There are many things to like about the Center for American Progress proposal for American retirement saving. They pay attention to the high burden of management fees. They acknowledge that Americans don’t save enough for retirement. They understand the difficulties of annuity pricing on the individual market.
They also recognize the importance of taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. treatment. Their retirement plans would get around investment taxation, similar to the way a 401k plan does. Taxing the account more than once is non-neutral. It subjects saving to a higher tax burden than the burden on immediate consumption, discouraging retirement saving and making it more difficult. CAP is right to want this sort of tax status for their retirement plan.
But why stop there? Why not allow that tax treatment for Americans who want to save for other purposes? Some people need to save to get together a down payment on house. Some people save to plan for a wedding. Some people save to start their own business.
Tax-neutral saving should be for everyone, not just CAP’s pet projects.
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