Watch your wallet

That would be you.

Our spendthrift leaders in Washington will need to find more money to continue buying votes (no, I'm not cynical) and if you think they'll find it under the mattresses of the rich, as many of them assert, then you'll believe anything, and I've got a bridge I want to sell you.

One place they will surely look is the money you've been saving for retirement. Megan McArdle, the business and economics editor of The Atlantic, notes:

I'm not as excited about Roth IRAs as many people who write about consumer finance: I don't believe that the government is ultimately going to be able to keep it's hands off a pretty big pot of money. Getting a tax break now in your 401(k) or traditional IRA is guaranteed; getting a tax break in the future is not.

And those traditional IRAs?

I think that Congress is going to go after all of it. But Congress doesn't have to do anything special to get money out of traditional IRAs; it just has to raise income taxes. (401ks and traditional IRAs are taxed at ordinary income tax rates). Roth IRAs, on the other hand, represent a sizeable pool of tax-free assets. I also expect that at some point, Congress is going to at least attempt to claw back the tax deduction for municipal bonds.

Can't happen here?

It is of course true that tax-free retirement savings have a long history in the US. But they did in Ireland, too, and Ireland is now proposing to tax the bejeesus out of them.

Here's the punch line.

We can't all enjoy a personal free lunch, and the wealth of the truly wealthy is for many reasons not available to pay for all the benefits we are expecting. Nor can we simply ratchet up taxes on a working population which is shrinking at both ends as workers stay in school longer, and retire later. 

So I think that ultimately retirees are going to end up consuming less than they currently expect to. And given the political economy of it all, I expect the burden to fall more heavily on those who have saved than on those who haven't.

Here's how to understand Washington's interest in your savings: Why do people rob banks? Because that's where the money is.