The promises to “equalize” tax breaks refers to longstanding complaints that, so long as 401(k) plans provide for the deferral of taxes on income saved for retirement, this tax break, or forgone tax revenue, primarily benefits relatively higher earners. Biden promises instead to “equalize benefits across the income scale” and there’s no clear manner in which this lines up with a particular Sanders or Warren proposal, but progressives have been advocating for changes here for many years, for example, in this 2011 Brookings proposal in which tax deferral is replaced by a 30% federal match up to a cap, or other proposals with federal contributions to retirement accounts to be made on a flat per-person basis. Which of these Biden has in mind is unclear. Biden also calls for “widespread adoption of workplace savings plans,” promises to “offer tax credits to small businesses to offset much of the costs” and pledges that,
“Under Biden’s plan, almost all workers without a pension or 401(k)-type plan will have access to an “automatic 401(k),” which provides the opportunity to easily save for retirement at work – putting millions of middle-class families in the path to a secure retirement.”
But an “automatic 401(k)” is not actually “saving for retirement at work.” State versions of the “automatic 401(k)” require employers to forward onto a state agency a given percentage of their employees’ wages, to be invested in an IRA managed by a vendor chosen by the state, with the opportunity to opt-out.
And even though calculations of a change from tax-deferral to a federal match, such as that calculated by Brookings, determine that it’s a win, because lower-income folk will increase their retirement benefits while higher-income folk are assumed to maintain their savings rate because they are sufficiently motivated to save with or without tax incentives, it strikes me that this not particularly likely. In particular, the tax deferral for retirement savings is not purely a matter of employee contributions, but of employers contributing to retirement plans on a pre-tax basis, through matches or direct contributions. I don’t think we can take it for granted that if this pre-tax savings structure is removed, employers will continue to find it worth their while to provide retirement plans, rather than simply meeting the legal requirements for payroll deduction for the new federal retirement account system.
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