Eric J. Toder

What the 2008 Stock Market Crash Means for Retirement Security

The 2008 stock market crash raises concerns about retirement security, especially since the increased prevalence of 401(k) and similar retirement saving plans means that more Americans are now stakeholders in the equity market than in the past. Using a dynamic microsimulation model, this paper explores the ability of alternate future stock market scenarios to restore retirement assets. The authors find that those near retirement could fare the worst because they have no time to recoup their losses. Mid-career workers could fare better because they have more time to rebuild their wealth. They may even gain income if they buy stocks at low prices and get above-average rates of return. High-income groups will be the most affected because they are most likely to have financial assets and to be invested in the stock market.

Projecting Poverty Rates in 2020 for the 62 and Older Population: What Changes Can We Expect and Why?

Over the past several decades, there have been a number of economic and demographic changes that are expected to impact the economic well-being of the future aged population. This paper analyzes the factors that may be related to increased or decreased poverty among the 62- to 89-year-old population in 2020 using the Social Security Administrations Model of Income in the Near Term (MINT). We estimate that the poverty rate, when thresholds are indexed to the CPI, will decline from 7.8 percent in the early 1990s to 4.2 percent in 2020, but the rate would increase from 7.8 percent to 9.9 percent if the threshold were indexed to wages. We examine the impact of four specific trends on future poverty rates: 1) the scheduled rise in the Social Security normal retirement age, 2) the changes in marital composition, 3) the change in the relative earnings of men and women, and 4) the rise in earnings inequality. We find that the increase in the normal retirement age and changes in marital composition each explain about 25 percent of the projected increase in wage-adjusted poverty. The changes in the relative earnings of men and women did not affect the poverty rate - it only affected who was in poverty. The rise in earnings inequality had almost no effect on poverty rates largely because of the progressive Social Security payment formula. The projections of poverty rates are very sensitive to economic growth assumptions. Even with the substantial wage growth projected by the Social Security Office of the Chief Actuary, however, high school dropouts, unmarried retirees, and older retirees remain at high risk of poverty.

Making Maximum Use Of Tax-Deferred Retirement Accounts

Most workers do not contribute the maximum allowable amount to employer-sponsored tax-deferred retirement plans. The share of maximum contributors increased between 1990 and 2003, as did the percentage of participants who contribute the maximum or at least 10 percent of earnings. But virtually all the growth in maximum contributors came from groups with high shares of maximum contributors in 1990. Recent increases in contribution limits can be expected to reduce shares of maximum contributors, but raise relative shares of maximum contributors among high-earning and education groups. Increases in contribution limits do little to increase retirement preparedness among lower-income groups.

Taxing Carbon: What, Why, and How

The case for a carbon tax is strong. A well-designed tax could efficiently reduce the emissions that cause climate change and encourage innovation in cleaner technologies. The resulting revenue could finance tax reductions, spending priorities, or deficit reduction — policies that could offset the tax’s distributional and economic burdens, improve the environment, or otherwise improve Americans’ well-being. But moving a carbon tax from the whiteboard to reality is challenging. To help policymakers, analysts, and the public address those challenges, this report examines the what, why, and how of implementing a carbon tax and using the revenue it would generate.

How Big is the Federal Government

The federal government is larger than conventional budget measures suggest. Many tax preferences are effectively spending programs. Adding these preferences to federal outlays and receipts makes the government appear about 4 percent of GDP larger. The 1986 tax reform cut these benefits, but they have since rebounded to a larger share of GDP than before. Using this broader measure of government size, many base-broadening reforms viewed as tax increases would be reclassified as spending cuts. Raising marginal tax rates would be recorded as a tax increase and a spending increase because it would boost the value of many tax preferences.

Tax Policy and the Size of Government

Measuring the size of government is not simple. Standard measures omit important aspects of government action such as the many deductions, credits, and other tax preferences used to influence resource allocation. We argue that many tax preferences are effectively spending. Traditional measures of government size thus understate both spending and revenues. Reductions in spending-like tax preferences are tax increases in traditional budget accounting but are effectively spending reductions; increasing marginal tax rates raises both taxes and spending in our expanded measure. Some tax increases thus reduce government, while others expand it.