Do tax cuts help people save for retirement?


Saving for retirement can be difficult for many seniors, and as a result, successive White House administrations have sought to make saving easier by offering tax breaks to help push people to put away more money for retirement. But as reported by the New York Times, a new study from Harvard is suggesting that such tax breaks do little to encourage people to save more money.

The report evaluated tax breaks used by the government of Denmark to try and promote retirement savings among the Danish population, and discovered a very low success rate: for every dollar spent in tax cuts, savings increased by only 1 cent (i.e. one per cent).

“The findings reported here call into question whether subsidies are the best policy tool to increase retirement savings,” the report’s authors wrote.

As an alternative, the authors suggested other methods such as automatic deductions from employees’ paychecks, which means an employer automatically deducts a portion of the employee’s pay, which is then re-directed into another account exclusively for retirement savings.

According to the New York Times, most American companies do not provide a program which automatically saves and re-directs employees’ pay, but as the White House and congress evaluate ways to reduce the United States’ national debt and increase savings, such programs may become more popular.