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401(k) Tax Policy Creates Inequality

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Abstract

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. This policy note illustrates how 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. 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.

Suggested Citation

  • Teresa Ghilarducci & Adam Hayes, 2015. "401(k) Tax Policy Creates Inequality," SCEPA policy note series. 2015-01, Schwartz Center for Economic Policy Analysis (SCEPA), The New School.
    • Handle: RePEc:epa:cepapn:2015-01
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    File URL: https://www.economicpolicyresearch.org/images/docs/research/retirement_security/Hayes_Ghilarducci_Policy_Note_1.9.15_FINAL.pdf
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    More about this item

    Keywords

    Retirement; 401(k); Tax; Inequality;
    All these keywords.

    JEL classification:

    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement

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