He’s slowing his roll on a number of issues now that the election is behind him, but what changes, if any, Biden will make to retirement plans is yet to be seen.
In late August, financial and political publications reported about the possibility that the president-elect would end traditional tax incentives inherent in 401(k)s, or at least seriously up-end them.
Forbes contributor Elizabeth Bauer took the lead, examining the Biden-Sanders Unity Task Force Recommendations.
Included in the document under a section titled, “Guaranteeing a Secure and Dignified Retirement” is a proposal to “equalize the network of retirement saving tax breaks so that working people can build their nest eggs faster, while also providing more equitable access to these accounts through automatic enrollment and relaxed contribution restrictions for unpaid caregivers.”
Bauer claimed in a subsequent piece that it “generally translates to eliminating the tax advantages currently enjoyed by retirement savings accounts and replacing them with a ‘credit’ or ‘match.’
“The idea is that the tax advantages, or ‘tax expenditures,’ as they’re called, disproportionately accrue to relatively higher earners,” she added, “and the hope of a change is to provide benefits in equal measure to all income groups.”
Roll Call picked up on the theme, arguing that instead of pretax contributions that give bigger tax advantages to the rich, a uniform flat-tax credit would be instituted for everyone.
Biden would equalize the incentive system by ending upfront deductions, “replacing them with flat tax credits for each dollar saved. The campaign isn’t saying what that percentage would be, but the Urban-Brookings Tax Policy Center has estimated a 26 percent credit would be roughly revenue-neutral over the first 20 years and beyond, which the Biden campaign is aiming for.”
Biden’s chief economist made the case
The paper cited Ben Harris, a Biden advisor who served as his chief economist during the Obama Administration, at a policy roundtable on Aug. 18 during the Democratic National Convention.
“This is a big part of the plan which hasn’t got a lot of attention,” Harris said. “If I’m in the zero percent tax bracket, and I’m paying payroll taxes, not income taxes, I don’t get any real benefit from putting a dollar in the 401k.”
it was not the first time Harris raised the issue of equitization, arguing in The Wall Street Journal in 2018 that because lower-income individuals don’t pay taxes, they’re disproportionally denied the benefits of tax deferral.
“Rather than making the subsidy dependent on tax rates, savers should get a transparent upfront credit for putting money into a retirement account—say 25% of contributions,” he wrote.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
