Sunday, November 19, 2006

The Democrats’ so-called alternative to Social Security reform

The business section of today’s Boston Globe has a story titled “How the Democrats plan to beef up your 401(k)” which details a scheme called “AmeriSave” to help out workers with a $1,000 matching contribution to the popular retirement savings plan. I’m not necessarily opposed to the idea: it will be very expensive, for sure, but if it softens the impact of Social Security’s collapse then why not? Best of all, it retains retirement security in 401(k) accounts instead of keeping Americans chained to the federal government for support.

But I recall that one of the Democrats’ arguments against private savings accounts was that those eeevil financial institutions would benefit from an influx of investment cash. But that was then:

While aimed at voters, the Democratic proposal also could generate support from the investment industry, including such Boston players as Fidelity Investments. These companies stand to receive billions of dollars in new flows of money to manage in mutual funds and other vehicles.
Oh, well, never mind that. A more fundamental question is whether lower-income workers can afford to put a grand into their 401(k)s. Ironically, these workers pay much more in payroll taxes – for Social Security and Medicare – than they do in income taxes. And thus the cycle of dependency continues unabated.

1 comment:

Anonymous said...

A key part of this proposal is the phase out or elimination of the SAVER Tax credit created by EGTRRA in 2001 by President Bush.

The Amerisave match would be funded from reductions in the SAVER payments.

This helps lower income tax-filers who see no benefit from a credit since they pay no taxes as it is. This group would be able to get cash in hand through Amerisave.

In essence, it is an income transfer from middle-income wage earners to lower-income wage earners.