The Next Domino: Australia Doubles Tax On Retirement Savings
Submitted by Simon Black of Sovereign Man blog,
Though Australia’s national balance sheet is comparatively quite strong, the government has been running at a net deficit for years... and they’re under intense pressure to balance the budget.
The good news is that Australia now has a goodly number of investor-friendly immigration programs designed to bring productive foreigners into the country, similar to the trend we’re seeing across Europe.
On the flip side, though, the Australian government has just announced new rules which penalize citizens who have responsibly set aside savings for their own retirement.
Any income over A$100,000 drawn from a superannuation fund (the equivalent of an IRA in the United States) will now be taxed at 15%. Previously, all such income was tax-free.
The really offensive part about this is that the government is going to tax people’s savings ‘on both ends,’ meaning that people are taxed on money they move INTO the retirement fund, and now they can be taxed again when they pull money out.
The Cyprus debacle drew a line in the sand– fleecing people with assets, or income, in excess of 100,000 dollars, euros, etc. is now acceptable. This is the definition of ‘rich’ in the sole discretion of governments.
And make no mistake– if it can happen in Australia, which still has reasonable debt levels despite years of deficit spending, it can happen in bankrupt, insolvent nations like the US.
As you may know, US tax code allows for several different types of retirement accounts… and there has been a lot of talk lately about a ‘Roth conversion’.
This is to say that a US taxpayer can convert his/her traditional IRA to a Roth IRA. And the implications are enormous.
A traditional IRA is not taxed on the way in, but it’s taxed on the way out. So if you contribute $3,000 annually to your IRA, you won’t pay income tax on that $3,000. But the accumulated retirement savings is taxed in the future when you withdraw the funds at retirement.
Conversely, contributions to a Roth IRA are taxed each year with the rest of your income. But the accumulated savings are NOT taxed when you withdraw the funds at retirement.
A few years ago, Congress inked a deal to allow US taxpayers to CONVERT their traditional IRA to a Roth IRA. In doing so, Americans were allowed to pay tax on the accumulated gains in their traditional IRA up through that point, then switch to a Roth.
Congress was essentially saying, “We promise that we will only tax you now in exchange for not taxing you later.”
It certainly begs the question: How much do you trust your government?
Can we really expect the country that has racked up more debt than any other in the history of the world to keep its word? Can we really expect that 5 or 10 years from now, they won’t make another grab for cash?
If the Australian government can unilaterally change the rules and start double-taxing retirement accounts, so can the US. And the trillions of dollars in retirement savings in the Land of the Free is far too irresistible for them to ignore.
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