In a presidential election that already has seen days dominated by parsing whether one candidate can be compared with an Etch-A-Sketch and whether another has mistreated a dog, Putnam Investments chief executive Robert Reynolds wants to turn the conversation to something more substantial: whether most voters can retire comfortably.
Reynolds laid out a three-point plan—making Social Security solvent, providing employer savings programs to everyone who pays Social Security taxes and raising workplace savings rates to 10 percent—that he said should be addressed in every federal campaign.
“Implementing these reforms in the real world will take leadership,” he said at a Financial Services Roundtable event in Washington on Wednesday.
“And those of us in retirement services need to both provide it and demand it from candidates seeking public office,” Reynolds said. “All of us in the retirement policy arena … should press our political leaders in this election year for a full, open debate on retirement policy.”
After the election, a lame-duck Congress must decide whether to extend hundreds of millions of dollars in tax cuts approved during the Bush administration and set to expire Dec. 31. Personal rates, as well as capital gains and dividends rates, are set to increase if lawmakers don’t act.
The post-election pileup is an example of Congress’ refusing to make tough decisions on taxes, spending and entitlements, according to Reynolds.
“This ‘fiscal cliff,’ as some people call it, is the result of multiple Congresses and administrations kicking the can down the road,” he said.
“Now the bill is coming due,” Reynolds said. “That’s why we do need to have a great national debate this year about deficits, debt and ways to reboot economic growth, so that the next president and the next Congress can earn a mandate for serious action from the American people.”
Congress is likely to turn its attention to broader tax reform next year.
Reynolds is trying to lay the groundwork for that debate, too.
“Making Social Security solvent and dispelling the uncertainty about its future should be the top priority for bipartisan reform next year,” he said.
Reynolds warned Congress not to touch retirement savings tax deferrals in its efforts to lower tax rates, broaden the tax base and reduce the deficit.
“National solvency and personal solvency go together,” he said. “We should never pit one against the other, but that is exactly what some in Washington want to do.”
Retirement savings tax deferrals, including IRAs and 401(k) accounts, are known as “tax expenditures” in federal budget parlance. They are among the tax breaks that are defined as costing the government revenue each year.
In fact, the favorable tax treatment for retirement savings puts them among the top three tax expenditures.
“They are deferrals, not permanent tax breaks,” Reynolds said. “Every penny will eventually be withdrawn and taxed as ordinary income, even though most of the assets being drawn down will likely come from dividends, interest and capital gains.”
In order to boost workplace savings, Reynolds backs legislation that would establish automatic IRA payroll deductions.
He tried to address two aspects that Republicans have used to argue against such a measure: Workers would not be forced to participate and employers would be compensated for start-up costs.
Most members of Congress understand the urgency of the retirement savings issue, according to Steve Bartlett, president and chief executive of the Financial Services Roundtable. The problem is that they too often use the issue to attack their opponents, making cooperation more and more difficult, he said.
“Our job, politically, is to convince them that their constituents expect them to do the right thing,” said Bartlett, a former House member from Texas.
Addressing the retirement issue forthrightly will help both parties, Reynolds said in an interview.
“If you do fix retirement security in this country, you suddenly have a real sense of confidence and hope,” he said. “People will look forward to the future and not fear it.”