways to take advantage of legislation, at the expense of other taxpayers.  An annuity is a means of investing a lump sum, or a series of periodic payments, to accrue an estate (retirement fund) redeemable at a defined time in the future.  Laws permit the annual earnings to be tax deferred until redemption.  </div> <div>      Insurance agents improved their competitive selling, by suggesting that the annuity buyers treat their policy as a ready source of "working capital" or spending money.  The scheme was to borrow from the policy no more than the already taxed principal invested, thereby avoiding any income tax.  After a number of years of this abuse, the Congress closed the loophole, by enacting a law that treated withdrawals as earnings first (which are taxable).</div> <div>      But that loophole was chicken feed.  Other taxpayers suffer through the nose for the enacted advantages of life insurance products, especially for the high rollers.  </div> <div>      First, the payout on life insurance policies are income (and usually inheritance) tax free.  Granted that beneficiaries may suffer great personal and financial losses, in order to receive the policy proceeds.  However, in all cases income taxes are calculated based on actually incurred profits and losses, not on losses of what could have been earned.  </div> <div>      Comparative examples will make the point.  $20 initial premium could be paid on a $1 million policy.  If the insured died before the next premium were due, the "investment" would have resulted in a gain of $999,980 wholly tax free.  If instead the $20 had been "invested" in a lottery, the winner of a million dollars would pay federal income taxes on $999,980.  If the $20 had been invested in a share of stock of some company, and the stock market leaped up so as to double the share's value, the investor is obliged to pay income taxes on the gain of $20 if sold at that value.</div> <div>      Annuities serve a very valid purpose, for both the government and the investors, in that it encourages savings over a specified period of time.  But by permitting the interest or dividends to be tax deferred, the purpose served comes at the expense of other taxpayers.  Unlike IRAs and other retirement plans, there is essentially no upper limit on the extent to which annuities can be utilized as a tax break.  So they are a boon to the more wealthy who have already "maxed out" on other, better, tax exemptions, deductions, or deferrals.</div> <bR> <div>      The Cash Value portion of whole life type policies is another tax inequity.  It was not so important before the introduction about 15 years ago of so-called "universal" whole life policies, wherein higher earnings on the "investment" portion of premiums are offered.  The earnings portion of the buildup of cash values are treated as tax exempt if paid as part of the death benefit.  They will have been treated as tax deferred if redeemed for their cash value.  In either case other taxpayers make up for the lost income taxes.</div> <bR> <div>      Other investment product providers made an itty-bitty bite into insurance industry territory, when Congress took away the eligibility of a great many participants in tax deductible IRAs. The new law still permitted these ineligibles to invest up to </div> <div> $2,000 per year in after tax dollars, and tax defer the earnings. Again, the more wealthy could afford to take advantage of the tax break, if they had "maxed out" on better tax avoidance means.   </div> <div>      So we see that there is great inequity and, indeed, violation of property rights in the income tax provisions for retirement plans, and life and annuity insurance policies.  These are good and sufficient reasons to demand that our federal government correct these conditions.  In righting the wrongs, there is also a golden opportunity to put big dents in our nation's deficits and debt problems, without increasing current taxes on current incomes.  It would be accomplished by reversing present and past "give-aways", that played a substantial role in building our huge deficits and national debt, in the 1980s and 1990s.</div> <div>      The contemplated changes would involve putting aside our greed and self-gratification.  Specifics will be provided in the next essay.  If you cannot stand to see your own blood, you may wish to forego reading it. </div> <div>      Before getting to that let us dwell briefly on another aspect of federal government involvement in tax deferred retirement plans: complexity.  In striving to be everything to everybody, the government has defined a lengthy menu of retirement plans:</div> <div>      Individual Retirement Accounts</div> <div>      Simplified Employees Pension Plans</div> <div>      403(b) Tax Sheltered Annuities</div> <div>      457 Deferred Compensation Arrangements</div> <div>      HR-10 Keogh Plans</div> <div>      401(a) Qualified Plans </div> <div>           Defined Contribution</div> <div>           Target</div> <div>           Defined Benefit</div> <div>           Integrated with FICA</div> <div>           Employee Stock Option Plan</div> <div>           Thrift</div> <div>           Weighted</div> <div>      401(k) Plans</div> <div>      State and Local Retirement Systems.</div> <div>      Each of these have their own set of complex rules and regulations.  Battalions of lawyers, accountants, staffs, and agents are required to interpret, explain, setup, comply, correct errors, report, document, market, and maintain provider-user relations.  A large bureaucracy is required in the Bureau of Labor, the Internal Revenue Service, and in Congressional staffs to regulate, administer, and almost constantly change the laws.  Most of this complexity, cost, and drain on the yield of investments is incurred by the tax deferred status of the retirement plans.</div> <bR> <div>      </div> <div>                     Publius IV</div> <bR> <div> <A HREF="id89.htm" TARGET="_top" TITLE="Responsibility 56"><U>Responsibility #56</U></A></div> <div> Back to: <A HREF="id33.htm" TARGET="_top" TITLE="Responsibility Contents"><U>Responsibility Contents</U></A></div> </td> </tr></table></body>