NCPA - National Center for Policy Analysis


February 19, 2009

Americans save too little, and everyone knows it.  Some government policies make it harder to save, or reduce the incentive to do so; other policies are designed to encourage saving, but are often ineffective.  Americans on the middle to lower rungs of the economic ladder, in particular, have little in the way of assets, in part because of the burden of payroll taxes.

  • Companies that enroll new employees in 401(k)s unless they opt out tend to have higher participation rates than companies that require them to opt in.
  • Some companies have also boosted contribution rates by setting them to increase gradually over time--again, with opt-outs. But state regulations are an obstacle to these practices. Governors and state legislators should remove them.
  • Businesses that do not want to administer 401(k) programs or match employee contributions to them could serve as a conduit for automatic paycheck deductions deposited in tax-advantaged savings accounts.

The idea that ordinary people can invest for their retirement is getting a bad rap right now, as it has in previous bear markets.  But long-term participation in capital markets is still a good idea, maybe a better idea than ever.  Millions of people would be better off if they had invested more in previous decades.  They would be more economically independent.

Source:  Ramesh Ponnuru, "Twelve Ideas for the Middle Class: Make Saving Easier," National Review, February 9, 2009.


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