Editor’s note: This is one policy proposal in a
symposium that appears in the February 9. 2009, issue of
National Review. Specific policy ideas from the symposium will continue to appear on
National Review Online throughout the week.
Americans save too little, and everyone knows it. Some government policies make it harder to save, or reduce the incentive to do so; other policies are designed to encourage saving, but these are often ineffective. Americans on the middle to lower rungs of the economic ladder, in particular, have little in the way of assets, in part because of the burden of payroll taxes.
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One reason President Bush sought to include a personal saving option within Social Security was to help these people accumulate capital, but Democrats blocked him out of fear that the proposal would undermine the whole program. Their alternative — talked up by such Democrats as White House chief of staff Rahm Emanuel and budget chief Peter Orszag — has for a decade been to create a new savings program outside Social Security. People whose companies do not offer 401(k) plans could contribute to this program and get a matching grant in the form of a tax credit. A “saver’s credit” already exists, but it is limited, complicated, and unknown to most taxpayers. Legislators should address those inadequacies.
They should also look at other ways to make it easier for people to save. Companies that have new employees participate in 401(k)s unless they opt out tend to have higher participation than companies that adopt the opposite default setting. Some companies have also boosted contribution rates by setting them to increase gradually over time — again, with opt-outs. But state regulations are an obstacle to these practices. Governors and state legislators should remove them.
Mark Iwry of the Brookings Institution and David John of the Heritage Foundation have proposed creating “automatic IRAs.” Businesses that do not want to administer 401(k) programs or match employee contributions to them could serve as a conduit for automatic paycheck deductions into tax-advantaged savings accounts. Employees would get some of the main benefits of a 401(k) without burdening businesses. (The proposal has been designed so that it will not prompt companies to drop their 401(k)s for the new program.)
The idea that ordinary people can invest for their retirements is getting a bad rap right now, as it has in previous bear markets. We’ve all heard the joke about “201(k)”s. But long-term participation in capital markets is still a good idea, maybe a better idea than ever. Millions of people would be better off if they had invested more in previous decades. They would be more economically independent — and almost certainly, as a result, more conservative in their politics. Republicans should work with Democrats to invest in a free-market future.
— Ramesh Ponnuru is a senior editor of National Review.
