How does a 401(k) lead to inequality? The New York Times

Last January, there was another bipartisan collaboration — between Alicia Munnell, who was an economist in the Clinton administration and now director of the Center for Retirement Research at Boston College, and Andrew Biggs, a senior fellow at the American Enterprise Institute, who is a conservative. Research Center – Published Paper Advocating for Reducing or Ending 401(k) Tax Benefits.

Their research showed that this did not lead to increased participation in the program nor did it lead to a significant increase in the amount Americans overall were saving for retirement. It was mostly just a giveaway to high-income investors and expensive at the time. They estimated that it deprives 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 added revenue to shore up Social Security.

When I talked to Biggs, he emphasized that he’s not against 401(k). Overall, he thinks they’ve done well, and he also says some of the criticisms against them are no longer valid. For example, the do-it-yourself aspect is overrated: Most plans, for example, now offer target-date funds, which automatically adjust your asset allocation depending on your age and goals, freeing you from having to constantly readjust your portfolio yourself. He admits that eliminating tax preferences might be politically difficult: The people who mainly benefit from them are also the people who write checks to campaigns. But he is confident that Americans can eventually be persuaded to give up the tax benefits. “If we say to people, ‘Look, we can cut your Social Security benefits or raise your Social Security taxes, or we can reduce this useless subsidy that goes to rich people who don’t need the money’ — well, that’s a little more convincing.”

Hassett told me that his work with Ghilarducci represents no decline in his belief in the free market. Quite the opposite: he sees government intervention to boost 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 latest book — and part of the reason is that many Americans are economically marginalized and have come to feel the system is not working for them. benefit.

“They feel disconnected, they are disconnected,” Hassett says. The government would be wise to help them save for retirement. “This will give them a greater stake in the success of the free enterprise system,” he says. “I think it’s important for long-term political stability that everyone gets a stake.”

Jane Forbus is not economically marginalized, but many in her community are struggling. Lorain, a city of about 65,000 located on the shore of Lake Erie, has never recovered from the loss of a Ford assembly plant and two steel mills. About 28 percent of Lorain’s population now lives in poverty. By the bleak standards of her district, Forbes is doing well. “I’m definitely lucky,” she says. However, she knows that despite her diligent saving and careful budgeting, there is a high probability that she will not be able to retire at age 65. She fears she may have to remain in the job market as an elderly person. “Something like waitressing — after a certain age, that’s really hard,” she says. She admits that she finds it upsetting that even for someone like her, retirement can be an unachievable goal. “I feel like our system has failed a lot of people,” she says.