Tax Treatment Under Kolbe-Stenholm

[National Dialogue Moderator <moderator>]

The lack of details on the tax treatment in our bill was by no means an
attempt to obfuscate.  Our bill is quite detailed and we were restricted in
the number of pages we could provide fo rthe website.  If you read the bill
language, however, you will find that we are very explicit in how the ISAs
are taxed.  A link to the bill can be found on my Congressional website
http://www.house.gov/kolbe/socsecurity.htm.  To answer your questions:

(1) The 2% of payroll comes from the employee's contribution.  The
employer's contribution remains unchanged.  The total contribution to an
individual's personal account is 2% of payroll up to the wage cap.

(2)  To avoid creating a savings vehicle that would compete with existing
savings products (IRAs, 401Ks), there is no tax preference for voluntary
contributions in the Kolbe-Stenholm bill. We want to encourage additional
savings, not encourage people to merely shift savings from existing accounts
to their ISA. Ergo, voluntary contributions are post-tax.  At retirement,
there is a basis adjustment to your account, however, so that you are not
taxed on these contributions twice.  

(3)  The Kolbe-Stenholm bill makes no changes to the existing income tax
rules regarding Social Security benefits.  Social Security benefits will be
taxed as under current law.  We do, however, eliminate the earnings test for
those individuals who reach the Normal Retirement Age.

(4)  Pre-tax contributions to ISAs are taxable at withdrawal.  Earnings on
contributions also are tax-deferred.  Again, there is a basis adjustment at
retirement for voluntary contributions (which are post-tax) to prevent
double-taxation.

Rep. Jim Kolbe (R-AZ)