I have been working with Christian Weller from the Center for American Progress (CAP) on how to improve the federal government’s system of retirement savings incentives. On October 30th, we published a paper on The Inefficiencies of Existing Retirement Savings Incentives and hosted an event with academic and political experts to discuss the issue in depth. On November 18th, we released another paper on Laying the Groundwork For More Efficient Retirement Savings Incentives that contains proposals for reform.
The federal government’s current policy to encourage retirement savings in the tax code is both inequitable and inefficient. The wealthy have higher marginal tax rates and therefore benefit more from tax deductions than the poor and middle class. Furthermore, research has shown that wealthy households would save anyways, and the tax deductions just encourage them to shift their savings into retirement accounts to lower their tax bill.
We suggest a simple set of reforms to make the federal government’s retirement savings incentives more fair and effective. First, the tax code should prioritize refundable tax credits over tax deductions. Second, the Saver’s Credit should be made fully available to low income households. Third, there should be a universally available, simple, low-cost, and low-risk vehicle for people to save for retirement outside of employer sponsored retirement accounts.