I don’t earn $400,000 per year. In fact, I’ve never reported an adjusted gross income of even $200,000 on my federal tax return, yet Democrats want to raise my taxes. And the reason Democrats could raise my taxes now explains why they will almost certainly raise everyone’s taxes later.
The issue involves a decision I made shortly after President Trump’s tax relief act passed at the end of 2017. Rather than using the law’s rate reductions to lower my annual tax bill, I chose to put that money to use. I rolled over my old Thrift Savings Plan—the version of a 401(k) for federal employees—into an Individual Retirement Account, and began converting the funds in that pre-tax IRA into an after-tax Roth IRA.
But Democrats would effectively ban me from making this move going forward. Section 138311 of House Democrats’ reconciliation bill would prohibit individuals from converting their IRA balances to after-tax Roth IRAs “if any portion of the distribution” comes from a non-deductible IRA—regardless of that person’s income.
Because my income slightly exceeded Roth contribution limits in a few years, I made contributions to a non-deductible IRA instead. Now, Democrats’ reconciliation bill would prohibit people like me from converting those funds—and any rollover IRA dollars I commingled with those funds—to a Roth IRA, even though my income never approached the $400,000 threshold below which Joe Biden promised to hold Americans harmless from tax increases.
When I found out Democrats had proposed this provision in September, with an effective date at the end of this year, I accelerated my plans. I completed converting my IRA rollover account to a Roth in early October, even though recognizing all the income this year, as opposed to spreading the conversion out over several more years, could push me into a higher tax bracket for 2021.
Despite a potential higher tax bill this year, I view the conversion as necessary to stave off the tax increases Democrats’ immense welfare state will bestow on all Americans in the future. In fact, I began converting my Thrift Savings Plan balances into a Roth IRA in 2018 precisely because I knew taxes would eventually rise, and I view today’s tax rates as discounted compared to future levels.
In poker terms, Section 138311 of the reconciliation bill represents a “tell.” Democrats know they will have to come back to raise taxes on the middle class later, and want to prevent people from paying taxes on their retirement balances at today’s lower rates. Voters should therefore pay much less attention to what politicians say than what they do, Section 138311 being a prime example.
The president recently claimed that “I give you my word as a Biden: If you make under $400,000 a year, I’ll never raise your taxes one cent.” But the politician who went on to claim that “I’m going to make those at the top start to pay their share in taxes” himself dodged nearly $517,000 in Medicare and Obamacare taxes.