How the 401k Rule Could Cost the Republicans Their Majority

Rep. Kevin Brady (R-TX)

Campaigns are interesting beasts, and often filled with men (and too few women) who state things they can't possibly know for certain as if they are indisputable facts.  Watch any evening cable news show for longer than an hour and you'll see dozens of people argue as if their opinion is the only one that matters.  Many of these individuals get to be on television because they have had success in presidential or congressional races.  Everyone ranging from Karl Rove to James Carville to David Axelrod get into these vaunted positions because of their success in winning a presidential campaign (you don't even have to win the election-just ask Donna Brazile or Steve Schmidt, or I'm sure at some point Robby Mook).  These elections analysts look at data, admittedly, but frequently speak about campaign decisions from the gut, stating whether or not they think Candidate A or Campaign X is doing a good job.

By-and-large, I try to avoid this sort of prognosticating when it comes to campaign strategy.  I am more at home with facts, trying to dissect what an action will mean, but I'm not someone who sits around thinking that Candidate X should run on a specific campaign issue, because it's a winner.  I find that because I'm a straight-ticket voter, what works for persuading me is not really what works for persuading other people, and as a result I don't often see an issue and think "that's a winner."  With that in mind, I have to say that the Republican decision (still rumored, but all but confirmed by Rep. Kevin Brady and Sen. Orrin Hatch, who are heading the process) to screw with 401k limits is about as colossal, out-of-touch decision as you can possibly imagine a major party making.

Campaigns in recent years have been made largely on the personality of the candidates and how they "make you feel," as well as assumptions about the other campaign.  The reality is that in 2016, you can't with a straight face say that either candidate won on a specific set of issues, but instead on who was better at winning a war-of-words.  There are a lot of things that Hillary Clinton's loss can be blamed on, but a grasp on the issues at-hand is not one of them.  But it wasn't that long ago (say, 2008), when issues actually mattered in a presidential campaign, and principally it was economics that was driving people, after twice electing George W. Bush to the White House, to then switch to a polar opposite candidate in Barack Obama.  People were feeling the pull of a collapsing housing market, as well as an impending recession, and found it necessary to invest in a new form of leadership.

Economic issues are perhaps the most important when it comes to national campaigns, coupled with healthcare and (if we're at war) foreign policy.  People are so entrenched on gay marriage and abortion you'd think these would be important issues, but polls frequently have indicated that even in elections where they "made the difference" according to pundits, they really didn't.  Whether people feel secure in what's in their purse is critical-it's why one of the most frequent talking points for FOX News over the Obama administration was painting the economy as being extremely poor, despite unemployment dropping consistently and solid overall growth during his administration.

Economic issues are hard to campaign on though, so unless there's a recession going on, it can be difficult to paint an easy campaign ad against Donald Trump and congressional Republicans that can make sense to people.  Note that I said difficult, but not impossible.  That's because the 401k issue is easy to understand (I have very little personal finance acumen and I saw that it would be a huge burden to a number of households currently unaffected in a matter of seconds), and it will be burdensome for the exact people Republicans can't afford to piss off: suburban and exurban middle class voters.

While the plan isn't finalized, reports are that 401k's will essentially change their current cap from $18,000 to $2,400.  While the latter may sound like a lot of money, really it's not.  Let's say you donate 5% of your paycheck to retirement accounts (Suze Orman would probably want me to raise that number, but I'm being hypothetically low to prove a point here).  Under the current limit, you would be donating $1500 a month, and that would indicate that your annual salary would be $360k, well above the national average; according to the US Census Bureau, in 2016 less than 5% of US households would make enough money to hit that cap.  Additionally, 5% is by "household," and the 401k limits are by individual, so theoretically you could set up one under your account and one under your spouse's.

Suffice it to say, the current limit doesn't impact that many people, and those it does are already very wealthy and likely used to mandatory diversifying of their assets.  The new limit, though, would impact millions of Americans.  Under the proposed rules, you would need to be putting just $200 into your 401k per year to be impacted, a pretty small amount for most middle class Americans (going with the 5% rule, you'd need to clear $48,000 a year, which is roughly 40% of American households to be impacted, and again, that's assuming a pretty low retirement investment).  After you hit the cap, you'd end up having to pay taxes on the money you would put into a traditional IRA or Roth, rather than paying taxes later when you withdraw.

This would impact Americans, primarily swing-y suburban and exurban voters (who have been trending to Democrats but historically vote Republican) arguably the most.  They'd end up having to diversify their retirement accounts, causing massive inconvenience, and also wouldn't invest as much money up-front, meaning that their long-term growth rates wouldn't be as beneficial, and could deter people from saving as much into their accounts.

It is jaw-dropping to me that the Republicans are willingly going to defy their voters in such a way.  It's one thing when they, say, abandon Obamacare under the (probably correct) assumption that it impacts more Democrats than Republicans (based on income-level analysis of the last election, this is accurate, though it discounts that millions of people are on Obamacare AND voted for Trump), but it's another to disproportionately affect your own voters and a program they like.  It'd be like Nancy Pelosi defunding Planned Parenthood to get a school voucher bill through Congress.  This is a bill that will greatly impact Republican voters, and specifically Republican voters in swing districts.  By my count there are 10 of the 50 wealthiest districts in the country that have a Republican incumbent and went for Hillary Clinton, and another eight on that list that are GOP-held and gave President Trump less than 55% of the vote.  If those voters are mad, that's nearly 18 seats that the Republicans are putting in jeopardy, nearly enough to topple their House majority.  It feels like a risky bet to make, and the fact that they're doing so to appease only a handful of donors shows how toxic campaign contributions are in politics, where Republicans care think filled campaign coffers are even more important than happy constituents.