Obama’s Proposed IRA Cap Is A Step Down the Road to Serfdom

“Economic control is not merely control of a sector of human life which can be separated from the rest; it is the control of the means for all our ends. And whoever has sole control over the means must also determine which ends are to be served, which values are to be rated higher and which lower, in short, what men should believe and strive for.” – Friedrich Hayek, The Road to Serfdom

What Hayek is describing is one of the most worrisome problems of a large federal government. The so-called ‘road to serfdom’ begins with a well-intentioned government who sees a desirable end and believes, honestly that it is capable of using its to achieve the goals. Inevitably that requires value judgments the government is ill-equipped to make. It requires a government to define ‘social welfare’ or ‘good of society’ or ‘too wealthy’ and it demands the use of coercion (taxation, criminalization) to achieve those amorphous goals.

Sadly, President Obama has already taken many steps down this road. Rather than trust in the free market’s ability to take into account the individual motivations, intentions and decisions of everyone in society, Obama sees central planning as a tool to speed up the process of progress.

Thus far it has been a demonstrable failure. As Sen. Tom Coburn writes, “Since 2002, federal spending has increased nearly 89% while median household income has dropped 5% and median wealthy has dropped 23%.” Washington’s housing policies have been an abject failure (and are arguably even the root cause of the crash), it’s health care policies have actually led to higher premium costs, and its pursuit of green energy goals have led to tremendous waste and higher energy costs.

As Ronald Reagan said in 1965, “For three decades, we’ve sought to solve the problems of unemployment through government planning, and the more the plans fail, the more the planners plan.” In the more than four decades since, Washington’s planners have continued to try, and continued to fail.

But here we go again. Elements of President Obama’s budget proposal are beginning to leak out, and what we’ve heard so far is incredibly troubling. The Hill reports on one especially bad provision:

“President Obama’s budget, to be released next week, will limit how much wealthy individuals – like Mitt Romney – can keep in IRAs and other retirement accounts.

The proposal would save around $9 billion over a decade, a senior administration official said, while also bringing more fairness to the tax code.

The senior administration official said that wealthy taxpayers can currently “accumulate many millions of dollars in these accounts, substantially more than is needed to fund reasonable levels of retirement saving.”

There’s a lot wrong with this proposal, not least of which is the apparent misunderstanding of what happens to money put into a retirement account. Unlike say, putting it under your mattress, money put in a bank or invested in an IRA gets recycled. It is used to invest in capital or hire more workers, which improves productivity and lowers cost.

But the larger problem with Obama’s proposal is the words “reasonable levels of retirement savings.” Who gets to make that call? Who in the government gets to decide if someone is too rich, or has too much money invested for their retirement? This is the road to serfdom, playing out almost exactly like Hayek forewarned. Obama, in the quest to achieve their version of an ideal society is beginning to make decisions they are not equipped, nor entrusted to make. They are striving to achieve fairness despite no consensus on what the word means.

This is a troubling start to a budget that the Administration is proudly proclaiming will “blow your mind.”