Wednesday, April 20, 2005

A Tax Break for the Not-So-Wealthy

Former Clinton Administration economic advisor Gene Sperling writes in Bloomberg about a new plan to help lower wage workers save money. Sperling claims that a flat tax would do nothing but lower taxes on the wealthy without helping most Americans. But another tax initiative could help:

The most important step would be to create a bold, new ``universal'' 401(k) that is portable, more automatic and that offers to lower-income Americans a 2-to-1 match and to middle- income earners a 1-to-1 match -- all through a refundable matching tax credit.

An important policy that would complement the ``universal'' 401(k), or that could be passed separately, would be to give all Americans a 30 percent flat-tax credit for savings that is refundable. So when a chief executive officer and the person cleaning his office save a dollar, they would both get the same tax credit.

Part of the cost for doing that is paid by lowering the savings deduction rate for the top bracket from 35 percent to 30 percent. And simply requiring the wealthiest 4,500 estates each year to continue paying estate taxes -- as opposed to complete repeal as President George W. Bush is proposing and the House of representatives just passed last week -- would save enough to fund a robust wealth-creation agenda for tens of millions of Americans that would include a universal 401(k) and such a flat tax-incentive for savings.

This isn’t a government handout. This is a tax break. The difference? A handout requires nothing of the recipient. A tax break requires the recipient to be a contributing, responsible member of society.

This is the kind of progressive idea we need to help out those who are working hard but getting nowhere. It rewards hard work and it rewards responsibility. Sperling’s ideas might not be perfect, but they definitely move the debate in the right direction.


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