I joined American Public Media's Marketplace in a segment titled, "The 401(k) System Doesn't Work." I discuss how our current, individual-based voluntary system for retirement doesn't work because it expects individuals to know when when they will lose their job, get sick, get divorced, lose a spouse and eventually die. The coming retirement income security crisis was not caused by a set of isolated individual behaviors; the system was simply never realistic. The solution to the problem lies in government-mandated, guaranteed retirement accounts on top of Social Security. See the Guaranteed Retirement Accounts (GRA) plan for more information.
The New York Times published an article by reporter Steven Greenhouse, "Should the 401(k) Be Reformed or Replaced?" Greenhouse writes, "Every good retirement system needs to have adequate accumulation for individuals, the money needs to be invested appropriately and the payout needs to meet the needs of retirees for life. Unfortunately, 401(k)'s fail in all three categories." It's inefficient to provide $80 billion in annual tax breaks for 401(k)s, a sum that largely benefits high-income individuals likely to save without a tax incentive.
The article cites my proposal calling for the creation of Guaranteed Retirement Accounts (GRAs) as gaining support. The plan would require both employee and employer contributions into a federal retirement fund that would earn a 3 percent, inflation-adjusted minimum return pegged to the long-term growth rate of the U.S. economy. Account balances would be converted into annuities that would provide a life-long stream of income in retirement.
CNN ran an op-ed I co-authored with Rick McGahey, “Americans are Not Moochers.” We dispel Republican Presidential Candidate Mitt Romney’s claim that 47 percent of Americans expect government programs to provide for their basic needs.
Digging deeper into why 47 percent don't pay federal income tax, what we find are many former taxpayers: twenty-two percent are the elderly, living mostly on Social Security, a benefit they got by working and paying payroll taxes. Others are unemployed or are paid close to the minimum wage, so they don't have enough income to file any taxes.
What is missing from the discussion is the fact that the lack of progressivity in the U.S. tax system. While in theory, higher income individuals pay a higher tax rate, it is the middle class that pays the highest percentage of their income in total taxes due to lower tax for capital gains and larger deductions that reduce taxes for the highest earners.
Romney’s suggestion that older Americans and low-income households feel entitled to government assistance is a theory that does not fit the data. In fact, less than 4% of the U.S. population has received a year’s worth of income-based assistance programs such as food stamps, and more than 50 percent of older people looking for work are too young to receive social security, leaving them close to the poverty line.
On October 4, 2012, Nobel Prize-winning economist Joseph Stiglitz gave a lecture at The New School on his latest book, “The Price of Inequality: How Today's Divided Society Endangers Our Future." His presentation was followed by a discussion with Michael Cohen, director of The New School Graduate Program in International Affairs, New School President David Van Zandt, and myself.
On November 16, 2012, I was asked to add commentary to Bill Moyers' “Group Think: Fiscal Cliff” blog.
In my post, “Jobs and Growth, Not Austerity”, disputed the common argument that tax cuts for the rich create jobs. In reality, the wealthy are more likely to spend on foreign goods or to save, rather than spur domestic consumption or investment. Middle and working class consumers need increased buying power to increase growth, and that the government can make this possible by extending unemployment insurance and tax cuts for low and middle income households. I propose four measures included in the Economics Policy Institute’s Plan to reduce the federal deficit while spurring growth:
· Extend Emergency Unemployment Insurance (EUI) for the long-term unemployed;
· Gradually phase out the temporary payroll tax cut and increase the earned income tax credit so that lower middle class people will be paid for the increase in payroll taxes;
· Allocate federal expenditures for infrastructure spending;
· Raise top tax rates to about those in the 1990s in order to pay down the debt.
In response to today's release of the unemployment numbers for November, Rick McGahey and I published an op-ed in the Washington Post's Outlook section, "5 Myths about the Unemployed."
With the current debate surrounding the upcoming 'fiscal cliff, "let's take a look at the misconceptions that often arise when the unemployed take center stage in Washington...
1. People who receive unemployment benefits are slow to search for work.
2. Americans without jobs are hurt by immigrant labor.
3. Older workers are clinging to their jobs, hurting jobless younger Americans.
4. Onerous regulations cause jobs to disappear.
5. Discouraged workers drop out of the labor force and never return.
We are stuck in a slow recovery. Congress needs to extend emergency benefits again, but most important, it needs to enact more economic stimulus to help create jobs that will drive down our excessively high unemployment rates."
CNN.com posted my response to IBM's decision to contribute to employees' retirement funds only once a year.
"IBM looks better than most companies because most companies are whacking their workers' retirement plans or don't sponsor any at all. GM offered its salaried, white-collar workers a lump sum -- the worst way to get a retirement account because people spend a lump sum too fast -- instead of an annuity. Ford will follow GM's example next year. Fortunately, very few auto managers and workers are taking up such an offer; they must know an annuity is more valuable.
What is there to stop companies from ending retirement accounts altogether? Nothing.
Unions represent less than 11% of the private sector workforce and the unemployment rate is high enough that anyone who has a job feels lucky to have a job. I don't see anything on the horizon that will encourage companies to maintain or improve retirement programs at the workplace.
Political leadership and bravery is needed to call out the failure of the voluntary retirement system and to secure retirement income and savings for all American workers."