Friday, May 13, 2011
Confiscation of Retirement Accounts
The Irish government has announced plans to tax its citizen's private pensions. Ireland has a lot of problems, like many others of Europe, in that the government has been spending way beyond its means. The government is desperate and is trying to come up with ways to narrow its deficits. Since some people want a free lunch and the government wants to continue spending, it only makes sense for the politicians to raise taxes (at least from their perspective).
Since raising income taxes does not necessarily result in additional taxes collected by the government, taxing retirement accounts is actually a creative way to tax people without losing too much productivity in the short-term. In other words, it is a sleazy way for politicians to get their hands on your money. Since Ireland can't print money like Washington DC, the politicians there have to resort to tactics like these.
So what are the possibilities that something like this could happen in the U.S.? Simon Black has written an article on this (linked from LewRockwell.com). He sets up a scenario on how it will come about. First, he says there will be some sort of financial event where a big crash occurs. Then the government will step in, all in the name of protecting people. They will mandate that a portion of all managed retirement funds be invested in "safe" U.S. treasury bonds.
If a confiscation of retirement accounts did happen in the U.S., I basically agree with the scenario he has laid out. The only difference I have is that I think it would not be mandatory at first. I think the politicians would be less bold to start off and would call it optional. Eventually, they would start to match people's contributions who invested in treasury bonds. Or maybe they would give them a more favorable tax status. They would slowly change it from optional to virtually mandatory.
While I think this is a real threat and something that everyone should be aware of, I don't think the chances are quite as high in the U.S. of this happening as in other places. There is certainly a lot of wealth in 401k's and IRA's and I have no doubt that there are many politicians who would like to get their hands on this money. But because they are so popular and so common, it makes it more difficult, politically speaking, for the government.
If there is a hint of the politicians trying something in the U.S. like what is happening in Ireland, I really think people would take to the streets. Although the U.S. empire has grown in to something bigger than anything in the history of this world, there is also still a good streak of individualism in the American people. Although there is certainly class envy, there is also a general acceptance that it is ok to make money and that entrepreneurism is a good thing. I think this attitude will prevent a confiscation on retirement accounts.