One issue I am very interested in is the elimination of the early retirement penalty (ERP) for retired public safety workers. This penalty is 10% of ALL retirement plan income in addition to full income tax. As the IRS rules currently stand, you are subject to this penalty if you retire before age 50 and/or have a "defined contribution" (DC) retirement plan.
What this means to actual people is that you can be hired at age 18+ and work 25 years as a special risk employee, as in law enforcement or fire service. The State of Florida (and several others) say you are then eligible for a normal retirement. At this point, you must accept the state pension plan, a defined benefit (DB) plan, which is OK for some, but not others. There are drawbacks to the state plan, such as a reduction in benefit (monthly payment) if you want your spouse to receive the income in the event of your death. The alternative to the pension plan in Florida is the Investment Plan, which is a DC plan. Under this plan, you manage your own investments, and in the event of your death the entire amount is available to your spouse.
Florida has one of the best retirement systems in the country. Unfortunately, we're saddled with a complex and unfair tax code that ends up penalizing achievement. To avoid the ERP, there are several exceptions that by and large do absolutely no good for the retiree. First time home buyer? Higher education expenses? Not usually the case by this point in life. The only possible way to avoid the penalty for most is the "substantially equal periodic payment", which sounds reasonable on the face. The fine print though requires complex calculations as to the account value when you begin, your age, and an average interest rate of return. The amount you receive may not be enough to live on, and if you "bust" the plan by taking more money, you're subject to paying a penalty on all of it.
Apparently, the line of thinking with the IRS is that if you do not annuitize (DB) your retirement plan's holdings when you retire, the plan then becomes a "lump sum" windfall, since you could make more money than if it was annuitized, so the penalty offsets this gain. What this thinking fails to take into consideration is that in a recession like the current one, retirement accounts lose value, so there is not a much to continue to draw from. It is also a fine example of how the IRS tax code punishes achievement.
In my case, last year in 2008 I paid 34% of my adjusted income to the IRS. The president, with an adjusted 2008 income of nearly 2.7 million paid only 32%. I know what you're thinking, and my income was not more than his. I have no issue with paying my fair share of the constitutionally necessitated expenses to operate the country (the overlooking of the 10th Amendment is another story). I take issue with penalties that are patently unfair to those that have worked many years to enjoy a decent retirement.
I encourage anyone reading this to contact their representative and senator so that real tax reform can take place in the form of a new tax system such as the FAIR tax. I have communicated with my representative, both senators, and also several members of the committee on joint taxation as to the ERP and am awaiting a response.
As an update to this post, here is the chronology of what I did to contact my representative Allen Boyd:
After all of this, I sent faxes to all of the 41 members of the ways & means committee, one of whom somewhat like me is a former law enforcement officer (I retired, he went into politics). I got an automated response from Sen. Nelson and chairman Rangel and nothing else.
Based on this experience, I came to the conclusion that these "representatives" and senators just don't care.
About Paul Henry
Paul has a law enforcement background, having served as a Florida Deputy Sheriff and State Trooper for over 25 years until he retired. He worked many levels and positions within the FHP, from road patrol trooper to lieutenant in criminal investigations, where he investigated numerous criminal cases. After retirement, Paul wished to pursue his automotive hobby and be left alone, but saw an increasing amount of waste in government as well as the government's increasing involvement in our private lives and liberty, so he became politically active. Paul is the founder of the non-partisan citizen's group Floridians Against REAL ID, and authored two bills for the 2012 Florida legislative session: REAL ID partial repeal and Motorist Rights (red light cameras). Paul is the 2013 Legislative Action Committee Chair for The Tea Party Network, a network for constitutional and Tea Party groups to do more than just complain about issues. Paul works as the Deputy Director for Legislative Affairs with the Florida Campaign for Liberty and lives in the Tallahassee, Florida area.
Yet more evidence of how screwed up the current tax code is:
10 Things the IRS Won’t Tell You
GOP Chairperson Michael Steele met with spokespeople of the Tea Party Effort yesterday in an attempt to get them on board with the Republican Party. I’m grateful that the Tea Party has resolved not to halt it’s wagon to the GOP. They are a really hard-hitting pressure group when it comes to retaining the Republican Party in line. The same goes for the Republican Liberty Caucus. The RLC and the Tea Party are overwhelmingly composed of Conservatives and Conservative Libertarians who are Disgusted at the doings of the moderate Republican RINOS who used their mastery of the White House and Congress to cooperate with the Democrats and grow the regime, sign McCain-Feingold, and the listing of genuine offences against our Constitution and Conservative precepts is long indeed.
Funny part is that the Republican party was formed to FREE the slaves (which the Democrats opposed). Martin Luther King was a Republican. And now they have their own ‘Coffee Party” full of children of the rich and people (of all colors) are ready to fall at their feet. By the way, do you know the difference between the Republican and Democrat parties? Republicans are rich greedy company owners who never worked a day in their lives and Democrats are the children of the rich greedy company owners that are still rebelling against their rich greedy Republican parents. And until Mommy and Daddy stop taking care of them, they will continue to do so. The worse part about it is, the hard working Americans are the ones stuck in the middle because somebody has to work so the money can keep rolling in. Oh, that’s right, Clinton (another poor little rich boy) sent all the good jobs overseas when he signed NAFTA so all the rich, greedy, company owners could pay kids 50 cents a day in sweat shops. (It’s legal over there)
I’ll be back again, thanks for the info.