Progressivity and Saving: Fixing the Nation's Upside-Down Incentives for Saving: Testimony before the House Committee on Education and the Workforce

As the baby boomer generation nears retirement, the shortcomings in the nation's upside-down system of incentives for retirement saving are becoming increasingly apparent. The existing structure is upside down for two reasons: First, it gives the strongest incentives to participate to higher-income households who least need to save more to achieve an adequate retirement living standard and who are the most likely to use pensions as a tax shelter, rather than as a vehicle to raise saving. Second, the subsidies are worth the least to households who most need to save more for retirement and who, if they do contribute, are most likely to use the accounts to raise net saving. [© Brookings Institution]