Wall Street Wins Again on Retirement Savings

A bill package included in Congress’s end-of-year omnibus legislation will allow the richest Americans to park more tax-shielded cash in private retirement funds, in a win for giant asset managers like Vanguard and Fidelity. The SECURE Act 2.0, an expansion to tax breaks championed in 2019 by House Ways and Means Committee Chair Richard Neal (D-MA), has been sold as a way to address the retirement savings crisis. Today, about half of American workers don’t have a retirement account, and many of those who do end up saving very little. According to researchers at Boston College, Americans have a retirement savings shortfall exceeding $7 trillion. But Neal’s legislation is “a deeply cynical deficit-expanding giveaway,” according to Daniel Hemel, a tax law professor at New York University. The SECURE Act 2.0 pushes back the age at which savers must start drawing down their accounts from 72 to 75, granting them years more tax-free growth. SECURE Act 1.0 had already raised the age for so-called required minimum distributions from 70½ to 72 just three years ago. Over the last 50 years, those in the top income bracket have seen their assets swell in private retirement accounts. PayPal founder Peter Thiel stashed $5 billion in a Roth IRA account, ProPublica found last year, joining the thousands of rich Americans legally avoiding taxes by maxing out their contributions to retirement plans. More from Lee Harris The same period has witnessed the slow crumbling of Social Security, the public program still providing the majority of income to most older adults, which was founded by President Franklin Roosevelt to protect “against the hazards and vicissitudes of life.” If no changes are made to Social Security, reserves are expected to run out by 2035, likely meaning that Americans would receive only 80 percent of their expected benefits. Yet over the past two Congresses, members have been more interested in giving private retirement accounts over tax preferences. Since the SECURE Act 2.0 passed the House in March and appeared destined for passage later this year, progressive advocates have argued that it should be improved by inserting measures to improve retirement security for disabled and older Americans living in poverty. To accomplish this, Sens. Sherrod Brown (D-OH) and Rob Portman (R-OH) introduced the Savings Penalty Elimination Act, which would raise the asset limits for beneficiaries of Supplemental Security Income (SSI), a federal program providing monthly income to nearly eight million low- income disabled adults and children. As a severely means-tested program, SSI bans participants from having more than $2,000 in savings. That asset limit, which has not been updated or adjusted for inflation since the 1980s, means most program participants must remain well below the federal poverty level in order to receive benefits. Meanwhile, SSI’s monthly cash benefit for individuals averaged $585 last year. It is the only source of income for most recipients. “SSI’s punitive and archaic asset limit is the most egregious anti-savings measure in federal law today,” Rebecca Vallas, co-director of the Disability Economic Justice Collaborative at the Century Foundation, told the Prospect. And yet, we continue to see a lack of sufficient political will to allow people with disabilities to save. As a severely means-tested program, Supplemental Security Income bans participants from having more than $2,000 in savings. Brown and Portman’s bill would have adjusted the SSI’s asset limits for inflation, and excluded retirement accounts from counting against the asset limits, among other changes. It would also come as Americans face higher inflation, which savings could help slow. Advocates for the poor held back on publicly attacking the SECURE Act 2.0 while arguing for it to include the Savings Penalty Elimination Act. Now that they have lost that battle—SECURE Act 2.0 is set to legalize new tax breaks for rich savers, without raising the savings caps for low-income disabled Americans—some advocates are taking stock of where the strategy fell short. “The strategy was, hold your fire on SECURE 2.0, because we might get these other things attached to it,” Alex Lawson, executive director of Social Security Works, told the Prospect. We didn’t fight this bad thing, because we thought maybe we could beg for some table scraps. But then we didn’t get the table scraps, and the thing passes with no resistance.” “The policy we were fighting for is very good—even table scraps can save lives,” Lawson added. “But in terms of magnitude, we’re talking pennies.” The omnibus bill does include a crumb for savers with disabilities: a tweak to the rather ominously named Achieving a Better Life Experience (ABLE) savings programme. Tax-incentivized ABLE accounts, which require significant legal know-how to set up, are a loophole in the asset limits of SSI and Medicaid, allowing disabled people to save specifically for disability-related expenses without making themselves ineligible for those means-tested programs . The omnibus bill would extend the age requirement for ABLE beneficiaries to people whose disability began after the age of 26. That was seen as “checking the box” on disability issues, one advocate involved in the push to raise the asset limits told the Prospect. In a note released Tuesday, Morris Pearl, a former managing director at the investment company BlackRock who now chairs the progressive group Patriotic Millionaires, condemned the SECURE Act 2.0 as a tax evasion plan for rich Americans like himself. In his case, he wrote, the new changes will leave his heirs with $4 million from his retirement account—an extra $400,000 beyond the $3.6 million he would otherwise have passed down. “This law will make my heirs hundreds of thousands of dollars richer,” he said in a statement. “I’m tired of tax cuts for the rich being sold as help for the poor.”

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