Gar Lipow wrote:
On Wed, Feb 25, 2009 at 5:57 AM, Max Sawicky <[email protected]> wrote:
I should add that another term for a tax-free universal savings
account is . . . a consumption tax. Making IRAs completely free of
restrictions on how much can be deposited and when withdrawals can
take place converts the individual income tax into a consumption tax.
Does "universal" mean "completely free of restrictions". I assumed
it meant "for everyone" which would require some sort of subsidy. And
in the context of "Fixing" social security (and the assumption that
social security needs "fixing" is there" ) raiding social security
seems the obvious place to get that funding.
It should be understood that George W. Bush was the first president to
propose tax-free retirement savings accounts. When he raised this, it
was clearly understood as an intermediate step in getting rid of social
security. Here's a top DP operative attacking Bush, but as one might
expect there's no problem with Obama proposing the same thing.
http://www.cfr.org/publication/6837/bush_retirement_savings_plans_amount_to_fiscal_gimmickry.html
Bush Retirement Savings Plans Amount to Fiscal Gimmickry
Gene B. Sperling, Senior Fellow for Economic Policy and Director of the
Center for Universal Education
February 1, 2004
Los Angeles Times
In the years ahead, the United States faces a serious retirement savings
crisis, and the Bush administration's plan to deal with this problem
will make it worse instead of better.
Currently, only about 5% of people contribute the maximum amount
allowable to IRAs and 401(k)s. The other 95% either can't afford to put
away that much or have no retirement savings at all. Among households of
those 55 to 59 years old, the median amount held in IRAs and 401(k)s is
only $10,400, and in 2001, 92% of the working poor and 77% of
small-business employees lacked any employer-sponsored pension.
Rather than helping these modest-income Americans save for their
retirement, our current system of relying only on tax deductibility to
encourage savings exacerbates the problem by giving all the incentives
to upper-income taxpayers. If you are in the 35% tax bracket, you
receive 35 cents for every dollar you save; if you are in the 15%
bracket you only get 15 cents; and if you are one of the 33 million
American workers who do not make enough money to owe income tax, you get
nothing. No wonder only 2% of tax expenditures for retirement savings go
to the bottom 40% of taxpayers.
The system is ripe for reform, but President Bush's main retirement
savings proposals — retirement savings accounts, or RSAs, and lifetime
savings accounts, or LSAs — which are expected to be re-released on
Monday in his 2005 budget request to Congress, offer nothing to help the
95% who cannot afford to take full advantage of existing incentives.
If unchanged from last year's proposal, the new accounts would remove
existing income caps on tax-deferred IRA saving — which by definition
would help only the currently excluded households that make more than
$160,000 a year. In addition, they would raise the contribution limits
to allow a family of four in which the parents are currently "maxing
out" their IRA accounts at $3,000 apiece to now save up to $45,000
tax-deferred a year, if the parents put $7,500 apiece into RSAs and
$7,500 in LSAs for themselves and their children. As policies to address
our distressingly low rate of private savings, RSAs and LSAs represent
backward thinking. Studies have shown that offering high-income savers
new incentives to save causes them to simply shift their existing
savings to capture the tax windfall, rather than actually save more.
When the Congressional Budget Office analyzed Bush's proposals last
March, it found that "most taxpayers would simply save the same amount
in one of the new accounts as they would have saved in one of their
current tax-free accounts." On the other hand, the proposals would have
a dramatic, though deceptively negative, impact on overall national
savings by increasing the long-term deficit.
Because the LSAs and RSAs require contributions of after-tax income,
they essentially encourage people to pay taxes now that our budget
forecasts are counting on them pay to later. This massive fiscal gimmick
boils down to robbing the revenue from our future. Brookings Institution
economist Peter Orszag estimates that by 2028, the fiscal deficit
created by LSAs and RSAs would be half as large as our already gaping
Social Security deficit.
There are ways that we could address our nation's savings challenge. A
good start would be to offer a new progressive universal 401(k) account
to all Americans. With such an account, the government could provide the
same matching contributions that 401(k)s in the private sector receive,
through refundable tax credits on a taxpayer's first $1,000 of savings,
and an extra 2-1 match for the poorest families.
If the notion of the government providing a matching contribution for
savings seems radical, remember it is exactly what every member of
Congress and the administration are offered right now.Don't hold your
breath for such a proposal from the Bush administration. The new RSAs
and LSAs are clearly part of a larger Bush agenda to tax only the work
that Americans do and not the wealth of the wealthiest among us.
Imagine what our world would look like if the administration was
successful in achieving zero taxes on dividends, zero taxes on even the
richest estates and near zero taxes on capital gains, along with this
new opportunity for the fortunate family of four to put away up to
$45,000 a year and never pay taxes on the earnings. We would be living
in a world where a precious few amass larger sums of tax-free passive
wealth, while we shift more of the tax burden onto the hard work of
families who themselves receive little assistance or incentive to save
for their future.
Gene Sperling is director of economic programs for the Center for
American Progress and was national economic advisor to President Clinton
from 1996 to 2000.
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