American families deserve a serious policy debate on retirement security

With the debate on tax reform in full swing in Congress, tax incentives for savings appear to have avoided the chopping block. Yet, while sparing them doesn’t make it harder for American families to save for retirement, it doesn’t make it any easier either. There is much tax bill amending and horse trading still to come, so it is far too early to take our eyes off the ball. If tax reform does eventually pass, and tax breaks for retirement remain untouched, we cannot declare victory. Instead, Congress should expand support for savings, and make that support simple and fair.

The debate on tax benefits, which would have reduced the current threshold for tax deferred savings in 401(k)s and similar plans from $18,000 to as little as $2,400, was always difficult to justify based on policy grounds. Half of all American households have less than $59,000 set aside for retirement. Families need more incentives to save, not less.

There’s been no shortage of thoughtful analyses of the shortcomings of this approach. Chief among these concerns is the tremendous uncertainty that this major shift in tax policy would create. In our voluntary system, which relies on employers to offer plans, the likelihood of workers saving is largely driven by their employer’s decision to provide retirement benefits.

Many firms do, but others, especially small firms, do not. Given this role as a gatekeeper to savings, removing a key incentive for owners, which is their ability to deduct their own savings from current year taxes, would reduce savings for both current and future employees. According to a recent survey of large employers, nearly eight in 10 believe that savings would go down.

– The Hill

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