Progressivity and Government Incentives to Save

BABC 04-16: As the baby boomer generation nears retirement, policy-makers seem to be increasingly focusing on the nation’s system of tax-preferred retirement savings. The bulk of the policy changes that have been enacted in recent years, however, move the pension system in the wrong direction: They provide disproportionate tax benefits to high-income households who would save adequately for retirement even in the absence of additional tax breaks, while doing little to encourage lower- and moderate-income households to save more. This fundamentally flawed approach should be replaced with a progressive set of pension reforms, which would be more likely to raise national saving and to reduce elderly poverty…