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Category: Personal Savings
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Kill Social Security, save retirement

Veronique de Rugy in Reason: One-third of Americans have nothing saved for retirement, according to a study published in August by the financial data aggregator Bankrate. That grim factoid joined a growing chorus of reports highlighting Americans' dismal savings habits. In 2013, the National Institute of Retirement Security (NIRS) determined that 84 percent of Americans are falling short of "reasonable" retirement savings targets. Data from the Center for Retirement Research at Boston College reflect a similar trend, and a recent PBS poll found that 92 percent of Americans believe we face a retirement crisis and that government should act now.

The reality is not quite as grim as these reports suggest. The American Enterprise Institute's Andrew Biggs took a hard look at the NIRS numbers and concluded that "the substance of the NIRS study should give pause to anyone considering drastic policy actions." One reason is that the study uses savings guidelines outlined in a 2012 Fidelity Investments report. But Fidelity suggests that people have enough money saved to enjoy 85 percent of their working income, while the Social Security Administration says most financial advisors recommend a lower 70 percent pre-retirement earnings target. The study also ignores that lower-income earners receive larger Social Security payouts, so their savings do not need to be as high.

America's personal savings rate is a fraction of what it once was. According to data from the Federal Reserve Bank of St. Louis, personal savings rates fell from a high of 17 percent in April 1975 to a low of 2.2 percent in September 2005.

Faced with this evidence, progressives would like to beef up Social Security. But the program already faces a $10 trillion funding shortfall, and economists have found that its existence creates disincentives to work and save. In other words, a bigger Social Security program could make a serious problem worse.

On Tax Day, it's good to be rich

Teresa Tritch in The New York Times: Newly released data from the Internal Revenue Service show that in 2010, the top 400 taxpayers had an average income of $265 million. That was $63 million more than in 2009, the depths of the downturn, and almost back to the group's average in 2008. Recovery, in other words, was well underway for the 0.001 percent of the population. For most everyone else, the stimulus of 2009 was coming to a premature end, marking the start of the effort, still underway, to dig out of an economic pit without a shovel.

The data also show that the top 400 paid an average tax rate of 18 percent in 2010. To compare, the average rate for all taxpayers was 11.8 percent. But if you think that means the rich got soaked, think again. In 2010, 40 percent of households paid no income taxes, not because they were moochers or takers, as Mitt Romney implied during his presidential bid in 2012, but because they were unemployed, disabled, elderly living on Social Security, or for some other reason were making too little to generate a tax bill.

A better measure of whether the wealthiest taxpayers were paying a fair share is to compare their average rate in 2010, 18 percent, to the top income tax rate that year for wages and salaries: 35 percent.

The main reason they paid so much less on average than their top rate would imply is that the wealthiest taxpayers make most of their money from investments, which are taxed at a lower rate than income from a job. In 2010, the top rate for dividends and most capital gains was 15 percent; for high-earners with dividends and for long-term capital gains, it has since increased to 20 percent, with an additional 3.8 percent tax to help pay for health-care reform.

But even those bolstered rates on investment income are still lower than many of today's tax rates on income from work, which top out at 25 percent to 39.6 percent. As a result, many merely affluent two-earner couples, especially professional couples, are bound to pay a larger share of their income in taxes than multimillionaire investors.

That is wrong. And yet the obvious corrective - taxing income from investments at the same rates as income from work - is not on any the agenda of either political party.

Cities can't afford pensions

Gregory A. Stein and Wayne Winegarden in The American Spectator: Unfunded government pensions are driving municipalities across the country into bankruptcy -- from Detroit, Michigan (the largest municipal bankruptcy ever) to Vallejo, California.

Despite the need for states and municipalities to have contributed large annual payments to their pension funds over many years, as a group they failed to do so. When coupled with overly optimistic return assumptions (also designed to reduce annual contribution requirements), it is no surprise that most pension plans are not actuarially solvent.

With the can now kicked, municipalities face unaffordable annual retirement contributions, taking away funds for current services and forcing municipalities like Detroit into bankruptcy. Taxpayers are trapped and public employees are cheated as an ever greater portion of taxes must be funneled into pension programs, or wages and benefits are frozen or cut, and even then, the chances of ever re-stabilizing are slim. Reforms are necessary.

For proof of this, look no further than Detroit, where current workers and retirees, facing massive cuts to promised benefits, had no alternative other than approving a freeze to its current pension plan and replacing it with a hybrid plan where workers bear more of the investment risks.

While Detroit's hybrid approach recognizes the problem, it still ties government workers to a government run pension system that binds taxpayers to cover any investment shortfalls.