Last January, there was another bipartisan collaboration between Alicia Munnell, an economist in the Clinton administration who now serves as director of the Center for Retirement Research at Boston College, and Andrew Biggs, a senior fellow at the American Enterprise Institute Conservative think tank – published a paper calling for a reduction or end to the 401(k) tax benefit.
Their research showed that this had neither increased participation in the program nor significantly increased the amount Americans saved for retirement overall. Most of the time it was just a giveaway to higher-income investors, and it was expensive to boot. They estimated that this deprived the Treasury of nearly $200 billion in revenue annually. They proposed reducing or even ending the tax-deferred status of 401(k)s and using the additional income to support Social Security.
When I spoke with Biggs, he emphasized that he is not against 401(k)s. All in all, the work was well done, but he also says that some of the criticism directed at it is no longer justified. For example, the do-it-yourself aspect is overrated: Most plans now offer target-date funds, for example, that automatically adjust your asset allocation based on age and goals, so you don’t have to constantly adjust your portfolio yourself. He acknowledges that repealing the tax break could be politically sensitive: The people who have primarily benefited from it are also the ones writing checks to campaigns. But he is confident that Americans will ultimately be persuaded to forego the tax benefits. “If we tell people, ‘Look, we can cut your Social Security benefits or raise your Social Security taxes, or we can reduce these useless subsidies that go to rich people who don’t need the money’ — well, that’s less convincing.”
Hassett told me that his collaboration with Ghilarducci does not mean a weakening of his belief in the free market. Quite the opposite: He sees government intervention to increase retirement savings as a necessary step to preserve American capitalism. Hassett has been concerned for some time that the country is drifting toward socialism — the subject of his recent book — and one reason is that too many Americans are economically marginalized and feel the system isn’t working for them To use.
“They feel disconnected, and they are disconnected,” Hassett says. It would be wise for the government to help them save for retirement. “This would mean they would be more involved in the success of the free economy system,” he says. “I think it’s important for long-term political stability that everyone gets their share.”
Jen Forbus is not economically marginalized, but many in her community are struggling. Lorain, a city of about 65,000 on the shores of Lake Erie, has never recovered from the loss of a Ford assembly plant and two steel mills. About 28 percent of Lorain residents now live in poverty. By the dismal standards of their area, Forbus is doing well. “I’m definitely privileged,” she says. However, she recognizes that despite diligent saving and budgeting, she will most likely not be able to retire at age 65. She fears the prospect of having to remain on the job market as an older person. “Something like waiting tables – it’s really difficult when you get to a certain age,” she says. And she admits she finds it disturbing that even for someone like herself, retirement can be an unattainable goal. “I feel like our system is failing too many people,” she says.
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2024-05-08 09:08:05
www.nytimes.com
