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Home Publications Blogs Beat the Press The Post Discovers the Shortfall in Retirement Income

The Post Discovers the Shortfall in Retirement Income

Sunday, 17 February 2013 08:47

The Post had a very nice lead front page story, too bad its editors probably won't see it.

Comments (5)Add Comment
And here too, tax breaks are contributing to inequality
written by Rachel, February 17, 2013 10:32

It's not as big a factor promoting inequality as the tax break for employer-provided health insurance, $250 billion or more, if you want to believe j. gruber (who conveniently did not make a fuss of this during the debate over the ACA), $180 billion a year according to other sources.

And it may not be as big a factor, as market-distorting a factor, as the tax break for home mortgages (including second mortgages!).

Still, the goverment allows tax breaks of about $80 billion a year, particularly promoting the savings accounts of higher income workers. It's good of the Post to mention these matters.
written by urban legend, February 17, 2013 2:51
The article says: "Someone making $200,000 a year and contributing 15 percent of pay to a retirement account would receive about a $7,000 subsidy from the federal government in the form of a tax break, whereas workers earning $20,000 making the same 15 percent contribution would get nothing because they don’t earn enough to qualify for a deduction. Someone making $50,000 and making the 15 percent contribution would receive only about a $2,100 tax deduction."

This is wrong, isn't it? There's no "deduction" for contributions to a retirement account. It is simply not current income, and shows up in a reduced Adjusted Gross Income. The lower income person is treated exactly the same. It may be easier for the $200K annual income person to max out the contribution to a 401 K at 15%, creating a $170K AGI (assuming no other adjustments), but the $20 K person can do the same thing to create an AGI of $18,500. There is a slight progressivity to it as to incomes above a certain amount because there's a cap on how much can be protected.
written by PeonInChief, February 18, 2013 10:50
Urban legend is right, in that retirement contributions are subtracted from income in computing the AGI. Where urban legend is wrong is in the greater benefit provided to higher income workers. A worker with a marginal rate of 15% gets much less than a worker with a 25% marginal rate, as the income subtracted is that which would be taxed at the higher rate.

But it's scary when reporters don't know any more about taxes than I do, and don't bother to find out. What are they doing, free associating at the local watering hole?
WAPO, Said What?
written by James, February 18, 2013 4:43
Unless one qualifies in the "catch-up" status, we can only max out at $17,500 annually (excl matching contribution from employers). ok, isn't 15% of $200K more than the permitted amt?

Perhaps there are many more tax deferred available to high income folks that we are not aware of.
written by PeonInChief, February 20, 2013 11:28
James, you are allowed to take the maximum, and deduct the amount from your income. What matters is the rate at which your income is taxed. If your marginal rate is 25%, it reduces your tax more than if your marginal rate is 15%, thus giving you a larger tax savings.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.