One of the themes that has marked this year’s Democratic debates has been the topic of Medicare for all. On the surface it seems like a great idea, expanding Medicare so that everyone will have healthcare. But as with many things that sound good, the devil is in the details. In this case, it’s a pretty big devil in the form of a $52 trillion bill. Where does a government that’s already $23 trillion in debt get the money for such a plan? Why, from your retirement account, of course!
Elizabeth Warren’s Medicare for all plan is one of the most ambitious of any of the Democratic candidates, yet she claims that her plan wouldn’t cost the middle class one penny. She plans to raise taxes on large corporations and the wealthy, reduce defense spending, and crack down on alleged tax evasion. But one of her proposals could severely impact your retirement investments.
Warren’s plan features a financial transactions tax of 0.1% on the purchase of stocks, bonds, and other securities. That may seem like a drop in the bucket on the surface, but just think about how that adds up over time. Every time you make a monthly contribution to your 401(k) account, you’re taxed an additional 0.1%. Every time you change the composition of the holdings in your 401(k) or TSP account, you’re charged an additional 0.1%. If you’re active in managing your investments to maximize your returns, those “little” taxes could end up significantly eating into your total returns.
The idea of a financial transactions tax isn’t new, but it’s rooted in economic ignorance. Thanks to the mobility of capital, countries that have attempted to institute financial transactions taxes have seen the overall number of financial transactions fall. And because capital moves away from those taxes, overall tax revenues actually decrease, not increase.
Whether or not a Democrat wins the White House next year, the likelihood of a financial transactions tax becomes more and more likely every year, especially as the gap between the 1% and the rest of us continues to increase and popular discontent rises. Thankfully there’s an easy way to get away from these financial transaction taxes.
Many of these proposals for financial transaction taxes focus on stocks, bonds, and other financial assets that are popular with Wall Street. They almost never focus on gold, which means that those who invest in gold won’t have to worry about their gold purchases being taxed. And because gold is normally held for years and years, investors don’t have to worry about being subject to taxes by moving their money from Fund A to Fund B. Their wealth is safe and secure with gold, which will continue to protect investors’ savings regardless of how profligate Washington politicians continue to spend money.