Fred Goldenberg: Capitalism with a progressive twist

Fred Goldenberg

When the 2017 Tax Cuts and Jobs Act was passed, many in the GOP claimed that it was a bill designed to help the middle class. Yet the true nature of the bill was massive corporate welfare. Huge tax cuts to major corporations — and although posting large profits, allowing many of them to pay no Federal income tax in 2018.

And the disparity in wealth continues to climb. According to Forbes, "The gap between rich and poor in America is ever widening. In 2018, the richest 10% held nearly three-quarters of all total household wealth, up from 60% three decades ago. The top 1%'s share of that wealth jumped to almost a third last year, up from 23%."

In the last two and a half years the Dow has gained more than 4,600 points, or about 25%. The S&P 500 has added $2 trillion in value. That’s wonderful if you're investing in corporate stocks, or if your 401(k) is heavy on equities. According to the Federal Reserve over the past three years, the value of families' portfolios has risen "dramatically" to an average of $344,500.

But who’s really benefited? According to the Fed, nearly 94% of the top income group owned stocks in 2016. But barely one-third of families in the bottom 50% of earners own stock. Let’s face it — lower-income Americans don't have extra money to put into stocks, and a third of workers don't have access to a 401(k) or another retirement plan.

In an attempt rectify this situation and provide the middle class with greater abilities to save for retirement, the House of Representatives last week passed the Secure Act. Backed both by Republicans and Democrats, the measure includes a variety of ways to help people save for the future.

One provision will make it easier for small businesses to band together to offer 401(k) plans. Another will require businesses to let long-term part-time workers become eligible for retirement benefits. One that will make many people happy is repealing the maximum age for making contributions to traditional individual retirement accounts (right now, that’s 70½).

The age when required minimum distributions, or RMDs, must be started will be raised from the current 70½ to age 72. And the Act will allow more annuities to be offered in 401(k) plans, giving the small investor protection against a market downturn.

The Secure Act now will head to the Senate, where a similar bill has yet to be voted out of committee. The Senate bill is known as the Retirement Enhancement and Savings Act, or RESA, and its components largely mirror those in the House bill.

Some important differences in the GOP Senate bill are that it doesn't include an increase in the age for RMDs or the requirement that companies provide 401(k) access to part-time workers. But facing the upcoming 2020 election, RESA’s co-sponsor and chairman of the Senate finance Committee Sen Chuck Grassley, R-Iowa, said that he looks forward to receiving the Secure Act in the Senate and working out the differences between it and RESA.

Both bills rely on funding by changing the rules governing inherited retirement accounts. Stretch IRA’s would be a thing of the past. The House measure would require most non-spouse beneficiaries to withdraw the money within 10 years of the original owner’s death, while the Senate bill would require distribution within five years for accounts worth at least $400,000, unless the beneficiary is the spouse.

For many lawmakers, this is just the first step in a series of legislative initiatives that attempt to level the playing field.

Rep Richard Neal, D-Mass, plans on introducing additional legislation requiring companies of a certain size to provide a retirement plan. Sens. Ben Cardin, D-Md, and Rob Portman, R-Ohio, already have a new bill in the works that raises the RMD age to 75 from 70½ and allows companies to make a matching contribution to a worker’s retirement account equal to the amount of their student loan payment.

This isn’t redistribution of wealth. It’s true capitalism with a progressive twist. Even the little dog gets a bone.

Fred L. Goldenberg is a Certified Senior Advisor (CSA) and the owner of Senior Benefit Solutions, LLC, a financial services and certified health insurance organization in Traverse City. Questions or comments about this column or interest in our monthly Medicare classes can be directed to (231) 922-1010 or fred@srbenefitsolutions.com.