To say that 401k accounts are subsidized is a lie. The deal is that all contributions aren't taxed, but all withdrawals are, and if you withdraw before you're 59.5, there is a penalty with the tax. Assuming that all the money in every 401k is withdrawn, it will all be taxed eventually. (Or is that a bad assumption?)
First, let’s not call this a subsidy. It is not; it is a tax expenditure. A subsidy intends to increase the supply of a good, and I doubt “millionaires” qualifies as a good so we will set that word aside.
401k capital gains are taxed. That’s one expenditure.
The other expenditure is that the contributions aren’t taxed at the taxpayer’s marginal rate at the time of contribution, they are taxed at the taxpayer’s (presumably lower) marginal rate when he is retired.
The total tax expenditure is the sum of the cap gains not collected plus the difference in income tax collected, plus the time value of money to cover the delay between tax free deposit and taxed withdrawal, adjusted by some externality such as the tax revenue from alternate saving methodologies.
So yes, eventually, the fisc will see its tax revenue. The only problem is that the revenue will be diminished by the delta in marginal rates, the missing cap gains, and delayed by half the average length of a taxpayer’s career.
If there weren't actually tax benefits to using 401ks and IRAs, people wouldn't use them. So let's assume the rich people who use them are in fact intelligent and optimizing their savings for minimal tax.
Then the fact that those benefits go disproportionately to the wealthy, is in fact a case of tax benefits going to the wealthy. You can argue that this is fine or expected (people with more money are going to have more money in their savings accounts, duh). But it's true.
unless they just put a cap on it. like $3 million or something. problem is I've seen 401ks get adjusted so they work for the CEO. like a 100% match on the first 1% then 50% after that. or some other craziness.
because 1% of a 1.5M salary is enough the max 401k. so why shouldn't CEO adjust the plan so it saves them like $6K. geez...greed much...
Following your line of reasoning, no one should complain if 401k withdrawals are taxed at a .000001% rate, because hey, they are “taxed”.
The point is that retirement accounts get better tax treatment (which is the the clear stated goal of the accounts) and most of the value is delivered to people who are already better off in society, it isn’t giving the disadvantaged a leg up. Or at least, that is the argument.
So shut up Bernie, your tax dinner is coming.