Politics & Government

Clinton proposes new retirement plan, costing billions

So far New York Sen. Hillary Clinton appears to be ahead in wooing significant African-American backing, several experts said.
So far New York Sen. Hillary Clinton appears to be ahead in wooing significant African-American backing, several experts said. Chuck Kennedy/MCT

WEBSTER CITY, Iowa — Sen. Hillary Clinton, D-N.Y., on Tuesday proposed a new multibillion-dollar retirement plan — billed as a universal 401(k) plan with federal matching funds — to supplement Social Security for middle-class workers.

Such "American Retirement Accounts" would cost the Treasury $20 billion to $25 billion a year, making this the second-most-expensive initiative of the many pricey proposals Clinton has rolled out recently in her campaign for the Democratic presidential nomination. The most expensive, her plan for universal health care, would cost more than $100 billion a year.

"I am not proposing anything I don't have a way to pay for," she said.

"If you work hard and contribute to your country, you should have the opportunity to save and invest," Clinton told voters at a campaign stop in Iowa, noting that "saving is hard" and the national savings rate has fallen to its lowest level since the Great Depression.

Her plan would allow all workers to open portable retirement accounts and put up to $5,000 a year in them on a tax-deferred basis. The federal government would match the first $1,000 in savings for married couples who earn up to $60,000 a year and would match the first $500 for married couples who earn $60,000 to $100,000 a year.

Individuals probably would receive less generous matches, said Gene Sperling, a Clinton economic adviser. The government also would give new tax credits to small businesses to help defray setup costs for the accounts.

Workers could withdraw some of their savings for "major life investments" such as buying houses or paying for college.

Those satisfied with their current retirement plans would still participate in those plans. Aides said the new plans would be administered largely by the same types of private firms that manage 401(k) plans, which would have an incentive to develop competitive options because of the large pool of potential investors.

Clinton would pay for the plan by freezing the estate tax at 2009 levels, rather than allowing it to expire temporarily in 2010. Freezing the tax at $7 million per couple would provide the Treasury with more than $400 billion over 10 years, according to Congress's Joint Committee on Taxation.

What amounts to a tax increase on about 7,000 wealthy families would help millions of middle-class Americans "get an estate of their own," Clinton said.

But Wayne Brough, chief economist for the anti-tax group Freedomworks, said the burden would fall disproportionately on smaller estates because the very wealthy could "adjust and monitor" its impact through sophisticated planning. Also, because the estate tax accounts for about 1.5 percent of federal revenue, "it's not a sizable base to be founding an entire new program on," Brough said.

Permanently repealing the estate tax remains a major goal of congressional Republicans, who doubtless would oppose Clinton's reliance on sustaining it.

Clinton vowed that she'd protect Social Security in its current form but argued that a supplement is needed, citing statistics showing that fewer than half of American workers have employer-based retirement accounts and about half of those who do have less than $15,000 saved.

The roll-out came in the midst of Clinton's "Middle Class Express" bus tour of Iowa, in which she's focusing speeches and proposals on middle-class economic concerns. In doing so, she's ignoring the jabs of her Democratic rivals and slamming Bush administration policies that she claims have left the middle class "invisible."

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