February 06, 2015
Allan Sloan is a reasonable conservative, which means that he usually makes reasonable arguments, even if some of us to his left may disagree with them. Today’s piece criticizing President Obama’s proposal to cap the amount in a tax sheltered IRA at $3.4 million isn’t up to the usual standards.
The gist of Sloan’s argument is that $3.4 million would not be enough to generate the same retirement income in annuity as President Obama will get in his pension when he retirees. By Sloan’s calculation, the $3.4 million will allow a couple to get a dual-life annuity of roughly $100,000 a year, half the size of President Obama’s pension of $200,000 a year. He considers this unfair.
I’m a bit at a loss at seeing the unfairness. President Obama gets paid $400,000 a year. This puts him well into the top 1 percent of wage earners. Is that unfair? Of course his paycheck is less than one-twentieth the average for CEOs of Fortune 500 companies, many of whom probably lack the skills needed to operate a lemonade stand.
It’s not clear exactly what sort of yardstick President Obama’s is supposed to provide. He is obviously at the top of his field, so is it surprising that he would get paid relatively well and also enjoy a comfortable retirement?
Just to be clear, no one is preventing people from accumulating more than $3.4 million to support their retirement. They just won’t enjoy a taxpayers’ subsidy for the amount in excess of $3.4 million. To those of us who will never have anything close to $3.4 million in a retirement account, the unfairness works in the opposite direction.
If most of us want to have an income of $100,000 plus in our late sixties and seventies then we will have to get the bulk of it by working. This means we will be paying income taxes of 15 to 25 percent, in addition to a payroll tax of 15.35 percent. The person who has accumulated $3.4 million tax free in a Roth IRA and then able to get $100,000 a year in tax free income in an annuity looks like they are doing pretty well. President Obama and his wife may be doing better, but it’s hard to have too much sympathy.
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