Getting Americans to Save More
STEVE INSKEEP, host:
The business news starts with the effort to get Americans to save more of their own money. All the headlines about the weakness of some corporate pension accounts and the health of Social Security lead to one question that's popping up with increasing frequency in Washington: Is there anything the federal government can do to push Americans to save more for retirement? Here to talk about some answers to that question is David Wessel, deputy Washington bureau chief of The Wall Street Journal and regular guest here.
Good morning, David.
Mr. DAVID WESSEL (The Wall Street Journal): Good morning.
INSKEEP: What does the government do now to encourage Americans to save?
Mr. WESSEL: Well, it actually does quite a bit. There's about a hundred and fifty billion dollars a year in tax breaks that go to encourage workers and employers to set aside money in pensions, individual retirement accounts, 401(k) plans, plans to save for your kids' college tuition. In fact, it's such a bewildering array that some people suggest that people are scared away. The tax reform panel that President Bush has appointed the other day noted that there's 12 different ways to save for college, and it suggested that taxpayers shouldn't need a college degree to figure out if they're entitled to take advantage of one break or another.
INSKEEP: And yet despite all of those benefits, we're told that the nation's savings rate keeps going down and down.
Mr. WESSEL: That's right. Basically the idea is that people will save more if they government says, `Put some money into a special savings account and we'll give you a tax break as a reward.' It's easy to see how much money goes into those accounts, but it's much harder to tell whether that's actually new savings or people just moving money from one non-tax-advantage accounts to one of these special accounts that the government's set up, or if people are putting money away for their retirement and then borrowing twice as much on a home equity loan or a credit card.
INSKEEP: Let's say I'm in one of the parts of the country where home prices have been going up and up, and I'm lucky enough to have bought several years ago. Should I count on my home equity as part of my retirement savings?
Mr. WESSEL: Well, home equity is definitely part of people's savings; although it sometimes doesn't show up in those savings rate measures. The problem is that it looks like housing prices are not going to go up forever and people may have been misled to think they're wealthier than they actually are and may be very disappointed in their retirement if housing prices stall or maybe even decline.
INSKEEP: How are all of these benefits supposed to help me if I'm someone who already is working two jobs and spending every penny that I have?
Mr. WESSEL: You know, it's a lot easier to get people who have a lot of income to save because they have a lot of extra money, and some of the tax breaks are designed to get rich people to put away even more money than they might otherwise. And there's some concern in Congress now about is the government doing enough to make it easy for the bottom half of the population to save? There actually is one little-known tax break that President Bush's tax bill in 2001 includes that essentially gives people who earn under $30,000 a year $1 in tax credits for every dollar they set aside in a savings account. But the problem is that most of those people under 30,000 don't pay any income taxes anyway, so they don't take advantage of it.
INSKEEP: Tax credit; you couldn't end up getting a larger refund out of that?
Mr. WESSEL: The way this tax credit works, it's not what they call refundable. That is, if you don't owe any taxes, you don't get any money.
INSKEEP: So what does Congress intend to do about what everyone says is a problem, the lack of savings?
Mr. WESSEL: Tomorrow, Bill Thomas, who's chairman of the House Ways and Means Committee, is starting a hearing, one of many, I'm sure, into tax reform, and near the top of his agenda is finding more effective ways to use the tax code to make people save more, to encourage them. He says that all the past efforts, though they were well-intentioned, aren't working, and if we're going to really fix Social Security and make people's retirement more secure, we have to find a way to get them to put aside more money.
INSKEEP: What is the connection between these others kinds of savings and changing Social Security?
Mr. WESSEL: Any credible plan for fixing Social Security is going to mean that people get smaller benefits than are promised under current law. Current law is simply not affordable. President Bush says that, the Democrats say that, and that means that people are going to have to set aside more money out of their wages in order to have a decent retirement.
INSKEEP: And when you say there's no other option, that means if a tax increase is off the table, there's no way to keep benefits from falling.
Mr. WESSEL: Very, very few people--in fact, I don't know any--think that you can fix the whole Social Security system by raising taxes. Some people think taxes should be a big part of it, some people think it should be a small part, and a few think it ought to be no part. But almost every plan, the president's plan, the Democrats' plan, involves some cuts in benefits.
INSKEEP: David Wessel is The Wall Street Journal's deputy Washington bureau chief.
Mr. WESSEL: You're welcome.
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