Last January, there was one other bipartisan collaboration between Alicia Munnell, an economist within the Clinton administration who now serves as director of the Center for Retirement Research at Boston College, and Andrew Biggs, a senior fellow on the American Enterprise Institute Conservative think tank – published a paper calling for a discount or end to the 401(k) tax profit.
Their research showed that this had neither increased participation in this system nor significantly increased the quantity Americans saved for retirement overall. Most of the time it was only a giveaway to higher income investors, and it was expensive in addition. They estimated that this deprived the Treasury of nearly $200 billion in revenue annually. They proposed reducing and even ending the tax-deferred status of 401(k)s and using the extra income to support Social Security.
When I spoke with Biggs, he emphasized that he just isn’t against 401(k)s. On the entire, the work was well done, but he also says that a number of the criticism directed at it is not any longer justified. For example, the do-it-yourself aspect is overrated: For example, most plans now offer target-date funds that mechanically adjust your asset allocation based on age and goals, so that you do not have to consistently adjust your portfolio yourself. He acknowledges that repealing the tax break may very well be politically sensitive: The individuals who have primarily benefited from it are also those writing checks to campaigns. But he’s confident that Americans will ultimately be persuaded to forego the tax advantages. “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 doesn’t mean a weakening of his belief within the free market. Quite the other: He sees government intervention to extend retirement savings as a vital step to preserve American capitalism. Hassett has been concerned for a while that the country is drifting toward socialism — the topic of his recent book — and one reason is that too many Americans are economically marginalized and feel the system is not working for them To use.
“They feel disconnected, and they are disconnected,” Hassett says. It could be smart for the federal government to assist them save for retirement. “This would give them a greater stake 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 just isn’t 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 lack 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’s going to most certainly not find a way to retire at age 65. She fears the prospect of getting to stay 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 somebody like herself, retirement could be an unattainable goal. “I feel like our system is failing too many people,” she says.
