401(K) Tax Policy May Create Wealth Inequality

Though well-intentioned, the current system of tax deferral for retirement contributions undermines public policy aimed at strengthening retirement security for all Americans. In fact, it has become a regressive policy that contributes to wealth inequality. Two employees who are identical savers and investors in every way except for income, receive different rates of return due only to the effects of the tax code. For example, they can participate in the same 401(k) plan, contribute the same dollar amount each year and allocate their investment portfolios in exactly the same way, yet end up with different results. The high-income earner will enjoy a higher return because they receive a proportionately larger tax deduction. Converting the current system of tax deductions for defined contribution retirement plans to a refundable tax credit would solve this problem and treat all retirement savers the same. A refundable tax credit would give direct grants to workers’ retirement savings accounts instead of acting indirectly through tax deductions. Implementing the fix should not meet opposition. in Congress, whose legislative intent was not to create inequality.

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Challenges Confronting Central Bankers Today

The role of central banks in today’s global economy cannot be understated. These institutions hold great influence over important pieces of the economic engine, which in turn impact financial flows, access to credit, prices and global trade. Since the financial crisis of 2008-2009, the influence of central bank policymakers has only grown greater. Unprecedented actions and emergency measures have been taken to stabilize what otherwise could have been a global economic depression to rival the 1930’s. This paper reviews five questions that today’s central bankers face: whether to adhere to a rules-based monetary policy; if central banks should step into stabilize markets (e.g. QE); the importance of inflation targeting; the role of central bank independence; and the use of negative interest rates. Each of these issues is presented with arguments both in favor and against, empirical evidence to their effectiveness, as well as their possible unintended consequences and interconnectedness.

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