The federal government should stop allowing pre-tax contributions to retirement savings, abolishing the 401(k) and Individual Retirement Account, two economists from opposing ideological camps argued in a research brief in January.
Allowing people to shelter their retirement money from taxes is a policy that largely favors the well-heeled, they said. Congress could use that money, nearly $200 billion a year in lost tax dollars, to shore up the underfunded Social Security program.
Their suggestion created a stir. One social media post has drawn more than 700,000 views.
“We do not think that this subsidy, which you can only rationalize if it increases saving … we don’t think it does increase saving very much,” said Alicia Munnell, an assistant treasury secretary under President Clinton. She co-wrote the brief with Andrew Biggs, a senior fellow at the right-leaning American Enterprise Institute.
Here’s why economists are coming for your 401(k)
Why, then, are economists coming after your 401(k)?
That employee retirement plan and its personal savings counterpart, the Individual Retirement Account, were created to help Americans save for retirement.
But federal data suggests tax-favored retirement accounts help only some Americans, and wealthy Americans in particular.
For households in the top 10% by income, the median retirement account held $559,000 in 2022, according to the Survey of Consumer Finances. An overwhelming 93% of those households held retirement plans.
For middle-income…
