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Author: syke6 Big gold star, 5000 posts Top Recommended Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75810  
Subject: Re: More on 2015 Budget's Negative Impact Date: 3/20/2014 4:40 AM
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The fear is that many of those who will be affected by this are the ones setting up the 401K for their small company employees, and of course, themselves. If it is not attractive to them, they may not want to go through the hassle of setting that option up and the scrutiny that will be applied to the 401K, which leaves their employees with much less opportunity to save for retirement.

It is not a very reasonable fear. I set up a 401(k) for my business. It isn't that hard and you get a whopping tax deduction. Kind of a no-brainer, really.

One thing that annoys me about these types of articles is they assume all small business people earn vast sums of money. The unfortunate small businessman in the article in the 39.6% tax bracket who is discouraged from contributing to his 401k makes over $400,000 a year. And he still gets a tax break, but just not as big. Yet the fear is he'll turn down the whole tax break because it is not as big as he wants. That's a bit of a stretch.

Another thing that annoys me about these types of articles is they don't understand why employers provide benefits to their employees. Here's the reason: Employees expect them. If the guy making over $400,000/year won't set up a 401k because the tax deduction isn't worth it to him (yeah, right) then good talent will simply go next door to the guy who will. Or he has to increase his wage to make up for the lack of benefits. Money out of his pocket either way. Same with health insurance, vacation time, or any other benefit. Wages and benefits are based on supply and demand, not how bummed out you are about your taxes.

Philosophically speaking it is important to keep in mind why IRAs and 401k's were created in the first place. The reason is to assist lower income earners with saving for retirement. They were specifically not designed to be tax breaks for wealthy individuals. That's why IRA contribution limits are low, and 401k's have rules about highly compensated individuals, etc. The guy making over $400,000/year who can't save for retirement with a deduction at the 28% rate can't save for retirement period. Extra incentives won't help. It is fair enough to have the debate that all retirement saving is sacred and should be tax advantaged, but that is not why these programs were created.

That said, I hope they let the rules remain the same. The reason is that taxes are way too complicated as it is and it takes far too long to calculate federal income tax. For all the caterwauling about taxes that has gone on in the last few years (most of it the name of helping small business [cough]), next to nothing has been said about simplifying the tax code--which really would help small business. The fashion in recent years is to do social engineering through the tax code. That makes for complicated taxes and mainly benefits those who have armies of accountants and lawyers who can bend the law to their purpose.
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