'Talk about robbing Peter to pay Paul': Economists propose axing 401(k), IRA tax benefits to help fund Social Security — but some retirement experts are lashing back
Funding for Social Security is projected to run dry in less than a decade.
finance.yahoo.com
A new brief from the Center for Retirement Research at Boston College makes the case for scrapping tax benefits on retirement plans like 401(k)s and IRAs, potentially adding billions of dollars in U.S. tax revenue each year.
Economists Alicia Munnell and Andrew Biggs argue how subsidies for these retirement plans, which they say fail to “significantly boost national saving,” could be diverted to fund Social Security instead — which is set to run short of cash by 2033.
“It makes little sense to throw more and more taxpayer money at employer plans and IRAs,” the duo wrote in the brief. “In fact, the case is strong for eliminating the current tax expenditures on retirement plans and using the increase in tax revenue to address Social Security’s long-term financing shortfall.”
Americans saving up for their golden years get to defer taxes on contributions to retirement plans, like 401(k)s and IRAs, which they only pay on withdrawals in retirement. But deferring their taxes not only squeezes the future savings they get to enjoy in retirement, it also leaves potential tax revenue on the table.
The brief points to Treasury estimates that the tax preference for employer-sponsored retirement plans and IRAs reduced federal income taxes by about $185 billion in 2020 — equivalent to about 0.9% of gross domestic product.
What’s more, the tax expenditures for retirement savings plans are actually more likely to benefit higher earners. The Tax Policy Center estimates nearly 60% of those benefits went to taxpayers earning at least $167,000 annually, while more than 38% went to those making $245,000 or more in 2020.
Why? Higher earners are more likely to have access to employer-sponsored retirement plans, are more likely to participate in them and contribute more when they do participate, the brief states.
The researchers also calculated, based on Federal Reserve data, that between 1989 and 2022, the share of workers aged 25 to 64 who participate in employer-sponsored retirement plans rose by a meager two percentage points, from 51% to 53%.
Meanwhile, Social Security benefits are a major source of income for low-income seniors, many of whom rely on these checks to cover the cost of essentials. Additional financing would allow the program to continue paying beneficiaries in full for an extended period of time.
Not everyone is convinced by Munnell and Biggs’s proposal to reduce or eliminate tax preferences for retirement plans.
“Talk about robbing Peter to pay Paul,” Brian Graff, CEO of the American Retirement Association, told the National Association of Plan Advisors (NAPA). “It’s absurd to take away the incentives from a system that’s actually working to give money to a system that has fundamental challenges.”
LOL.....The Center's sponsors page is all you need to know about them.....
Sponsors
crr.bc.edu
I mean I think I agree.....We’re just not taxed enough really.
Sales tax, income tax, property tax, vehicle tax, inventory tax, capital gains tax, fuel tax. Yes sir, there’s still some meat left on the bone there.
Here's a much better Idea....Free of charge.....Massively crack down on SS disability and Medicaid.