Retirement-savings boondoggle

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Sen. Hillary Clinton's federally subsidized retirement plan represents one more way to make Americans ever more dependent upon the government for their livelihood.

Her proposal is yet another quintessential Democratic idea to strap the country's workers to the apron strings of Big Brother, promising them a refundable tax-credit check of up to $1,000 if they sign on the dotted line for Mrs. Clinton's campaign savings plan. In return, they will be expected to show their gratitude for Mrs. Clinton and the Democrats at re-election time. The program would no doubt be fine-tuned for years to come with other add-ons to milk the political payoff for all its worth.

The money she promises workers who lack pension plans of their own will come from the U.S. Treasury, courtesy of hardworking, overtaxed Americans. No doubt those who would sign up for her American Retirement Accounts are hard workers, too, but Hillary is asking taxpayers who scrimp and save on their own to contribute to others who don't. That troubles some analysts.

"This is a dependency-creating plan. Savings are supposed to make you independent. This one ties you to the government," says Bill Beach, a retirement-policy analyst at the Heritage Foundation.

The lure of a refundable federal tax credit from general revenues is a government subsidy, pure and simple. The recipient doesn't have to work for matching money to save it. "You have to work for that money in order to turn it over to someone else to save it. It makes people more dependent on the federal budget now for their savings, in addition to all the other things that lower-income people might be dependent on," Mr. Beach said. Precisely.

To be sure, the nation's retirement picture that the Clinton campaign outlined last week in Webster City, Iowa, where she unveiled her plan, is one of this country's biggest problems.

More than 75 million workers have no employer-sponsored pension, include 77 percent of small-business employees and 77 percent of part-time workers. These Americans do not have access to automatic, direct-deposit, retirement-savings plans because they work for small businesses that cannot afford costly, tax-deferred 401(k) plans that offer their workers matching private-employer contributions. Nearly one-third of all households in the country do not have enough savings, including their Social Security, to replace half their income when they retire.

Mrs. Clinton's plan would create retirement-savings accounts primarily aimed at these middle- to lower-income people who would be automatically signed up when employed. The feds would provide a refundable matching tax credit — dollar for dollar — for the first $1,000 in savings by a married couple earning up to $60,000.

The tax credit would drop to a 50 percent match on the first $1,000 in savings for couples earning between $60,000 and $100,000, and would be phased out for anyone over that threshold. Workers could contribute up to $5,000 a year into these accounts.

The matching tax credit would also be made available to anyone who participates in 401(k) accounts, in addition to the American Retirement Accounts. "That means tens of millions of middle-class families will get matching tax cuts of up to $500 and $1,000 to help them build a nest egg for retirement," the Clinton campaign said.

They would be portable from job to job, and the money could be used to buy a home, college costs and a small portion of it to help tide workers over when they are unemployed.

The estimated cost of all this — no doubt vastly underestimated — would be up to $25 billion a year, depending on how many sign up. It would be paid out of general revenues, though Mrs. Clinton said the tax-revenue loss would be offset by keeping the death tax on estates beyond its 2010 expiration.

The employee plans would allow their direct deposits to be sent into diversified investment accounts that would compete for their business. Employers would qualify for tax credits to offset any costs to them.

The idea of providing retirement savings and investment plans to workers not in tax-free company retirement accounts such as 401(k) plans or individual retirement accounts (IRAs) has been vexing for many years. But not for lack of several good ideas to offer such benefits to middle- to lower-income workers.

Privately funded IRAs and 401(k)s have been exploding for decades, with about $7.5 trillion in assets as of 2006, according to the Employee Benefit Research Institute. More than 40 percent of workers between the ages of 21 and 64 have such plans.

President Bush offered a bipartisan plan to provide private-investment accounts that would let workers invest a small percentage of their payroll taxes in stocks and bonds and build wealth. Another plan offered by some think tanks would set up a system of IRA-style automatic-deposit savings plans as Mrs. Clinton envisions for small-business employees, but without the matching federal checks.

Mrs. Clinton has begun a needed and long overdue debate on the retirement-savings issue. But this is no time to put another costly entitlement burden on the shoulders of the American taxpayer.

Donald Lambro, chief political correspondent of The Washington Times, is a nationally syndicated columnist.