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April 6, 2013

'What Happens When Top Income Earners Receive Smaller Subsidies for Retirement Savings?'

Greg Mankiw complains that rich people (like him presumably) will stop saving so much if there is "some kind of penalty for people who have accumulated more than $3 million in retirement accounts" in the president's budget:
The President's Latest Bad Idea
His big complaint? "President Obama's $3 million constraint would be a significant disincentive for saving."

Here's something to consider via Owen Zidar:
What happens when top income earners receive smaller subsidies for retirement savings?: Raj ChettyJohn N. FriedmanSoren Leth-PetersenTorben Heien Nielsen, and Tore Olsen ask this question and answer it here.
When individuals in the top income tax bracket received a smaller tax subsidy for retirement savings, they started saving less in retirement accounts….. but the same individuals increased the amount they were saving outside retirement accounts by almost exactly the same amount, leaving total savings essentially unchanged. We estimate that each $1 of government expenditure on the subsidy raised total savings by 1 cent.
I saw this paper presented at an NBER meeting at the SF Fed. It is very impressive work. I'm surprised Greg is unaware of it.

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