Round about a month ago, I took a closer look at Joe Biden’s retirement-related policy proposals, or, more specifically, those of the “Unity Task Force,” which had just released its final document.
One of the items in that document and on the Biden campaign website is a promise to “equalize the network of retirement saving tax breaks” — a proposal that generally translates to eliminating the tax advantages currently enjoyed by retirement savings accounts and replacing them with a “credit” or “match.” The idea is that the tax advantages, or “tax expenditures,” as they’re called, disproportionately accrue to relatively higher earners, and the hope of a change is to provide benefits in equal measure to all income groups.
But how this translates in practice is not clear. An article at Roll Call this morning picked up on the proposal, as did Courthouse News, but neither had more detail, referencing only a 2014 Urban Institute/Tax Policy Center proposal, which provided various hypothetical alternatives.
So what did that proposal suggest? It included a variety of options, including
- Reducing total available pre-tax savings (employer and employee) from (at the time) $51,000 to only the lesser of $20,000 or 20% of pay;
- Expanding the currently relatively-small “Saver’s Credit” (equal to 50% of the first $2,000 in retirement savings, only for relatively lower earners, up to $$19,500 for singles, $39,000 for couples; and phasing out quickly, to 20%, 10%, and ultimately nothing for singles with $32,500/couples with $65,000 in income) to stay at 50% for higher earners and phase out in a much more gradual manner instead; or
- Wholly removing any tax benefit for retirement savings and provide a credit of 25% instead (often this proposal includes a limit to the credit; this particular proposal doesn’t specify such; also, note that this was prior to the 2017 tax law which dropped tax rates).
Biden’s proposal sounds, well, fair enough. But what would happen, in practice?
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