One definition of a Pandora’s Box is unlocking a process generating “many complicated problems as the result of unwise interference in something.” Politicians have a propensity to meddle in everything — opening boxes of “solutions” that mostly release unintended problems.
Government doesn’t set much of an example when it comes to saving. Politicians couldn’t keep the Social Security “lock box” closed, and the consequences will accrue to today’s children. With this “leadership” is it any wonder 40% of adults don’t have $400 in savings to cover unexpected expenses, much less anything for their retirement?
Today’s ethos of instant gratification has replaced savings accounts with credit cards. It’s difficult to save if most or all of one’s income goes to paying off debt. Yet politicians and “think tanks” continue devising schemes to “encourage” saving by manipulating people through the tax code.
Determining first why some save and others don’t before jumping to a “solution” never occurs to them.
In 2003, Brookings Institute scholars Peter Orzag and Robert Greenstein argued the goal for pension reform, in a white paper “Progressivity and Government Incentives to Save,” should be to encourage more saving by low- and middle-income workers who then, as now, save little or nothing.
The bulk of their analysis showed data that should be intuitive — that higher-income households save more than those with lower incomes, have more access to retirement plans, benefit more from tax incentives and are likely to save regardless of tax incentives or subsidies.
Predictably, they couldn’t avoid the progressive conceit that says “at some point you have enough,” as their primary recommendation was another wealth-transfer scheme through a “progressive government matching contribution.”
Presumably the government would match contributions through a tax credit paid for by progressively reducing or eliminating deductions and credits for higher-income households, though they concede there would be no incentive for those who pay no federal income tax (44% in 2018).
In the end, their proposal would reduce incentives to save and invest for those best able to do so, hoping to transfer that incentive to a relatively small group in the middle, while having little or no effect on nearly half the population.
We have a dilemma. Prudence would seem to dictate saving for the impending bankruptcy of welfare-state entitlements. However, prudence might suggest the opposite, as the entire progressive “system” discourages saving.
Tax progressivity itself is a drag on upward economic mobility, and entitlements are disincentives to save, particularly for middle-income families.
To what purpose should people save, especially if, for example, the new collective fantasy — democratic socialism — were to fully take hold?
In the face of entitlement insolvency, some progressives are trolling for votes by promising “free” child care, “free” tuition, housing subsidies and income guarantees while deeper “means testing” will deter further saving. Why save if you believe the government is going to provide everything?
Then when you reach the level collectivists decide represent sufficient “means,” you become ineligible and essentially pay for services or benefits others get for free.
Why, certainly at the margin of eligibility, would you save? The answer: You wouldn’t.
And once at the level where sympathy gives way to envy, the clamor is for “more progressivity” in taxes and, of course, the death tax.
Then, for insatiable collectivists impatient for your death, there’s the “wealth tax.” Again, even at higher levels, why save more?
A little advice if the Democratic Socialists win in 2020: Spend it before they take it.