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  • Discouraging Retirement Savings Is No Way to Reduce the Federal Deficit

    It’s a fact that runaway spending, not lack of revenue, is the cause of long-term federal deficits. Still, some continue to push for higher taxes to solve the problem. A favorite tool of would-be revenue raisers is to eliminate “tax expenditures”—revenue the federal government “forgoes,” they say, due to tax preferences given to priorities like employer-sponsored insurance, mortgage interest payments, and contributions to retirement accounts. (Of course, since the money was never Uncle Sam’s to begin with, it’s inaccurate to say the federal government is somehow deprived by collecting less revenue.)

    Eliminating certain tax expenditures, however, would not raise enough revenue to fix the problem, and it would discourage behavior that is good for the economy and for Americans’ financial security.

    Removing the tax preference for retirement plans in particular would do more harm than good. Writing for The Washington Post, columnist Lori Montgomery highlights a recent study from the American Society of Pension Professionals and Actuaries, which she says “suggests that the accounts would have to be closed, or contributions sharply limited, to realize much in the way of budget savings—a move that could undermine some of the nation’s most popular retirement tools.” Discouraging personal savings for retirement would leave future generations of senior citizens more dependent on government, placing greater strain on the Social Security program, which already accounts for $9.1 trillion in unfunded promises.

    Moreover, Montgomery explains, “traditional methods dramatically overstate the amount of revenue that ultimately will be lost.” Estimates show that, over the next five years, the tax preference given to retirement plans will reduce federal revenue by approximately $600 billion. But that doesn’t mean removing it would raise revenues by the same amount—instead, says Montgomery, “people would probably shift their investments to other tax-preferred vehicles.”

    One reason the left supports eliminating the tax preference for retirement savings is a false belief that it disproportionately aids the rich. In fact, the opposite is true. A recent Employee Benefit Research Institute survey found that those most likely to reduce their savings as a result of modifications to the tax exclusion for retirement savings would be Americans with the lowest income, lowest amount in current savings, and lowest education levels.

    The Heritage Foundation has outlined a better plan to eliminate federal deficit spending while encouraging personal savings and investment. Our plan would transform the tax system so that only the portion of an individual’s income that is spent would be taxed. Savings and investment would be tax-exempt until the money was withdrawn for use. As the authors explain, “We end today’s disincentives to build savings—whether for retirement or for buying a house—by taxing only income that is spent on consumption, so Americans can build better economic security for themselves and their families.” The Heritage plan also creates better ways for Americans to build retirement savings, including automatic enrollment in a retirement savings plan owned and controlled by the individual unless he or she chose not to participate.

    Finally, the plan strengthens Social Security to better serve its intended mission: protecting seniors from poverty. Under our vision, seniors would receive a flat benefit worth more than today’s average Social Security benefit payment, keeping all seniors above the poverty line. The very wealthy would no longer receive Social Security payments, as benefits would be reduced on a sliding scale as individuals’ non-Social Security retirement income increased. By targeting aid to those who need it most, the Heritage plan succeeds at restoring Social Security to solvency and providing true income security for seniors.

    When it comes to deficit reduction, lawmakers have a clear choice. They can continue the unaffordable spending that exists under the status quo, raising taxes to pay for it and crippling the economy on the way. Or, Congress can reduce the size of government, encourage savings and investment in the future, and strengthen the safety net provided by programs like Social Security.

    To learn more about the Heritage plan to save the American dream, visit http://savingthedream.org.

    Posted in Economics [slideshow_deploy]

    12 Responses to Discouraging Retirement Savings Is No Way to Reduce the Federal Deficit

    1. Bobbie says:

      The President shows a great reluctance to comply with reason and rationale. He's proud to be held unaccountable. He shows no positive effort in making "change" for the common good of all and he refuses his ability to understand logic. True patriots have to stand firm.

      If Obama has what it takes to stand proudly against the will of the people, true patriots have more of what it takes to stand for the will of the people! Thank you Heritage and to congress, please stand strong! America needs you!

    2. George Colgrove, VA says:

      Madoff has described Social Security as a Ponzi Scheme. He should know – he is a subject matter expert in the field.

      According to the New York Times Madoff's schemes created a $13 billion loss to his investors.

      http://www.nytimes.com/2009/07/02/business/02mado

      Today the remaining belongings of Madoff will be auctioned off with hopes to recover a paultry few million dollars.

      The federal workforce blows through $4 billion of unfunded expendatures resulting in a growing dangerous debt. What took Madoff 12 years of accumulating unfunded returns for his investors, the federal workforce does the same thing in three days of unfunded activities. Madoff stole from his investers, the federal workers are stealing from America – all of us!

      Entitlements are the biggest drag on the economy and comprises much of that unfunded activities. We need to listen to Madoff and his comments on the federal government. Maybe he, unlike federal workers, is starting to show remorse for his actions.

      To solve the entitlement problems we need to focus entirely on the elderly on or about to be on these ptograms who otherwise could not afford to live without these programs. All others will need to seek other assistance or find work. $1.6 trillion deficit spending means unfunded spending. We cannot afford to do what we are doing and it has to stop.

      We put Madoff behind bars. What do we do with over 2.7 million similar people working in the federal government.

    3. Pragmatic in Texas says:

      Gee George, tell us what you really think.

      I've worked 20 years for the federal government, and I came up through the ranks just like I would have if the job was in the private sector. I earned every promotion I got through hard work. I save every pay period for my own retirement in the Thrift Savings Plan. Yet you cavalierly just want to throw me out on the street with nothing to show for it. Someone over the age of 50 who would have no hope of finding another job outside of minimum wage. What's the difference between you and the current administration who rewards his cronies and could care less if the rest of the masses starve to death?

      Federal employment and retirement are not dirty words. I've earned my retirement, and nobody has the right to take what I've earned away from me.

    4. Matt, Paoli says:

      I am unclear on the Heritage plan for Social Security here. It is stated that SS benefits would be reduced as non-SS retirement income increases. If the cap on SS tax on pre-retirement income is maintained to be consistent with the drop in benefits, somewhat okay, though still a bit socialist here given that they are paying the same taxes, if not more, to get reduced-to-no benefits. This would be even worse if the income cap pre-retirement is increased. I guess it is hard to get the 'social'ist out of Social Security.

    5. Steve S. California says:

      I am one of those federal workers that you love to slander (thanks, heritage, for refusing to mediate effectively until someone takes the offender to task). Your wide paintbrush catches lots of folks who earn their paychecks, simply because it's easier to do so than to approach such matters from a point of reason. Your portrayal of those of us who do work hard as somehow the same as the criminal Madoff is offensive, repugnant and morally reprehensible. Are the (Federal) military (and by that I mean the troops getting maimed and killed) also the moral equivalent of madoff? If you believe that, your personal view is so twisted as to be virtually useless in the world of reason, which is what's so sorely needed. Since heritage seems to lack the intestinal fortitude to do so, I will ask you to try and do better as a human being. You call us criminals. I will not respond in kind.

    6. Mike, Wichita Falls says:

      At the WH yesterday, Obama tried to fend off the GOP's tax cut approach to growing the economy by saying he tried the tax cut route by reducing the SS tax with seemingly no results.

      First, it would have a greater impact if it was permanent instead of this year only. Second, it would have a greater impact had it also been extended to employers too. Third, I and a majority, I believe, of others are not spending this extra money on the here and now but investing it in those nice tax-advantaged retirement accounts such as Roth IRA's where it will be much safer in the long run than in the SS trust fund.

      Well, at least I hope private accounts remain private. The last Congress had hearings on "voluntary" transfer of private retirement accounts in exchange for a promise of a "secure" retirement.

    7. DHarper, Lubbock, Tx says:

      The author states "Discouraging personal savings for retirement would leave future generations of senior citizens more dependent on government."

      That's the objective of the Progressives. They are megolomaniacs.They are so impressed with their own understanding of human society that they are blind to how wrong that understanding really is.

    8. Leon Lundquist, Dura says:

      Here we go again! More cockle Mamie experiments from the Left, like these midgets were born yesterday! Income Tax, by the nature of it cuts the ability of Pensioners to save money! Just because you tax Income, the funny money, it takes Capital out of the System! And it just Vanishes It! So, I get lost when anybody talks about taxing income, the very essence of 'disincentives to save!' So, we have another layer of stupidity, Inflation, and that is the next disincentive to Save! Your money will lose value, so that it isn't really savings at all, is it? It is a hidden tax! If that isn't bad enough, these Progressives Hate Rich People! They Hate these Americans! I should point out we have Equal Protection Under Law, so Obama using public money to attack these loyal Americans? Well! It is Treason! The United States Government is not empowered to go after American Citizens!

      It is practically against the Law to save money! It is against tens of thousands of Laws to create Jobs! Kathryn Nix, you are terrific asset, I am grateful for your articles. Tell me, can you get some Legal Advice that would affirm my position that the Progressive Agenda going after Entrepreneurial Americans is Prosecutable Crime? Equal Justice, yes, but can we support Impeachment, Conspiracy, Treason, Attempt, Election Fraud, etc., with these obvious Government Over Reaches? Could Heritage write us the Argument for Impeachment?

      Economy is raw Liberty! Americans are losing practical Liberty every day with the Obama maniacs. I swear, they are Sorcerers! They are destroying God's Country. We may never again have a Land of Liberty if Obama and his Gang succeed.

    9. Tim AZ says:

      I believe that George was crediting individual's who read his comment with the intellectual ability to to discern weather or not said individual was in fact comparable to Madoff. It appears to me that George was referring to those who created social security and those who continue to this day to refuse to alter the Ponzi Scheme known as social security to maintain their own political power until America's govt. experiences total economic failure. That said. For those who choose to work for the Govt. and believe that they themselves are incapable of existing by their own labor outside of Govt. are seriously underestimating their true abilities. I believe that the majority of Americans even though they may not know it, are fully capable of existing comfortably by the fruit of their own labors, after the govt. has spent beyond its taxing abilities. If you are someone that believed that a govt. job meant certain economic security for you. It's time to rethink that theory because the citizenry has reached the point to witch they refuse to engage in activities that require them to pay higher taxes. It's time to become the master of your own destiny and rely on the fruits of your own labor and not the taxes of your neighbors. Yes I'm saying create your own wealth and independence of a govt. that has rendered itself insolvent. You can do it. I believe in you. I believe this is what George was saying in his comment. America has never guaranteed it's citizens prosperity. It has guaranteed it's citizenry life and liberty to pursue the opportunities that abound in a free society in order to prosper.

    10. George Colgrove, VA says:

      Pragmatic and Steve,

      I applogize for my harsh comments. I do use a wide brush and do so for a reason. The Government is not just a mechanical institution – it is made up of people. People who in the last 9 years have made really bad choices with the public's money anf the country's economic future. The government is not some mechanism that decissions are made automatically in some magical void. Congress makes bad laws and federal workers make even worse regulations and further, these perpetuate even worse procedures and policies that cost a mint to implement.

      We are in debt by $14.3 trillion (of which $1.6 was from this year alone!) We arepoised to dive deeper into debt by another trillion next year if nothing changes. And no one is saving the country by stopping it. Not you two, not your bosses or their bosses. You are the executive branch and thus are the check on congress. If they passed a law and did not provide corresponding funding, it is your job to abide by the oath of office you gave to me and the rest of us to perform your duties to the best of your abilities to protect and defend the constiution. A bad law that is not fully funded is a problem your branch is supposed to expose and report to the people. Much like the actuary of Medicaid/Medicare, when stating that the program is insolvant. Your branch as a body has failed miserably in that regards.

      When it came to implementing a program to answer to a new law there are many ways to do so. From outside we see you do it in the most inefficent way. Take early education programs. There are over 60 of them scattered throughout the federal government. Each based on a new law. Where were you all when it came to implementing the programs? Why did you not look around and find a similar program to incorporate the new program requirements? That would have been in the publics best interest and would have saved considerable amount of cash.

      When it came to hiring new people, who looked at the available cash and conclude there was not enough to hire that person? Since 2001, we have rung up annual deficits yet over 800,000 federal workers were hired – by other federal workers. That is at best criminal negligence. I'm sorry, but I see that the last 9 years was full of wasteful spending all over. As it related to the DoD, Adm Mike Mullen remarked that after 9/11 the DoD became flush with cash and lost site of its priorities and a lot of wasteful spending ensued. Where were the feds over there keeping an eye on it?

      Now I am positive there are a few people who put in good time for the people. But if the majority did, we would not have a $14.3 trillion debt.

      Madoff created $1 billion a year loss since 1996. Federal workers loose $1 billion every two hours. I make the comparison to wake people up. If one was a crime, why not the other? Do I really want to see you in jail? Of course not! But I do want to make a shout off the hill to get people to see the disaster that has become of the federal government. I truely have to say I am scared of the incompetenace that we see coming out of DC.

      Right now – after properly applying the collected revenue to the social insurances, the resulting budget is 57% unfunded. Does that alarm you? I ask you two, are you willing to cut your respective programs by 57%? Every fed I ask says yes but. . . You see they are willing to cut their program only if everyone else is willing to cut theirs – first. Secondly they will remark thateven if they did cut their program the next level up will use that "savings" for other purposes. Do you understand that money does not exist?

      Therefore we get no cuts. Not from congress, not from you not from anyone. So the result? Today we went into debt by another $4 billion dollars. I am trying to shock you and America into seeing the gravity of this. We are in dangerous times. Greece has a national debt that exceeded its GDP. Our debt pretty much equals our GDP. We are not too far behind Greece. A country in collapse is a country that no longer has a workable constitution. In eccence, your very paycheck and lucrative benifit package is 57% unfunded and is directly contributing to the collapse of this country. If you abided by the oath you gave to the citizens of this country, you would imediately forfeit 57% of your paycheck today to protect and defend the constitution.

      Please understand, I look to you two and the rest of the 2.7 million federal workers to expose the taxpayer abuse and provide a check and balance on the horrible behavior of congress. That is your constitutional duty. If Obama wont, it falls to you all federal workers to do it. So please understand I personally feel betrayed by you all when nothing happens to protect this country's economic future.

      BTW I do not see soldiers as federal workers. They get paid less than the private sector and much much less than the average federal worker. The Navy Seals credited with taking out OBL has a compensation package of about $55,000 (with 12 years in), whereas the average fed has over $123,000 (pay and bennies). And they put thier lives on the line to protect our freedoms. They are the best of this country has and deserve far more than we give them. Fortunately we have a private sector that recognizes their contributions and gives them discounts and other perks they deserve. My remarks are not aimed at them.

      So if I mischaracterized you personally, I do sincerily applogize. If you have worked hard to save every possible taxpayer cent you could, at your own detrement, I am mortified by my comments as it relates to you.

    11. Steve S. California says:

      Thanks for the response, George. Lots of us are furious about the squandering of taxpayer (our) money, and do what we can from the inside. Living with the stupidity and worse the lack of concern by people who shouldn't even be in their positions is a constant vexation. And many of us do take personal accountability for every red cent we control or spend, and try to save every penny possible. Proper husbanding of federal funds is a daily priority for us, but unfortunately, all of our miniscule gains are continually wiped out by the buffoons running the show, as well as politicians who vacillate and have no real long term plans. We are as aware as anyone, and need no shocking to understand the gravity of the situation as it exists.

      My real beef is, weak excuses ( Not yours) to the contrary, that such subjects, so important to our present and future, do not allow us the luxury of clouding the issues with antagonism, labeling and a host of other behaviors which we ALL (myself included) bring to the table by virtue of being human. The question must be asked, what is the purpose of the discussion? Is it to persuade that your point of view is valid, or is it just venting? If it is the former, such practices are nothing but counterproductive to the speaker and likely will prevent the receiver from accepting what may otherwise be factual, relevant, and educational. If it is the latter, on simply joins the omnipresent din of that kind of behavior, which seems to be so prevalent (our own government is a perfect example, with its resultant inability to function effectively). Our society as a whole is riddled with examples. If more effective (and less intolerant) communication does not become a personal priority with those of us who want to be agents of meaningful change, then I’m afraid that our resultant problems will end up making our huge budget problems pale in comparison.

      So in conclusion, let me say that I also do not intend to alienate the reader, but do recognize my innate tendency and ability to do so. My aggravation in these types of scenarios is NOT from hurt feelings, but from a firm conviction that our problems MUST be solved if we are to survive, and so our human frailties must be overcome. If not us, who, then?

      Thanks again, George

    12. Steve S. California says:

      OK, now down to brass tacks. One, the bad decisions have not by any means been confined to the last nine years. May be convenient for you to think so, but not a true picture of the predicament and how we got here. Factor 10 should take care of that one.

      Next, what in the heck makes you think we’re the executive branch? Not so, my friend, and your assumptions have led you far astray. If you are looking for controls on congress, it’s all of us, including you! How did you vote last election? Did it work? Fine, pass off your responsibility as a citizen to do exactly what you are talking about. That’s what has really gotten us in this mess. We, as citizens, have allowed, due at the very least to inattention if not outright ignorance, the wrong people into power for way too long. And the resultant mess now threatens our welfare and very existence. And if you think I’m talking party politics, think again. Do YOU have the intestinal fortitude to do what’s necessary (your part), even if it means sacrificing everything you’ve worked for 45 years? I don’t hear you saying that. Maybe you don’t think you have that kind of part to play, but that’s exactly the kind of thinking has gotten us into this mess, and it MUST be changed if we will ever fix it.

      Damn straight, I took that oath, freely given. The blank check that says Uncle gets, up to and including my life, what he needs, just for the asking. And it did very nearly cost me my life. That’s the way of it. I’m not alone. Did you know that we (civil servants) constantly have folks getting shot at too, because of where they’ve been sent to do their normal, non- combat jobs? How’s their pay scale measure up?

      As for my “lucrative” (your words) package, the changes are on the way. Aside from the fact that 50% of “my” pay never reaches me (yes, it’s still better that the pittance I made while in the military), they are making plans to take 5% for retirement that I won’t get (so they can play with the money, like you know who that took social security out of trust), and others, including heritage, want to see us give up 40% of our pay to help out. Fine. It will have far reaching negative consequences when applied to 1.7 million people, like it or not. We will bear the ultimate cost and pay the price of others foolishness as well. So don’t hold back. Volunteer to give more of your income to the federal coffers. Why not? We are all in this together, right? And don’t stop to think that we, too have been hurt financially just like others by the shenanigans of these criminals we call politicians. Strangely silent about those folks.

      So far as a check and balance on Obama and the rest of the worthless in D .C., I have more potential as a private citizen to do that than as a federal employee. Are you in contact with lawmakers or representatives on a regular basis, or just posting here? I am at least in contact and having conversations with our leadership as high as I can possibly go. I’m also laying the groundwork for my involvement in the next election. You should walk awhile in these shoes. If you feel personally betrayed, look in the mirror, rather than pick a target of opportunity and let fly, without surveying the terrain. That’s what you’ve done here.

      Your comment : “Now I am positive there are a few people who put in good time for the people. But if the majority did, we would not have a $14.3 trillion debt” intrigues me. Where’s the cause and effect here? If all of us were working dogs, it wouldn’t necessarily change the fiscal outlay, would it now? The taxpayers would receive something for the money for sure, but that in no way guarantees that the budget outlay would change one iota. That’s a huge problem as well. It’s called waste. Just a tiny example or two: LHX, spend 9 Billion dollars, oh , let’s not do that anymore. Total benefit to the taxpayer? 0. Remember ABM. Spent billions. Up one day, down the next. Benefit to the taxpayer? 0. Corrupt politicians and the military industrial complex (one and the same by what I see) are bleeding us dry. So what’s the answer? Peanut butter spread cuts with wild abandon?

      I was federal as a military member, as so many of us were, and sacrificed plenty. As a Tech Sergeant, ten years service married with two children, I was eligible for state aid. We knew going in that it wasn’t a get rich quick scheme. And our cushy (according to many) compensation packages continually shrank. And politicians reneged on their promises. Since I left, that situation has improved markedly, but the operating conditions have drastically degraded. We are using our troops up, and failing to give them what they need to do the job. But we’ll cut their budget, right?

      Which brings me to the next point: The cart is once again before the horse. We have to decide what to let go and then cut, rather than cut and see what happens. We’ve been doing that for decades now and the outcome has proven to be disastrous. Our org has more and more work to do all the time, and fewer people to do it.

      And here’s the rest of the story: If we have it so good, what do you have to say about the shadow work force of contractors paid by the government, many of whom make LOTS more than we do, and that doesn’t even count an equal (or greater)amount of money paid to the front companies that manage them? It’s huge as well. (These are folks I know and work with) Easy targets beget easy answers, eh?

      The inherent weakness of the wide brush is that it is not only simplistic

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