Democratic presidential hopeful Joe Biden announced last month a policy proposal that, according to a new report from Forbes, could put an end to “traditional 401(k)-style retirement savings tax benefits” as we know them.
Writing Tuesday, Forbes senior contributor Elizabeth Bauer broke down Biden’s plan to “equalize the network of retirement saving tax breaks,” which she said has received little coverage in the news thus far.
Biden’s retirement plans
According to Bauer, Biden’s plan tries to level the playing field among Americans saving for retirement.
While all of the details are not clear, Bauer writes that Biden’s proposal would swap tax deductions for retirement contributions in favor of tax credits that don’t give quite the same benefits to those with larger incomes.
Instead of actually crediting the money back to taxpayers and reducing their tax burden, however, Biden’s plan might put the credited amount into the retirement account as a “match.”
Bauer reports: “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.”
In an article cited by Bauer, Roll Call explains:
Under current law, workers contribute pretax dollars [to their 401(k)s] and thereby reduce their annual taxable income, but they pay full freight when funds are eventually withdrawn in retirement. The upfront tax break is larger for richer households, however, since deductions are more valuable the higher one’s tax bracket is.
For example, take a single filer in the top 37 percent bracket making $600,000; for each $1,000 she contributes to a 401(k) plan, her tax deduction is worth $370. A single filer earning $60,000, however, would be in the 22 percent bracket and only receive a $220 tax break for that same $1,000 contribution.
Biden wants to “‘equalize’ the incentive system by ending such deductions and replacing them with flat tax credits for each dollar saved,” Roll Call adds. But according to Bauer, “how this translates in practice is not clear.”
She writes for Forbes:
Would [higher-income workers] continue to save through their employers’ 401(k)? And, likewise, if employers’ contributions no longer offered a tax advantage, would they continue to offer these plans, or to offer employer contributions to them?
“Not that different”
Many questions remain unanswered, and as Bauer notes, the Biden campaign has said little on the matter. But one thing is clear: the proposal only bolsters complaints from the right that Biden has gotten far too progressive for the average American.
Even former President Barack Obama suggested as much in a recent interview with The New Yorker. “If you look at Joe Biden’s goals and Bernie Sanders’ goals, they’re not that different from a forty-thousand-foot level,” he said, according to The Federalist.
It seems Americans who aren’t ready for Sanders-style democratic-socialist takeover best find another candidate to support this November.