Republicans are trying to put vulnerable 2022 House Democrats in a tough spot over a $3 trillion spending package that would include day care, paid family leave, climate change fixes and other Democratic priorities but also new fees and taxes to help offset the costs.
The Republican-aligned PAC, the Common Sense Leadership Fund, is spending $10 million on ads targeting Democrats in Michigan, Iowa, New York, Georgia, Pennsylvania, Utah and Nebraska.
Rep. Dan Kildee, D-Mich., faces this attack ad running in his district:
“For decades, Americans played by the rules with the promise they could invest in a secure retirement without penalty. But now Washington liberals want to tax your retirement funds to pay for their new trillion dollar power grab. They call it progress, but it’s theft, pure and simple. Call Dan Kildee. Tell him America stands by its promises. Don’t let Washington liberals steal our retirement.”
The ad unspools a series of close-ups of ordinary elderly people. Their faces are lined, their expressions somber.
At the heart of the ad is the claim that Washington liberals — read Democrats — “want to tax your retirement funds.”
What the ad omits is that this proposed tax change would apply only if you have more than $10 million in retirement funds.
The Democratic plan
The sprawling reconciliation bill called the Build Back Better Act has some new rules for people who have more than $10 million combined in their traditional IRAs, Roth IRAs and defined contribution plans such as 401(k)s.
Decades ago, lawmakers crafted tax incentives to encourage people to save for retirement through individual retirement accounts. With a traditional IRA, the money goes in pretax, but gets taxed when it comes out. For a Roth IRA, the money gets taxed before it goes in, then — no matter how much the fund gains in value — withdrawals are tax-free.
The Roth rules have produced some striking advantages for a few wealthy people who have been able to get around the income and annual contribution limits that apply to Roth IRAs. Investigative reporters with ProPublica, a nonprofit news organization, found that the co-founder of PayPal, Peter Thiel, had built a Roth IRA worth $5 billion, which he could withdraw tax-free.
The House plan would make it more difficult for such huge sums to accumulate tax-free in Roth IRAs, barring additional contributions once a person hits the $10 million mark across their retirement savings accounts. The cap applies only to individuals making over $400,000 a year, or $450,000 for couples filing jointly.
People with combined accounts worth over $10 million would have to start withdrawing money from their accounts, starting with their Roth accounts.
These changes would affect about 3,600 taxpayers nationwide, the estimated number of people with combined balances over $10 million. That’s out of over 51 million people who currently have traditional or Roth IRAs.
The Democratic proposal would also shut the door on people converting money in traditional IRAs into Roth IRAs, a strategy many people use to reduce their taxes. But again, that change would apply to individuals making over $400,000 a year, or couples earning $450,000. Those people make up a group that’s a bit larger than the top 1% of all taxpayers. According to IRS data, about 91,000 taxpayers in the top 1% of earners used the conversion option in 2018.
Congress’ Joint Committee on Taxation estimates that in the first four years, the new rules would raise about $8.9 billion from these taxpayers. But by the fifth year, as taxpayers adapted, the changes would produce modest tax cuts. The net revenue gain after 10 years would be $4.3 billion.
Mark Iwry, a non-resident senior fellow at the Brookings Institution and a former senior Treasury official in charge of national retirement policy, said that while $4.3 billion is real money, it’s a small part of the multi-trillion dollar reconciliation package.
“While this would contribute a bit toward paying for the bill, it is mainly a policy statement,” Iwry said. “IRAs were designed to promote retirement security for most working households, not to shelter billionaire’s multi-billion dollar gains from taxes.”
Contrary to the ad’s point that liberals want to “steal” from people’s retirement, other parts of the bill subsidize retirement savings by tens of millions of average income households. These proposals create a system of automatic enrollment in IRAs, and expand tax credits for lower and moderate income savers. These changes would cost the government about $47 billion over 10 years.
These moves are not new ideas. Iwry co-authored these measures over 15 years ago. The savers tax credit has been on the books for a long time.
We tried contacting the Common Sense Leadership Fund, but weren’t able to reach the director.
The Common Sense Leadership Fund said that Democrats “want to tax your retirement funds to pay for their new trillion dollar power grab.”
The ad implies that this refers broadly to people with retirement savings accounts.
In fact, the Democratic plan it alludes to targets a thin sliver of very wealthy individuals: about 3,600 taxpayers, those with retirement accounts worth over $10 million. It creates no new tax, but exposes these people to existing tax rules through caps on the amount they can contribute to tax-advantaged savings accounts.
The proposed ban on conversions from traditional to Roth IRAs would affect over 100,000 people, but that still applies only to roughly the top 1% of earners.
The claim contains an element of truth about changes to tax laws on retirement savings but ignores important facts about who is affected.
We rate this claim Mostly False.