Today’s New York Times column is here. Excerpts:
Just as the earned-income tax credit pays poor people to work, the universal 401(k) would pay poor people to save…By directing the benefits toward the neediest, the universal 401(k)
savings plan tries to increase economic security in a cost-effective
manner.There is an obvious way to pay for a universal 401(k)
plan. For every dollar spent on the universal 401(k), the federal
government could spend one dollar less on Medicare and Social Security
benefits…It may seem that what the poor need is more money to spend, but the
universal 401(k) plan is taking a gamble by encouraging them to lock up
more savings. Perhaps support for a culture of savings and discipline
is more important than subsidizing additional spending.…A fiscally responsible universal 401(k) plan would not make everyone
happy. Libertarians and conservatives would be suspicious of
government-created accounts. Liberals might not like freezing or
reducing future expenditures on Medicare and Social Security. But if we
are looking for policy initiatives that address real-world problems and
offer something to each side, encouraging low-income savings is a good
place to start.
Oh, that funding plan is really going to fly. Take money from politically powerful middle class retirees and give it to politically powerless poor people. What chance do you suppose that has of passing?
And even setting aside political realities, Prof. Cowen’s funding plan seems to be working at cross-purposes with the idea of a Universal 401K. If the money taken from SS and Medicare is done by means-testing, as I’m sure Prof. Cowen would advocate, we’ve effectively put a tax on saving for retirement.
So on one hand, we’re trying to encourage people to save money, but on the other hand we’re discouraging it by making retirement benefits contingent on NOT saving.
Tyler:
Why would you suggest that libertarians and conservatives are against such a plan? Wasn’t it George Bush that proposed this plan? The alternative is social security and social security is the opposite of an “ownership society†.
Save the Rust Belt:
Because of overly generous pension plans you rust belt people have been losing jobs by the thousands. And let’s be honest, few private sector employees have pension plans but the vast majority of public employees still have them. We could easily fund Tyler’s and Bush’s ideas, feed the poor and shelter the homeless if we could somehow end public pensions. I know, wishful thinking.
Susan,
You can get all the kids shoes you could ever need at any local thrift store for almost nothing.
“someone studies econ for 4 yrs at an ivy school, gets a job at goldman sachs for 145k the first year for “analyzing” stuff.”
It doesn’t work quite like that. Anyone joining an i-bank with a bachelors degree starts as an Analyst, earning a much lower salary. One doesn’t get into the six-figures until after one gets an MBA and returns as an Associate. (Though a fortunate few go “direct to associate” without the MBA).
Nonetheless, labor markets being what they are, send a signal loud and clear to bright young kids that med school is a relative waste of one’s time and money compared to business school or law school. That might have something to do with the fact that the government has yet to intervene with prices in those industries.
Russ R,
Those salaries ARE available to someone straight out of undergrad in i-banking once you include the bonus.
What’s to stop people from looking at their growing nest egg and figuring they can afford to take on more debt, since they’ve got all this cash coming to them when they retire? These funds shouldn’t be available to purchase a a home, like current 401(k)s).
I don’t think the idea is bad, since you have to get it through the enemies of progress, the Congress. But the disconnect I see is that saving isn’t an end in itself. Savings fuel the economy. Along with this plan should be more cuts to capital gains taxes. They can easily be afforded, because how much does the government spend to deliver $1 in Social Security or Medicare benefits? And, instead of a static $1, you’re actually giving someone young about $6 in future benefits.
Savings fuel the economy.
If savings are inherently good, why not just have draconian laws that force
everyone to save a whole lot?
Actually increased savings make things easier for some people and harder for others.
If I want to save or invest, having a bunch of money chasing income streams or
investment opportunities works to my detriment; the competition drives down the
returns. Good from the perspective of people looking for funding/capital, bad if
you’re an investor yourself. In a similar vein, more savings will
encourage growth in capital-intensive industries while hurting companies that
provide consumables with a relatively elastic demand (e.g. I would expect a new
airline to benefit from the cheap money, while a touring rock band would be harmed
by the discretionary income now locked away in savings).
At the heart, the question is still whether government is justified in deciding that some
level of future discounting is too steep and needs to be discouraged. I also see the
shadow of the puritans – I am sure that many people would see greater value in the
tangible products of accumulated capital than in the memories of a concert or a
boozy night on the town. But I would sooner leave these choices to the individual.
As a final point, I should note that if you force a certain level of savings on
people who have little care for tomorrow, you will actually discourage some of them
from working at all, as they won’t perceive much value in the part of their paycheck
now going to savings.
Roger,
I think most of your questions are answered in the excerpt quoted above. People who are permanently disabled or who “save a pittance” would get Social Security benefits just as they do now.
As for whether 401k plans “work” or not, I suppose someone would have to squirrel away a lot of money to live completely off of a 401k plan until he or she dies. But who says a 401k has to cover all of one’s expenses following retirement? Many retired people have a large amount of real estate equity accumulated over the years and moving into a smaller apartment or house is always possible once the kids move out. Ultimately, many retired people will not be able to cope with a house with more than one floor due to loss of mobility in any case.
My MIL has a friend who expected the pension after 25 years w/the company.
The husband died at 24.6 months. No pension. They had a pension and SS, why should they have saved more?
One reason why college costs are so high? Uncle Sam assumed the risk.
As to universal health care, it works so well (not)for the civilized countries because we assume their military and prescription drug risk.
As to retiring during a down market, make a manditory rule you can be no more than x% in the market after a certain age.
Don’t colleges require professors to save approx. 17% of their income for retirement? I read that once on a blog where they were discussing retirement.
And aren’t more companies requiring people to opt-out of 401Ks instead of opting in?
And let’s face it, IRAs at $3K? What’s that? Should have raised it to $10K, but Uncle Sam would lose too much revenue.
Give us the tools and we’ll do what needs to be done.
Susan, the meme that wealthy people give nothing to the poor is unsupported — it’s simply something that Everybody Knows.
Dick,
After carefully reading Susan’s post (a skill which appears to be declining in our speedy times) I do not see where she makes or implies the above extreme strawman-esque statement. I would contest that “everyone knows” that rich people give nothing to the poor, since common sense suggests that many rich people in America pay taxes and that some portion of these funds is redistributed to subsidize the luxurious lifestyles of poor people. Is this not also something that “everybody knows?” Does not “everybody know” about Bill Gates’ beneficence towards the poor?
What is surprising is that on occasion poor people have themselves contributed to the well-being of people higher up on the economic ladder, a humble example given below.
http://tinyurl.com/ye9tuh
My MIL has a friend who expected the pension after 25 years w/the company.
The husband died at 24.6 [years?]. No pension.
!!!!
I want to see the union that negotiated that pension…
If my company pension had zero vestiture until 25 years, and stopped counting if I didn’t work for any reason (like that pension seems to), I would treat the pension’s value as zero for purposes of retirement planning. And I’d ask for a different program.
But that’s just me.
Before anyone lectures me about hindsight, let me just ask: exactly what kind of standards did workers hold these pension plans to? Let’s say I offered these pensions as “employee benefits” in 1950:
1) Pension equal to final salary and indexed to inflation if you work there for 25 years. Nothing if you are terminated before that. Salary can be reduced at the end of your years of service.
2) Pension equal to final salary and indexed to inflation. Inflation index described in reference A if you bother to look it up. Reference A contains an inflation index with one item: the price of CPUs.
3) Generous pension but no rights to access the information about where the money is coming from. OR pension fund is entirely invested in company stock and company bonds.
Would workers have fallen for any of those? Apparently, the answer is yes.
If your pension doesn’t kick in until 25 years and your family is counting on it then you should buy life insurance.
You’re going to propose government-funded retirement accounts for people who don’t use banks? If they can’t figure out how to use a savings account, how the hell are they going to figure out a government 401(k)?
- Josh
Poor people don’t use banks not because they don’t know how, but because 1) not all of them own cars and do not have a bank within walking distance and 2) they don’t have any savings to deposit anyway. It takes no more sophistication to use a savings account than to use a payday loan or check cashing service.
The key to this idea working would be an opt-out system that requires as little input as possible from the individual. The government could automatically withhold a certain percentage of payroll income and invest it in a broad index fund. Whether administration costs would make all this worthwhile, on the other hand, I don’t know.
After carefully reading Susan’s post (a skill which appears to be declining in our speedy times) I do not see where she makes or implies [that the wealthy are unwilling to help the poor]
Holy switcharoo, Batman. Are you saying that what you said before, [the meme that wealthy people give nothing to the poor is unsupported] is equivalent to what you just said, [that the wealthy are unwilling to help the poor]?
I regarded and still regard that statement by Susan as an assertion that those of means, with a vacation house and two large vehicles, are unwilling to help the poor. How do you read that passage?
The same way you do. Anyway, isn’t selfishness one of the great virtues of libertarianism?
Eric
I held off commenting on this because a) save the rustbelt basically
stated my position (I would add, pay for it by undoing some of
Bush’s tax cuts; the economy did just fine in the late 90s), and b)
I could not quite pin down what bothered me. Now I know.
What bothered me is that Tyler seems to have fallen into “Entitlement
Commission fever” that is all over D.C. these days. The argument is
that there are funding problems with both “entitlements” so we should
go after benefits (or funding, or something) regarding both social security
and medicare. Tyler does not explicitly say this, but it is clearly implicit.
The problem is that they are not in remotely the same shape. The
medicare trust fund is currently running a deficit that is getting
substantially larger by the minute. However, my guess on that one is that
it is part of a broader problem in our medical care provision system,
not just the one for old people or poor people (medicaid).
OTOH, social security is not in doing badly at all and should not be
lumped in with medicare on this. Its trust fund is running a surplus
in excess of $100 billion, a surplus that is still increasing, although
it is likely it will start to decline after 2008.
Of course we have all been bombarded by the mid-range forecast from
the Social Security Trustees that says its fund will start doing what
medicare’s is right now after 2017, and that in 2041 or thereabouts,
the fund will go “bankrupt.” Tyler, I would really appreciate it if
you would recognize publicly how bogus the assumptions are that go into
that mid-range forecast, including that the US economy will start growing
at 1.8% on average soon (half its historic rate), and that immigration
will soon drop to near zero. These are wildly pessimistic assumptions,
highly unlikely to come to pass.
The “low-cost” projection, looking more like current reality on these
basic numbers, has the trust fund running a surplus forever. This will
happen even if the growth rate declines to 2.2%, well below historic
rates, and immigration remains above about half its current rate, which
sounds pretty realistic to me. So, there simply is no crisis with social
security. Nothing at all needs to be done to it, and it is simply
ridiculous to lump it in with medicare as a source of fiscal problems.
I do understand that as a more-or-less libertarian you might wish to
cut these Big Government programs back, and maybe that is the subtext
of your “cut the benefits while putting in mandatory 401(k)s.” But,
please, do not claim that at least with respect to social security this
proposal is resolving some “problem” that everyone should agree needs
to be resolved.
Would this savings plan for the poor include illegal aliens? Would the accumulation of felonies make the poor ineligible for a pension? If we are going to cut government costs, I would start at public universities.
Person-
By your definition, few if any pension plans are fully funded. In the normal course of business, pension plans are funded assuming that they will continue indefinitely. The decision to terminate a plan is extraordinary and would normally require additional contributions to provide for purchase of annuities or payment of single sums to participants in settlement of obligations. In my experience, the majority of companies are able to make the plan sufficient to terminate, when they decide to do so.
Eric – I wouldn’t dream of accusing lawyers, or you, of being dishonest. I do note a tendency of attorneys to frame evidence to fit their case – emphasizing what helps and soft pedalling what doesn’t.
I am so confused about the 25 years pension comment. My understanding was that under ERISA an employee is vested in their pension benefit no later than 7 years into their job (usually 5) so how the entire pension benefit was lost at 24.6 years is beyond me.
“how about universal single payer health care? every other civilized nation enjoys it”
Many nations force it on their people, but there’s abundant evidence that the people don’t enjoy it. How would you like to wait an extra year or two for a hip or knee operation? Bureaucrats figured out that if you force old people to wait long enough for their new hips, their life expectancies will be shortened and many will never need them at all.
i don’t even know if the eric who is posting is my son, eric, but he appears to be defending me as my son would certainly do. about the hummers, i really meant that the war congress was snookered into by lies and made-up facts was and is really about securing oil and when i pass the two hummer house, not a vacation house because woodcliff lake doesn’t even have a lake, i see people who profess their patriotism while using vehicles which get maybe 10 miles per gallon. the flag does drag in the dirt and if i wanted to get my head handed to me, i’d go knock on their door and give them some flag rules. about universal single payer, read today’s nytimes page 3 business section for an article that would explain more cogently than i can why it is superior to the hodgepodge we have now. complete disclosure: my husband is a doc and i work in his office. he’s dropped all insurance plans except medicare because it is simple, very few hoops, and when we have a problem, the lovely folks at empire help either acknowledge their mistake or mine. i think the overhead is somewhere between 4 and 7% as opposed to the 20% plus for insurance companies. o and would someone kindly tell me what income level for say a family of 4 constitutes “poor”?
it explains http://www.research401k.com 401k saver’s tax credit on that page where “If you fall in the category of low income savers, you may be eligible for a tax credit of $1000 on contributions made to 401k retirement plans, 403b plans, 457 government plans, IRA (Individual Retirement Account) or Roth IRA. ”
In terms of taxable income, the adjusted gross income of the saver must not exceed:
- $25,000 if filing as a single
- $37,500 if head of household with qualifying dependents
- $50,000 joint with spouse
i don’t think $1000 really helps?? what can $1000 buy you nowadays? if they change that to say $5000, then this program might be worth implementing
Buy Generic Viagra – Buy Generic Viagra
Generic Viagra – Generic Viagra
Generic Cialis – Generic Cialis
Generic Levitra – Generic Levitra
————————————————————————————-
Generic Propecia – Generic Propecia
Generic Meridia – Generic Meridia
Generic Zocor – Generic Zocor
Generic Soma – Generic Soma
Generic Prozac – Generic Prozac
Nikon Action VII 10×50 CF
Speedport W 701V WLan
Panasonic SB-TP 20 E-S Surround Lautsprecher System silber
Digitale Sat Anlage 2 Teilnehmer hellgrau ( BSC01 )
Comments on this entry are closed.