Paul L. Caron

Monday, April 25, 2022

Hemel: The American Retirement System Is Built For The Rich

Washington Post Op-Ed:  The American Retirement System Is Built For the Rich, by Daniel Hemel (Chicago; Google Scholar):

Democrats and Republicans in Congress don’t typically agree on tax policy. But late last month, 216 House Democrats joined with 198 of their GOP colleagues to pass legislation advancing a cause that both parties have championed in recent years: ensuring that high-income individuals can stuff even more money into their tax-advantaged retirement accounts. Only five House members — all Republicans — voted no.

Overwhelming Republican support for the bill — known as the Securing a Strong Retirement Act of 2022, or Secure 2.0 — comes as no shock: Tax-cutting has long been a central plank of the GOP platform. What’s more surprising is that every Democrat in attendance backed the measure, too. Even Rep. Alexandria Ocasio-Cortez (D-N.Y.) — a pillar of the party’s left wing who at a gala last September sported a gown with the slogan “TAX THE RICH” — voted to bestow billions of dollars in benefits on the very taxpayers whom she says should pay more.

Bipartisan support for Secure 2.0 is part of a decades-long pattern: While loudly and proudly proclaiming that their goal is to nurture nest eggs for the working class, lawmakers have constructed a complex of tax shelters for the well-to-do. The lopsided result is that as of 2019, nearly 29,000 taxpayers had amassed “mega-IRAs” — individual retirement accounts with balances of $5 million or more — while half of American households had no retirement accounts at all. Overall, according to the Congressional Budget Office, the top 10th of households reap a larger share of the income tax subsidy for retirement savings than the bottom 80 percent.

It’s working out just fine for the financial institutions that manage assets in IRAs and 401(k)s. The combined amount in those vehicles reached $21.6 trillion at the end of 2021 — up fivefold since 2000 — and the more money that pours in, the more that managers collect in fees. A small sliver makes it back to lawmakers in the form of campaign contributions: The largest asset managers — BlackRock, Vanguard, Fidelity and State Street — gave almost $1.2 million through their political action committees to House and Senate candidates in the last election cycle. But that’s a pittance compared with what these firms stand to gain from Secure 2.0.

University of Virginia law professor Michael Doran — who held tax policy roles at the Treasury Department under Presidents Bill Clinton and George W. Bush — calls the current state of affairs “the great American retirement fraud.” It’s hard to argue with that description. And Secure 2.0 would take the fraud to a new level: Its congressional supporters have engaged in Enron-style accounting gimmicks to mask the bill’s effects on deficits — tricks that, if used by corporate executives, might well land them in jail. (Sen. Ben Cardin (D-Md.) has introduced a broadly similar bill in the upper chamber, though without some of the House’s most egregious accounting shenanigans.) ...

The era of tax-incentivized saving for retirement is nearly half a century old, and for all that time, Congress has showered high-income savers with generous benefits while paying lip service to the working class. The old adage says you can’t fool all of the people all of the time. Bipartisan retirement “reform” puts that to the test.

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