Greased by lobbying and campaign cash, tax breaks for retirement savings are one thing Congress agrees on. But they also blow out the deficit and add to income inequality.
Five months before Congress faced a near-catastrophic standoff over the debt ceiling, with Republicans demanding restrictions to food and Medicaid programs to rein in spending, a bill that raised the cost of private retirement savings accounts to $282 billion per year was quietly signed into law.
In this era of deeply divided politics, the 2022 bill known as Secure 2.0 was hailed as a bipartisan success — a victory for average Americans. It had sailed through the House by a whopping 414-5 vote. It followed four other major bills passed between 1996 and 2019 that dramatically expanded taxpayer savings – all equally lauded as bipartisan victories.
But that rare issue that brought a divided Washington together also increased wealth disparities and the federal deficit. And the victory was most strongly applauded by the burgeoning financial services industry, for whom tax-advantaged retirement savings has transformed a $7 trillion retirement market in 1995 to a $38.4 trillion behemoth in 2023.
401k was originally supposed to be a simple thing. It was supposed to be a way to avoid taxes on bonuses for more highly paid execs in the banking industry, but also regular employee bonuses too. They sold it to regular workers who might have gotten a few hundred dollar bonus by the employer “matching” the contribution to the 401k.
There was supposed to be a “three legged stool” for retirement. Social security, company defined benefit (pension), and then the 401k. Companies have done everything they can to get rid of traditional pensions, social security is under constant attack and the age you get it is pushed back, and the 401k is being looked at for taxes, being restricted by companies to high fee funds, and loses cash when transferring employers.
Retiring in the country is difficult at best, impossible for most, and constantly under attack for those who have a shot at it.