Thus, in the US Debt Reduction Sequester Solution Debate, I think in deciding what to tax, what not to tax, what US Government expenditures to cut and what not to cut, the driving force behind these decisions should be what choices result in the maximum amount of sustainable US full-time job creation, at a livable wage, as quickly as possible, and after giving due consideration to the cost of doing so.
Presently, employees of US companies having defined contribution 401(k) profit-sharing plans can elect to defer up to $17,500 of their wages in 2013 into these 401(k) profit-sharing plans. And this $17,500 is adjusted upwardly each year after 2013 for the cost of living.
Further, employees who are 50 or older, can elect to defer up to another $5,500 of their wages in 2013 into their 401(k) profit-sharing plans in catch-up contributions. And this $5,500 is adjusted upwardly each year after 2013 for the cost of living.
Yeah, that's $17,500 to $23,000 of wages for just one year that can be shifted to future years and just for one employee.
For high income employees, I think this Elected Wage Deferral the US Congress has legislated is one of the many cases of "Tax Deferrals Gone Wild".
We need to take a closer look at this wage deferral and whether it is a wise US Government policy, especially given the more than $16 trillion of US Debt, coupled with the still very high levels of US unemployment, US underemployment and tepid US economic growth, with no significant increase in sight.
Is this incredibly robust tax incentive fair to all US citizens?
It's really not. It further expands the already huge gap between the very wealthy and everyone else.
Why? Because unemployed US citizens cannot take advantage of it.
Also, underemployed US citizens usually cannot take advantage of it.
And regular employees cannot take nearly the same advantage of it as the wealthy employees can. With the crushing US economy, regular employees need all of their take-home pay, and even more, just to make ends meet.....to just feed and house their families.
On the other hand, the wealthy employees are the ones that take the maximum advantage of the total amount of annual salary deferral.
And the wealthy employees also get a substantial portion of the company match of the elected salary deferral.
Further, the wealthy employees are able to defer a larger amount of the US federal income tax on their salary deferral because their top marginal income tax rate is much higher than that of regular employees.
Is this fair US Government tax policy, that clearly favors the wealthy employee over all other employees? I don't think so. What is in essence happening is another "under the radar screen" further expansion of the economic gap between the wealthy and everyone else, that the US Congress consistently legislates for, and which the non-wealthy are frankly sick and tired of.
And if this incredibly lucrative tax incentive for the wealthy employees were eliminated, there would be absolutely no resultant US jobs lost.
But yet, there would be all of this massive positive US Government CBO Scoring from eliminating it that could be wisely used in part for very healthy near-term US full-time job creation economic stimulus. And most of these US Government funds raised can also be used to reduce the US Debt.
And eliminating this annual salary deferral wouldn't be nearly as economically harmful to a wealthy employee as eliminating a permanent tax loophole, such as the tax-free employer-provided health insurance, would be. Why not? Because in the case of eliminating salary deferral, for the most part, the wealthy US taxpayer does not pay much in the way of additional income tax in total, he/she only pays it much earlier.
The salary deferral here overwhelming favors the very wealthy employees.....they are the ones taking the maximum benefit from it and at a tax benefit rate that is substantially higher than the tax rate that would apply to regular employees.
Thus, the focus of sound, fair governance should be to address the most egregious element here, and that clearly is the substantially higher tax largesse received by an employee having a very high Adjusted Gross Income.
But to be totally fair, I would scale in the elimination of this salary deferral tax loophole, and thus the amount of this tax loophole elimination would increase as Adjusted Gross Income above $250,000 increases, but for sure, anyone with Adjusted Gross Income above $1 million would get no salary deferral for US federal income tax purposes starting in 2013.
And the money raised here for the next ten years is off-the-charts.
Just think of one wealthy employee taking the maximum salary deferral of $17,500 in 2013. Well, the maximum amount of annual salary deferral keeps increasing each year.....it was $17,000 in 2012. Thus for ten years, the total salary deferral for the next ten years for one wealthy employee is roughly $200,000, and the US federal income tax deferral at 39.6% on it is $79,200 for just one employee.
Also, there will be substantial positive CBO scoring from the elimination of the deferral of the income tax on the earnings on the above $200,000 total salary deferral over the next ten years.
And for employees who are 50 or older, this $17,500 salary deferral in 2013 grows to $23,000, which further increases the positive CBO scoring if it were eliminated.
Further, the elimination of the huge company match of the elected salary deferral of the wealthy employees would also raise a substantial additional amount of positive CBO-scored US Government Revenues.
