Pension Confiscation and Haiti

"President Obama has announced that he will push forward with his healthcare plan. Commendably, the president has pledged to avoid adding to the deficit, promising that tax increases and spending cuts will cover the full cost of the overhaul. But one tax increase in the president’s plan spells trouble for the economy. For households with incomes above $200,000 ($250,000 for married couples), the 2.9 percent Medicare payroll tax on labor income would be extended to interest, dividends, capital gains, and profits from passive investments in partnerships and S corporations." (Associated Press 2010.03.09)

Now we could say, Good! Let's soak those rich bastards! But after the cheering and more importantly after it actually occurs, here is then what happens to the rest of us working stiffs.

(1) There is no way to safely get gains greater than 2.9% and still make a profits so conservative investing techniques slow down.

(2) Remember that the 2.9% medicare tax is in addition to any income tax applicable to the gain also, so the return needs to be well above 5% to make any money at all.

(3) To get the higher gains, the risk is too great.

(4) Investment stops by the top 1% of the country-- who do most of the investing anyway.

(5) Financial firms lay off people.

(6) Financial (brokerage) firms pay less taxes because their profits fall.

(7) Investment arms of banks close - more layoffs more decreased taxes.

(8) The value of securities fall overall because the market for securities has been destroyed.

(9) Pension plans that are holding securities find their asset balances falling below solvency levels established by the federal government.

(10) Failing pension plans are forced to turnover their assets to the US Government's Pension Benefit Guaranty Corporation resulting in benefit cuts to the affected people.

(11) The unaffected people with 401K savings find their nest eggs now having been decimated by the same events turn to the government which will require them to turn over to the government all of your savings in return for a government supplied annuity.

(12) Argentina Redux. "come to papa.".