Divide Doubles Between High, Low-Income Worker Retirement Account Balances

Bernie Sanders GAO report

Sen. Bernie Sanders (I-VT) rails against tax code inequities after latest GAO report. Image credit: © Sheila Fitzgerald | Dreamstime.com

The Government Accountability Office recently found that disparities between low-income and high-income older workers’ retirement accounts were greater in 2019 than in 2007—and that finding has lawmakers on Capitol Hill worried.

In 2022, the tax incentives for workers to save in tax-preferred retirement accounts cost the federal government nearly $200 billion in forgone revenue, according to the Department of the Treasury. The GAO report said members of Congress and others are concerned these incentives accrue primarily to high-income workers and not low-income workers.

The new report—commissioned in 2020 by Senators Bernie Sanders (I-VT), Chairman of the Health, Education, Labor, and Pensions Committee, and Sheldon Whitehouse (D-RI), Chairman of the Committee on the Budget, and released July 27 by the GAO—showed the gap in retirement account balances between middle- and high-income older households more than doubled from 2007 to 2019. While the median account balance for high-income older households nearly doubled from $333,000 to $605,000 over that time, the median account balance for middle-income older households stagnated at about $64,300—nine times less than the median balance of high-income older households.

GAO’s analysis of Survey of Consumer Finances (SCF) data on households 51 to 64 found high-income households also contributed a larger percentage of their pay than low-income households (about 8% compared to 5%) and received larger employer contributions.

“The same Republican politicians who support cutting Social Security have no problem providing massive tax breaks to subsidize the retirement accounts of the top one percent.”

Sen. Bernie Sanders (I-VT)

The report, titled “Retirement Account Disparities Have Increased by Income and Persisted by Race Over Time,” also highlights the huge portion of Americans who lack any retirement savings at all. As of 2019, nine in 10 of the lowest-income older households had no savings in a retirement account. In fact, the share of the lowest-income households with any retirement account balance decreased from 21% in 2007 to about 10% in 2019.

“At a time when half of older Americans have no retirement savings at all, it is unacceptable that taxpayers are forced to spend billions of dollars subsidizing the retirement accounts of the wealthiest people in America,” said Sanders. “The same Republican politicians who support cutting Social Security have no problem providing massive tax breaks to subsidize the retirement accounts of the top one percent. In America today, 55% of seniors are trying to survive on less than $25,000 a year. Given that reality, our job is to make sure that the working class in our country are able to retire with the dignity and the respect that they deserve, not to provide more tax breaks to the billionaire class.”

In a July 28 press release from the U.S. Senate Committee on the Budget, Sen. Whitehouse lamented the GAO findings that millions of Americans are retiring with no savings.

“Our rigged tax code is subsidizing the retirement of billionaires and leaving everyone else to foot the bill. As a result, wealthy households have nine times more saved than the average middle-class household, and just 10% of the lowest-income families have anything saved at all,” Whitehouse said. “Auto-enrollment in workplace retirement accounts would reduce the access gap and make it easier to save, but we must also protect Social Security for all and ensure the wealthy pay their fair share so that all can retire with financial security.”

Note: Brackets represent 95 percent confidence intervals. Overlapping brackets for the lowest and middle income quintiles indicate no statistically significant difference between 2007 and 2019.

Racial disparities, slanted tax code persist

Notably, the GAO report also shows that racial disparities persist in retirement savings. In 2019, about 63% of white households had a retirement account balance compared to about 41% of households of all other races. Among households that had retirement savings in 2019, white households had double the median balance of all other races ($164,000 to $80,300, respectively).

The report also examines how access to workplace retirement accounts remains a huge issue, with significantly lower access among low-income households. For example, high-income older households were more than three times more likely to have access to workplace retirement accounts than low-income older households (about 75% to 23%).

One of the reasons that retirement account disparity based on income has worsened between 2007 and 2019, Sanders and Whitehouse claim, is the “upside-down nature of the U.S. tax code,” the release state.

As the GAO report notes, the tax code provided $195 billion in tax breaks to subsidize retirement in 2022. According to a 2021 Congressional Budget Office (CBO) study, the top 20% of households by income benefit from over 60% of these tax breaks compared to under 5% of the bottom 40%.

The GAO report found increasing contribution limits for workplace retirement accounts almost entirely benefits high-income workers, as about 23% of high-income compared with about 3% of middle-income older workers contribute the individual limit.

SEE ALSO:

• GAO Asks DOL to Focus on 403(b) Plans

• Bernie Sanders Reintroduces Bill to Increase Social Security Benefits, Extend Solvency

• Senator Murray Calls for Tax Fairness with Social Security

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