An estimated total of $8.1 Trillion is currently held in IRA and 401K plans. This may not include 401K style plans available to government employees and the self-employed. I did not find a breakout for traditional (put in pre tax dollars and pay regular income tax on withdrawals) versus Roth (put in after tax dollars but pay no tax on gains) plans but it is probably safe to assume the largest amount is in the tax deferred traditional IRA plans.
These funds may offer the debt ceiling warriors a way to increase revenue to keep the Democrats happy but without raising taxes, keeping the Republicans happy. By repealing the traditional 401K/IRA plans but keeping the Roth IRA, dollars contributed to 401K/IRAs would be taxed thus increasing revenue. Taxpayer income for living expenses (food, housing, transportation, leisure etc.) would remain the same. Only the savings investment dollars would be reduced due to taxes. However, the net investment money could be put into a tax free Roth IRA which in the long run is probably a better investment. A one time good deal could be offered to people holding investments in 401K/IRA tax deferred plans to convert to a Roth style plan by paying a low flat tax (immediate revenue to the government) on the transferred funds. Most people would have to sell some of their investments held inside their 401K/IRA accounts to cover taxes. Therefore conversion would have to be spread over several years so as not to disrupt the markets. Some may choose not to convert due to factors such as life expectancy.
The end results are: more cash to the government for the short-term, no living expense cash flow effect for the taxpayer, no change in tax rates except for the special conversion tax, no fear of the IRS or Congress grabbing your Roth retirement income.
This proposal still leaves open the questions of spending reductions, balanced budget amendments and tax reform but it does get us past the current impasse on revenue. The other issues can be settled November 6, 2012.
Cross posted on Sound Politics