Debate: Should Retirement Tax Benefits Be Cut to Support Social Security?

Byrnes: Talking about eliminating retirement savings tax preferences is crazy. First of all, we’re going to find ways to support the current Social Security system, so talking about benefit cuts is extreme. We want to do everything we can to encourage Americans to save to fund their own retirements — so that they’re less reliant on Social Security and much more likely to avoid the need for additional government assistance, like Medicaid benefits.

Bloink: The tax benefits given to defined contribution plans and IRAs cost the government billions of dollars each year — and they’re primarily relied upon by the wealthy who are most able to maximize these tax-preferred contributions.

Social Security is a program that low-wage workers rely on much more heavily because they don’t have the excess funds to contribute to these accounts. So when we talk about cutting Social Security benefits while ignoring the other “legs” of the system, we’re punishing the lowest-income Americans while offering a benefit to the wealthy.

Byrnes: The benefits of retirement savings apply across the board. Yes, wealthy taxpayers may have the greatest opportunity to save, but we’re always taking steps to encourage greater savings among lower-income taxpayers — just look at Secure Act 2.0, which contains auto-enrollment provisions, enhances the saver’s credit and allows employers to offer incentives to workers who save. We should continue to focus on helping lower-income taxpayers save for their own retirement in any way we can.

Bloink: Some estimates have found that the wealthiest 20% of all Americans receive over 58% of the benefits associated with defined contribution and defined benefit plans. So we’re giving the super-rich yet another tax loophole with retirement plan tax preferences — so that these taxpayers can continue to use the system to avoid paying their fair share. By allocating those tax preferences to the Social Security system, we’d be providing a much more equitable retirement benefit to every American.

Byrnes: This type of cut to retirement savings tax preferences will never become law. Saving for retirement is simply too important. Encouraging adequate retirement savings at all levels will always continue to be a government priority, so these proposals really have no chance of becoming the law of the land.

  • Learn more with Tax Facts, the go-to resource that answers critical tax questions with the latest tax developments. Online subscribers get access to exclusive e-newsletters.
  • Discover more resources on finance and taxes on the NU Resource Center.
  • Follow Tax Facts on LinkedIn and join the conversation on financial planning and targeted tax topics.
  • Get 10% off any Tax Facts product just for being a ThinkAdvisor reader! Complete the free trial form or call 859-692-2205 to learn more or get started today.