Cut the Deficit, Not 401(k)s

I was somewhat stunned – and frankly, to some extent angered - by this article yesterday in Slate, in which a business school professor asserts that, if research from Holland does not support the idea that tax breaks motivate savings, one should do away with the 401(k). This completely misses the point that, in a country where the 401(k) is now effectively the only private sector retirement plan available to most employees, the tax break in question is a necessary element of increasing employees’ retirement assets, and is thus a retirement subsidy, not a savings incentive. As a result, the proper frame of reference for debating whether or not to maintain the 401(k) tax preference is that of retirement policy, in terms of considering whether or not it is the proper approach to creating retirement income for the American public; the proper frame of reference for debate is not the tax code, and the preference’s relationship to the deficit.

DWC’s Adam Pozek has a great post on his blog explaining exactly why the tax preference should not put the 401(k) in the crosshairs of budget cutters and revenue raisers, right here.