As policymakers continue to search for ways to shore up the nation’s fiscal status, tax subsidies may be ripe for the picking. Tax subsidies for retirement saving account for more than $90 billion annually in lost Treasury revenue. New research suggests that the tax subsidy for contributions to retirement accounts only affects the behavior of certain financially sophisticated households and does not raise overall saving significantly, however, automatic enrollment can raise both retirement saving and overall saving. Over 60 million Americans participate in 401(k) plans. Are there less expensive, more progressive ways to generate the same or more retirement saving and overall saving than the current tax treatment of contributions to retirement accounts?
On February 13, the Retirement Security Project and the Urban-Brookings Tax Policy Center explored the results from a new study that examines whether a nudge or a subsidy is a better way to increase saving. The study also draws crucial distinctions between active and passive savers and the implications of the two groups for retirement saving policy. Speakers included study co-authors Raj Chetty and John Friedman of Harvard University, as well as Director of the Retirement Security Project William Gale.
Read the full paper and executive summary »