Considerations in Congress worth close taxpayer observation

Some fascinating issues have been floating around in the House of Representatives this week. You'd think these congressmen were up for reelection or something…

Increased contributions to IRAs, 401(k)s

One interesting bill that passed in the House this week involves voluntary contributions to retirement plans. It would seem that someone got wind of the fact that an entire generation of baby boomers, many of whom are ill-prepared to pay next month's mortgage let alone take care of themselves in retirement, are getting ready to contemplate leaving the workforce.  

Maybe it's because we're electing more representatives who are baby boomers themselves, or maybe older representatives finally realized that they're never going to be able to stop taking care of their children if they don't do something quickly, but someone seems to have realized that it is in the interest of the entire population to encourage today's workers to tuck away more for retirement.   

The House passed a bill that will raise the limit for annual contributions to Individual Retirement Accounts from $2,000 to $5,000. In addition, this bill provides an increase in the annual contribution available to 401(k) plans from $10,500 to $15,000.   

These increased limits would be phased in over a 10-year period, but, fortunately, someone in Washington noticed that ten years from now a big chunk of the baby booming generation will be pretty close to retirement age, and so the bill includes a provision for people over age 50 to speed up the 10-year phase in period.   

This bill hasn't been addressed in the Senate yet, so it has a ways to go. Clinton has indicated he looks somewhat favorably on the bill but would like to see someone add some language that would provide for some federal matching funds for lower income people who want to contribute to retirement accounts.  

Full disclosure on W-2 forms   

Although this retirement bill looks pretty attractive, there's another bill I find even more fascinating. This bill is also somewhat related to retirement and was passed in the House this week. I'm very curious to see how this one comes out.   

The House passed a bill that will require employers to fill in some new boxes on the annual W-2 Wage and Tax Statement form that goes to all employees. The new boxes would contain information about the amount of contribution the employer makes on behalf of the employee to Social Security and Medicare.   

On the surface, this bill seems fairly innocuous. After all, what do a few more numbers on the W-2 form have to do with anything? If this bill is made into law, the American public will finally be able to see exactly how much they are contributing to the national social programs.   

For example, if you are a taxpayer who makes $50,000 per year, you pay 7.65% of your income, or $3,825 in Social Security and Medicare taxes. At least that's what you might believe if you look at your W-2 form. But wait! Your employer pays just as much on your behalf, and conceivably that money would be available to you in additional wages if the employer didn't have to pay it to the government. If you look at that money as money you could have yourself, then the actual amount you contribute to Social Security and Medicare is 15.3% or $7,650 for the year. Think about where your savings would be if you could take that extra 7.65% of your income each year and deposit it in a private retirement savings account. You would know for a fact that you will have the opportunity to use that money in your golden years, which is probably more than you can say about the future of receiving that money when the government is holding on to it. You would also have control over how the money is invested - another area where the government doesn't provide any interaction.   

If it doesn't seem right to you to include the employer's share of these taxes as money that you are contributing yourself to these social programs, consider the self-employed person. This person doesn't have an employer to share in paying the social taxes, so how much does a self-employed person pay for Social Security and Medicare? If you guessed 15.3%, you're right.   

By placing the actual annual contribution on our W-2 forms, workers of America might just begin to get an understanding of how much of their income is going for taxes.