- - Friday, January 31, 2014


We can blame Woodrow Wilson for the annual bore that the State of the Union has become. Before Wilson, the presidents sent their ideas about the state of the union to Congress in writing. Wilson, who liked to give a speech, changed all that, and presidents have used the occasion since for speechifying.

The media makes a big deal of the State of the Union because not much but bad weather happens in January, and there’s a scarcity of something to put in the papers or fill up bloviating time.

President Obama’s speech this year was typical. He didn’t have much to say and spent a lot of time saying it. Even Michelle wished she were somewhere else. He announced that he would create a new savings account to be called MyRA, pronounced like the girl’s name, to encourage low-income Americans to set aside a little money for their retirement.

An individual can put as little as $5 into the account, after that money has been taxed. On retirement, that $5 can be withdrawn tax-free. That’s a lot like the Roth IRA, already available. The difference is that over 30 years all that can be put into the account is capped at $15,000. That’s not much of a retirement.

Unlike a Roth IRA, Mr. Obama won’t allow these modest funds to have a return greater than that of the Government Securities Investment Fund, one of the options available to federal employees in their 401(k) retirement plans.

The “G Fund” often loses money, earning just 1.5 percent in 2012, which means that whatever is invested in the fund loses purchasing power against the 2 percent inflation rate. A viable investment strategy for young people means putting money into something with higher returns than government bonds if it’s intended to guarantee a “dignified retirement.”

Lower-income Americans tend not to save much because they don’t have much to save. High taxes, particularly on Social Security, play a critical role in their investment decisions.

At the beginning, in 1937, the Social Security tax was a modest 2 percent. Now it takes 12.4 cents out of every dollar earned under $117,000. This tax leaves lower-income employees with not much to save after buying the everyday essentials.

After paying all that money into the system, a retiree can receive a maximum of $2,642 a month in Social Security benefits. The working poor usually don’t think about setting aside much because they’re counting on the government to take care of them. Until then, they’re more worried about paying the rent or the mortgage.

The Social Security system restricts lifetime earnings and savings by discouraging poor workers from continuing to work. After 35 years, there’s little point in staying on the job because benefits won’t increase, and this encourages early retirement.

Mr. Obama’s MyRAs do nothing to help the poor in dealing with lower earnings, lower savings and lower benefits.

The MyRA is another example of government meddling to persuade the poor to save what they don’t have. Jason Fichtner, a senior research fellow at the Mercatus Center at George Mason University and former chief economist at the Social Security Administration, argues that “MyRA doesn’t provide enough incentives for lower-income workers to increase their retirement savings. The president’s efforts would be far better spent reforming Social Security.”

A gimmick with a silly name and that loses money won’t help anybody. What young Americans need is not a MyRA, but the chance to have a better job in an expanding economy.

They’ll have more money to save when the government stops taking it in confiscatory taxes, and they’ll have a more dignified retirement once Social Security is reformed.

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