A report published Thursday by the nonpartisan Government Accountability Office shows that the median retirement account balance of high-income U.S. households nearly doubled between 2007 and 2019 while those in the middle class saw their retirement savings stagnate—if they had savings at all.
The GAO report was commissioned by Sens. Bernie Sanders (I-Vt.) and Sheldon Whitehouse (D-R.I.), who both pointed to the massive subsidies the federal government provides to tax-advantaged retirement accounts such as 401(k)s and individual retirement accounts (IRAs).
Citing Treasury Department data, the GAO’s new report notes that “the estimated federal tax expenditure, or annual net revenue forgone, for tax-preferred retirement accounts was over $195 billion in 2022.”
Those tax benefits flow disproportionately to high-income households. Daniel Hemel, a professor at New York University School of Law, wrote last year that “as of 2019, nearly 29,000 taxpayers had amassed ‘mega-IRAs‘—individual retirement accounts with balances of $5 million or more—while half of American households had no retirement accounts at all.”
“Overall,” Hemel added, “according to the Congressional Budget Office, the top 10th of households reap a larger share of the income tax subsidy for retirement savings than the bottom 80%.”
In a statement on Friday, Sanders said that “at a time when half of older Americans have no retirement savings at all, it is unacceptable that taxpayers are forced to spend billions of dollars subsidizing the retirement accounts of the wealthiest people in America.”
“The same Republican politicians who support cutting Social Security have no problem providing massive tax breaks to subsidize the retirement accounts of the top 1%,” Sanders continued. “In America today, 55% of seniors are trying to survive on less than $25,000 a year. Given that reality, our job is to make sure that the working class in our country are able to retire with the dignity and the respect that they deserve, not to provide more tax breaks to the billionaire class.”
“Our rigged tax code is subsidizing the retirement of billionaires and leaving everyone else to foot the bill.”
The GAO found that the median retirement account balance for high-income households was about $605,000 in 2019, roughly nine times the balance of middle-income households—$64,300.
“In 2007, the median for high-income households was about four times that of middle-income households (about $333,000 and $86,800, respectively),” the GAO report states.
The report observes that high-income individuals benefit disproportionately from tax-advantaged retirement accounts for several reasons, including because they’re far more likely to work for organizations that “offer pensions plans and contribute to retirement savings accounts.” Lower-income households rely more heavily on Social Security, which GOP lawmakers continue to attack.
Additionally, the report notes, “the generosity of retirement plans often increases with income, up to a certain income threshold.”
As the Center on Budget and Policy Priorities explains, “the primary retirement tax subsidies allow people to contribute to accounts such as a traditional 401(k) or IRA plan on a pre-tax basis. That is, taxpayers can defer all taxes on retirement contributions and earnings until they withdraw the money in retirement, at which point it is taxed as ordinary income.”
Whitehouse, the chair of the Senate Budget Committee, said Friday that “our rigged tax code is subsidizing the retirement of billionaires and leaving everyone else to foot the bill.”
“As a result, wealthy households have nine times more saved than the average middle-class household, and just 10% of the lowest-income families have anything saved at all,” the senator added. “Auto-enrollment in workplace retirement accounts would reduce the access gap and make it easier to save, but we must also protect Social Security for all and ensure the wealthy pay their fair share so that all can retire with financial security.”
The GAO report comes months after a separate analysis by the Institute for Policy Studies (IPS) and Jobs With Justice highlighted the special treatment that corporate CEOs receive in the skewed U.S. tax code.
“Employees with 401(k) plans face hard caps on the amounts they can set aside in these accounts every year,” the groups wrote. “By contrast, Section 409A of the tax code allows top corporate executives to place unlimited amounts in special ‘nonqualified tax-deferred compensation’ accounts.”
At the end of 2021, IPS and Jobs With Justice found, leading U.S. CEOs had around $9 billion in special retirement accounts that aren’t available to their employees.
Last year, Congress passed bipartisan legislation that expanded federal subsidies for retirement accounts, a move that critics said would likely worsen inequality.
As Hemel wrote after the House passed the bill, which was ultimately folded into the Consolidated Appropriations Act of 2023, “Bipartisan support for SECURE 2.0 is part of a decadeslong pattern: While loudly and proudly proclaiming that their goal is to nurture nest eggs for the working class, lawmakers have constructed a complex of tax shelters for the well-to-do.”
“It’s working out just fine for the financial institutions that manage assets in IRAs and 401(k)s,” Hemel added. “The combined amount in those vehicles reached $21.6 trillion at the end of 2021—up fivefold since 2000—and the more money that pours in, the more that managers collect in fees.”
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