Wednesday, January 27, 2010

To Mother Jones Magazine: Automatic IRAs em are not the same as privatizing Social Security

President Obama recently proposed to require most employers to automatically enroll their workers in IRAs, which are a secondary workplace retirement savings mechanism in the US. It used to be that workers had their Social Security benefits and a defined benefit pension that the employer automatically contributed to. 401ks and IRAs are tax deferred vehicles that allow you to invest on your own in the stock market or other assets. They were designed as supplements to pensions. With the decline of pensions, the 401k has become the primary private retirement savings vehicle. However, many smaller and/or low-wage workplaces don't offer them.

President Obama's proposed solution is to automatically enroll workers in IRAs, and to expand the Saver's Tax Credit so that it is refundable - people who owe no income tax would be able to get money back, whereas the status quo is that the STC only reduces your taxes up to $0.

The auto-IRA proposal is something that both the left and the right endorse. Oddly, though, Mother Jones Magazine issued a screed against the proposal, accusing it of being a back door to privatizing Social Security.

It is true that the primary conservative proponent, David John of the Heritage Foundation, was also a proponent of privatizing Social Security. However, just because Heritage endorses something doesn't mean it's wrong - the auto-IRA proposal would not replace Social Security and is eminently sensible. Coupled with a refundable Saver's Tax Credit, it could help millions of low-income Americans save additional dollars for retirement. Assuming that offsetting revenues can be easily found, this would be a boost for retirement security. Mother Jones needs to get their facts straight.

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