How Will Higher Tax Rates Affect the National Retirement Risk Index?
AbstractThe National Retirement Risk Index (NRRI) measures the share of American households ‘at risk’ of being unable to maintain their pre-retirement standard of living in retirement. The calculations are based on the assumption that taxes remain at current levels. But federal government spending as a percentage of GDP is projected to increase rapidly in coming decades. To help bridge the gap between revenue and spending, policymakers could decide to substantially increase the personal income tax, raise Social Security payroll taxes, and establish additional revenue sources such as a value-added tax. This brief explores how such tax increases could affect the percentage of households ‘at risk.’ This brief is structured as follows. The first section recaps the NRRI. The second describes how much taxes could increase. The third section describes the channel through which higher taxes may affect retirement preparedness. The fourth section presents the impact of plausible tax increases on the percentage of households ‘at risk.’ The final section concludes that higher taxes will have a relatively modest effect on the NRRI for most groups – the exception being high-income households on the cusp of retirement. It also cautions that the effect could be substantially greater if people reduce their saving in response to an unprecedented increase in taxes, and that the increase in the NRRI tells only half the story because economic well-being as measured by consumption will be lower both before and after retirement.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Center for Retirement Research in its series Issues in Brief with number ib2010-19.
Length: 8 pages
Date of creation: Dec 2010
Date of revision: Dec 2010
Contact details of provider:
Postal: Hovey House, 140 Commonwealth Avenue, Chestnut Hill, MA 02467
Phone: (617) 552-1762
Fax: (617) 552-0191
Web page: http://crr.bc.edu/
More information through EDIRC
This paper has been announced in the following NEP Reports:
- NEP-AGE-2011-02-05 (Economics of Ageing)
- NEP-ALL-2011-02-05 (All new papers)
- NEP-PUB-2011-02-05 (Public Finance)
You can help add them by filling out this form.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Amy Grzybowski) or (Christopher F Baum).
If references are entirely missing, you can add them using this form.