The latest data indicates that there will be calls for confiscatory taxes on many Americans’ retirement accounts within the next decade.
If the available data on retirement savings is accurate; income inequality will drive a widespread call for confiscatory income or transfer taxes on retirement assets. Several sets of statistics make a strong case for high taxes on large retirement accounts.
Half of All Americans Have no Retirement Savings
The wealthiest 10% of Americans had 56% of the retirement assets; a 2015 study by the Government Accountability Office (GAO). Meanwhile around half the population had just 4% of the retirement assets.
The same study found that only 20% of Latinos had retirement accounts with more than $10,000 in them, The Guardian noted. Meanwhile only 20% of private sector employers offer any sort of pension.
Only 53% of persons aged 55 to 64 had any savings in retirement accounts, the 2013 Federal Reserve Survey of Consumer finance found, Forbes Contributor Andrew Biggs noted. That means 47%; or almost half, of those approaching retirement will have nothing but Social Security or whatever they can get from selling their home when they quit working.
Why Politicians will Tax IRAs
One result of this will be calls to increase Social Security benefits, especially if the real estate market collapses. The average Social Security benefit in the U.S. is $1,350 a month; and a lot of retirees collect far less.
Politicians wanting to keep their jobs will give into those demands and have to come up with money to pay for increased benefits. There will be an obvious way to get it: simply raid the retirement accounts of affluent older Americans.
There is around $14.9 trillion held in individual retirement accounts in the United States right now, Bloomberg reported. Most of that money is held by around 10% of the population.
An obvious way to cover shortfalls in Social Security is to tax that money and the $8.4 trillion in defined benefit pensions. Obvious targets of the taxers will be pensions for wealthy executives; and political figures including members of Congress.
Why Class Warfare will break Out among Senior Citizens
An ugly consequence of this retirement income inequality will be class warfare among senior citizens. It will not be long before some political figure notices this disconnect and capitalizes upon it.
Last year U.S. Senator Bernie Sanders (I-Vermont) won 13.2 million votes in the Democratic Primary running on a platform of confiscatory taxes. Among other things Sanders wanted to raise taxes on households making more than $250,000 year well over 39.6%. He also proposed a transfer tax on investments to fund free college tuition for average Americans.
Sanders succeeded by playing on the economic insecurity of younger Americans. For example he attracted huge crowds of Millennials who are burdened by student loan debt. The winner of the presidential election; Donald J. Trump (R-New York) succeed partially by playing on the economic insecurity of older Americans – mostly Baby Boomers in their 50s and 60s.
Retirement Income Inequality will drive a Paradigm Shift to the Left in American Politics
The next populist insurgent is likely to play to the economic insecurity of the 75 million aging Baby Boomers; persons between 51 and 72 years of age. Nearly half of whom have no pension; or meaningful retirement savings.
Such people will be highly receptive to a Sanders-style message of confiscatory taxation aimed at the rich. The message will play doubly well when the Boomers realize that the Great Wizard Trump cannot wave his magic wand and restore the economy of the 1960s.
The obvious result of that will be class warfare among Senior Citizens. Working and Middle Class seniors will vote for candidates promising higher taxes and more Social Security. The affluent elderly will support whoever promises the lowest tax rate which was part of Trump’s appeal.
The likely beneficiaries of this scenario will be left-wing Democrats; like U.S. Representative Keith Ellison (D-Minnesota) and U.S Senator Liz Warren (D-Massachusetts), and socialists like Sanders. Losers will be conservative Republicans and moderate Democrats; such as U.S. Rep. Nancy Pelosi (D-California), who will be swept away in the populist tide.
Tax Those Rich Boomers
The situation will get worse as Generation Xers (persons between 37 and 50) get older. Few of them have pensions and many were forced to raid their 401Ks to survive the economic turmoil of the last decade. Many in Generation X will respond to calls “to tax those rich Boomers;” whom they despise.
The Boomer/Gen X conflict will come to a head in 2028, that’s the first year that Xers will outnumber Boomers according to Pew Research. Taxing wealthy Boomers is likely to be a popular theme in that year’s presidential election.
Income inequality will lead to deep political divisions among senior citizens that will profoundly change voting patterns. These divisions will unfold along racial, regional and class lines and bring about a paradigm shift to the left in American politics.
A result of that will be high confiscatory taxes directed at affluent seniors and their retirement accounts. Expect to see many wealthy older people flee the United States to escape those taxes in the decades ahead.