It’s a lot of fun to be able to make what you think are clear, simple points about the difference between what people in power propose for the likes of you and me, and what they get for themselves.
But every once in awhile, you discover that what seemed clear to you isn’t necessarily clear to other people, including people you like, and whose work you generally approve of.
That’s the situation I’ve run into with my recent column comparing the value of President Obama’s post-presidential retirement package with the limits that his administration wants to place on the tax-deductibility of retirement savings. His package is worth about $6.6 million, almost double the $3.4 million maximum that the Treasury is proposing.
Fred Hiatt, editor of the Washington Post editorial page and a generally good guy, wrote that he likes my work and hopes I don’t retire anytime soon but that I was wrong to object to the limitation on tax-deductibility of retirement savings. “Obama is suggesting that at some point, retirement accounts, invented to encourage working people to set aside enough for their sunset years, no longer need a helping hand from taxpayers,” Hiatt wrote.
But that’s not actually what Obama is proposing. His proposed limit would include not only the value of individual retirement accounts and 401(k)s and such but also the value of your pensions. That’s a key distinction and one that many people have missed. (I would have missed it, too, had I not gotten help from two good-hearted tax techies, both of whom disagree with me.)
First, combining pension values and personal account values poses a horrendous bookkeeping problem. You and the IRS would need to somehow figure out the value of any pension or pensions for which you and/or your spouse might be eligible and in which you might or might not be vested. Then, you have to combine that value (which isn’t simple to determine) with the value of your individual retirement accounts.
Second, once you realize that the value of pensions is included in the proposed limit, it becomes perfectly legitimate to do what I did: value Obama’s post-presidential benefits and compare them to the limits that the Treasury is proposing.
If it’s only fair, as my critics contend, to limit taxpayers’ expense for retirement income being set aside for “the rich,” then it’s vastly more fair to limit taxpayers’ expense for Obama’s retirement package. The 100 percent taxpayer subsidy for Obama’s $6.6 million package is vastly more than the value of the tax deductions that workers and their employers get on the contributions that create $3.4 million worth of pension and retirement accounts. My critics should be lining up to limit Obama’s pension, but I haven’t seen that happening.
By the way, comparing that value of Obama’s retirement benefits with the limits his administration was proposing wasn’t fed to me by “the retirement lobby” or anyone else. It’s totally my own idea.
I’ve been putting values on pensions for years. For example, in 2006, I used Vanguard’s annuity calculator to place a value on the cost-of-living increases that Social Security beneficiaries get, and in 2009, I wrote a Fortune cover story comparing the value of my Social Security benefits with the value of the taxes my wife and I and our employers paid into the system. My Obama column is a continuation of the pattern.
Look, as I wrote before and will say again, it’s offensive to me that the likes of Mitt Romney can game the system and end up with IRAs of eight (or maybe even nine) digits. But that problem is easily fixable by restricting IRA investments to publicly available securities, as opposed to pieces of leveraged buyouts and other esoteric investments available only to a handful of people. Creating a whole new bureaucracy — and a whole new income stream for accountants — is a vast overreaction.
Finally, I’m not pleading my own case in opposing the limit. Even in the unlikely event that the Treasury’s proposals become law, the value of my pensions and individual retirement accounts isn’t close to $3.4 million. Would that it were.