White House hopeful Elizabeth Warren plans to fund her Medicare-for-All proposal could come partly at the expense of 401(k) savers, critics contend.
Warren, a senator from Massachusetts and contender to become the Democrats’ nominee for president in next year’s election, proposed a tax on financial transactions to help fund her plan to provide health insurance for all Americans while eliminating out-of-pocket costs. The proposal includes a 0.1% tax on financial transactions that involve derivatives and most types of securities, such as stocks and bonds.
The tax could generate an estimated $800 billion over a decade, according to Warren. But critics counter that this type of tax could over years drain thousands of dollars from savings in 401(k)s and IRAs.
“Essentially, Elizabeth Warren is introducing a financial transaction tax,” said Chad Parks, founder and CEO of Ubiquity Retirement + Savings in San Francisco. “On the surface, it’s 0.1% … which means for every $1,000 of trading or investment activity, she wants to tax $1. The problem is that this would be on every trade, including every rebalance or every time money is moving.
“While Warren is focused on going after Wall Street as a whole or people trading large volumes of money, it could potentially have much wider-reaching implications. They didn’t take into consideration the impact on retirement accounts,” Parks said. “Why would you penalize a teacher in a 403(b) or an individual investor in a 401(k)?”
Warren’s plan is “going to come right out of the retirement savings of the middle class,” according to the American Retirement Association (ARA).
“A separate report by the Modern Markets Initiative found that this type of tax would siphon off $64,200 over a 40-year lifetime savings in 401(k)s and IRAs—or the equivalent of delaying the average individual’s retirement by two years,” the ARA added in a statement.
Parks said his company does “have some hesitations about the feasibility of implementing this plan. As a recordkeeper, it would fall on our shoulders to build out the infrastructure to accommodate these changes, which would in turn increase our costs and ultimately increase costs to clients."
But not all advisors agreed with the ARA report's final assessment.
Robert Seltzer, a CPA at Seltzer Business Management in Los Angeles, said that even if the $64,000 figure is correct, the report didn't account for savings workers would reap in health-care costs.