Code, Read

By Brian Graff • October 28, 2016 • 0 Comments
The 2016 general election is upon us, a knock-down, drag-out fight between two intensely polarizing figures — Hillary Rodham Clinton and Donald J. Trump — vying for votes among an increasingly polarized electorate.

In this intensely partisan political atmosphere, it is easy for the topic of saving for retirement to get shunted aside. After all, both parties claim to share the desire for Americans to have a financially secure retirement, even if they have differing views on how to achieve that goal. Not that you’d get a sense of that since arguing about how to get there does not conveniently fit into the network news’ 30-second soundbites, as do so many of the other more controversial political issues currently at the fore.

As a consequence, we have precious little to go on to deduce how the candidates feel – or even what they are saying — about the savings habits of Americans and what, if anything, they believe needs to be done to the private employer-based retirement system. You won’t find retirement listed on either candidate’s website as a main policy topic, even though in Gallup polling for the past 15 years Americans have consistently flagged having enough money in retirement as a top financial concern.

On the other hand, both candidates have released comprehensive proposals to reform the tax code. The results here are not encouraging for retirement savings. Candidate Clinton wants to collect more than $1 trillion in new revenue over the next decade, primarily through new taxes on high-income earners (which might encourage the formation of tax-deferred retirement programs, particularly among small businesses), but also through various curbs in the retirement savings incentives that we have seen in the past budget proposals of President Obama. Things like limiting the value of the retirement savings tax deferral to a deduction rate of 28% and putting a dollar cap on the amount of money an individual can save in tax-preferred retirement accounts.

In short, Clinton’s tax proposals are a decidedly mixed bag. The incentives her proposals would provide for increased retirement savings are largely indirect (presuming high income earners would be more inclined to create and use retirement savings vehicles, like 401(k) plans), while her stated proposals that directly impact retirement savings, if enacted, would almost certainly be a negative impact on those programs.

Candidate Trump’s tax proposal — which in many ways mirrors the tax reform blueprint released by the House Republicans — predictably takes the opposite approach, though one that could be equally as damaging to retirement savings. Trump’s plan calls for significant cuts in the statutory tax rates on both the wage and investment income, cuts that could well reduce the incentive for business owners and other workers to save for their retirement through vehicles like the 401(k). Additionally, Trump claims to pay for these cuts by “reducing or eliminating most deductions and loopholes available to the very rich,” and specifically targets the tax exemption on life insurance for high-income earners.

At the presidential level, anyway, the retirement plan industry seems to face a choice between two unpleasant options (a decision that is probably familiar to most American voters right now). That is why it is more important than ever that each and every one of us continue to stress on Capitol Hill the importance of the private sector retirement system, the efficiencies of the 401(k) in helping to provide financial security, and how critical the current retirement savings incentives are in supporting the retirement security of tens of millions of Americans no matter the election outcome.

Brian Graff is the Executive Director of ASPPA and CEO of the American Retirement Association. This post originally appeared in the fall issue of Plan Consultant Magazine.