We all know that Democrats oppose shoving the elderly into the snow, since they decry Republicans' alleged intention to do that just about election year. There is one offense against seniors, however, that Democrats not only are willing to countenance but actively defend: picking their pockets.
Every year, roughly 3 million senior households are forced to make withdrawals from their IRA's because they've hit the age of 70 1/2, the magical year --not 70 1/4, not 70 3/4, certainly not 70 2/3 -- at which the federal government has determined that they no longer should have the same right to tax-free savings as every other American.
Call it the "retirement tax."
The House Ways and Means Committee passed a bill this fall to alleviate this burden on the 70 1/2-and-older set, with every Democrat present -- including such friends of the powerless and the elderly as Charles Rangel -- voting "nay."
So forget all the pious rhetoric about what we owe our elders. About "retirement security." About the intolerable financial perils of advanced age. It's the tax maw of the federal government that, at least in this case, matters to liberals more.
One of the most important sociofinancial trends in contemporary America is that people are saving for their own golden years with "individual retirement plans," traditional IRAs and 401(k)s that are funded with pretax dollars and that grow tax-free. In other words, these are nest eggs that Uncle Sam must leave unmolested as they accumulate interest and capital gains.
These accounts are obviously enormous incentives for saving. According to the congressional Joint Economic Committee, assets in individual retirement plans jumped from $1.4 trillion in 1990 to $4.9 trillion in 2001, roughly a 250 percent increase.
These savings can supplement Social Security, fund a grandchild's education, be stashed away against medical or other emergencies during retirement or serve any number of other purposes. But the federal government has a different priority -- that this money be taxed.
IRA or 401(k) savings are only taxed when they are withdrawn from the accounts, so if someone is especially frugal, or feels that they need the extra financial security for the future, they aren't paying taxes on them. For that, the government has an easy one-step solution -- forcing people to withdraw the money.
Withdrawals -- with some exceptions for 401(k)s -- must begin at age 70 1/2, according to a formula that IRS actuaries have devised to try to tax your savings before you die. Because we all know that the only thing worse than not paying taxes when you die (which the estate tax attempts to prevent) is not paying taxes before you die.
The withdrawals are taxed at the standard income-tax rate. If you don't pull out the money, a punitive 50 percent federal excise tax is levied on the amount you were required to have withdrawn -- happy 70 1/2 birthday!
There are a number of problems with this granny-hostile wrinkle in the tax code.
First, it can force people to make withdrawals from their accounts in the teeth of a down market, as millions had to do this year. Second, it fails to recognize that more and more people work past age 70, so their retirements are being taxed even before they retire. Finally, it is especially hard on women, who tend to live longer and don't need the taxman biting into their savings at the still relatively tender age of 70 1/2.
Rep. Rob Portman (R-Ohio) proposed the bill passed by the Ways and Means Committee that would at least raise the 70 1/2 trigger age to 75 by 2007. Rep. Jim Saxton (R-N.J.), a relentless scourge of the mandatory withdrawals, has a better idea, which is to eliminate them altogether.
At least now we know one reason that Democrats oppose pushing the elderly into the snow: They prefer seniors to be warm and toasty when they force them to pay more taxes.