You might have heard about the provision in President Obama’s fiscal 2014 budget that would cap “tax-advantaged retirement savings for wealthy individuals.” As Barron’s describes the proposal in the headline of a story for the latest issue, “President Obama Thinks Your IRA Is Too Big.”

Amy Feldman explains in the article that the Obama administration says the complex rules tied to the proposal would lead to a cap that would kick in at about $3.4 million in retirement savings. But that headline number is misleading, since it ignores potential interest-rate changes and the way the cap would affect people differently at different ages. One example suggests a cap of as low as $131,807 for a 25-year-old. Feldman quotes Jack VanDerhei, research director for the Employee Benefit Research Institute. “People think it’s $3 million before the cap kicks in, but depending on age and interest rates, it could be $100,000 or a couple hundred thousand.”

Regular readers in this forum will also feel no shock after reading the following passage:

Tax changes often have unintended side effects, as people and firms change behavior to get around the new rules. And the complexities of the U.S. retirement system make some wonder whether a retirement-savings cap might backfire in unexpected ways.

If highly compensated executives lost their ability to contribute to tax-advantaged retirement plans, would they pull the plugs on the plans at their companies completely? And, if they did, would Americans’ retirement security decline more broadly? The risks are large since the vast majority of retirement savings, especially for low- and moderate-income workers, is done through 401(k) plans at work. While large corporations are generally loathe to cut retirement benefits — they’re a hiring and retention tool, after all — owners of smaller ones might throw in the towel if their personal benefits fell while the complexity of administering it and potential legal issues rose.

“I can guarantee you that this will cause termination of 401(k) plans for small employers, and that is by definition where pension coverage is worst in this country,” says EBRI’s VanDerhei. “That’s the only behavioral assumption I am willing to bet the farm on.”

A policy proposal that fails to account for its potential long-term impact, as well as the impact on groups other than the targeted group? Someone please buy Obama administration decision makers a copy of Economics In One Lesson.