Campaign focus turns to savings

Move over jobs, war, healthcare and immigration. There’s a new issue on the presidential campaign trail: your retirement savings.

In a sign of changing times, a dawning reality that millions of workers face an income squeeze when they retire has elevated the once-personal matter of building a nest egg to the national political agenda.

Leading Democratic candidates are calling for savings programs -- unrelated to Social Security -- targeted to moderate-income households, greased with matching tax credits and powered through payroll deductions. Republicans have avoided that strategy, instead putting their faith in tax cuts and policies that fuel economic growth as ways to promote new saving.

“The problem of inadequate retirement saving continues to fester and grow,” said Mark Iwry, a former Treasury Department official who has advised the campaigns of Sens. Barack Obama (D-Ill.) and Hillary Rodham Clinton (D-N.Y.) on the issue. “Its urgency is increasing.”

Concerns are fueled by a combination of events that affect millions of households. Traditional pensions that paid a set amount for life are being phased out in many workplaces. The 401(k) savings plans that have replaced them do not assure enough to retire on, except for those who have saved carefully for many years. They are also vulnerable to the kind of sharp market downturns that rattled Wall Street last week.

Almost 1 in 2 workers -- 48% -- has less than $25,000 in savings, and 71% have less than $100,000, according to a 2007 survey by the Employee Benefit Research Institute.

On top of that, more than 75 million Americans, or about half the workforce, have no opportunity to participate in a retirement plan. Experts say many of them are headed for a bleak future.

Signs that the late-life safety net is fraying come as more Americans live into their 80s and 90s, increasing the risk that they will outlast their savings, and as the oldest members of the baby boom generation advance into their 60s.

“The issue of savings, not just on a personal level but for the country as a whole -- do we as a nation save enough money? -- those issues dramatically cut across party lines,” said Austan Goolsbee, a University of Chicago economist who is advising Obama.

The partisan division looms wide in the presidential campaign, however. Republicans generally oppose new mandates on private employers, and they have not specifically targeted savings initiatives at the lower end of the ladder.

They maintain, however, that lower taxes and pro-growth policies would enrich households and increase saving.

The savings incentive plan proposed by former Massachusetts Gov. Mitt Romney, for example, would exempt taxpayers who earn less than $200,000 from paying any taxes on interest, dividends and capital gains.

Romney and Republican contender Rudolph W. Giuliani, the former New York mayor, also support stalled White House proposals to boost contributions and withdrawals in Roth individual retirement accounts.

Sen. John McCain (R-Ariz.) has expressed support for private savings accounts in the context of overhauling Social Security but not as a separate initiative targeted solely at moderate-income Americans. In the current campaign he has put more emphasis on helping families by strengthening the economy through low taxes.

The other prominent Republican in the race, former Arkansas Gov. Mike Huckabee, would offer some private investment options in Social Security and give beneficiaries the option of a one-time lump-sum payment they could invest, instead of guaranteed monthly payments for life.

Such approaches jibe with what Republicans see as a rising investor class of middle-income Americans, whose long-term economic health is linked to Wall Street.

“It’s more important to you how the stock market does than whether you get a 3% or 5% raise this year,” said Grover Norquist, president of Americans for Tax Reform and an influential conservative. Workplace mandates, such as requiring employers to offer payroll deductions, he added, are “generally not the Republican approach.”

By contrast, Democratic candidates say the emerging squeeze on retirement security amounts to an injustice that cries out for change.

To help achieve that change, they have proposed savings schemes tailored for those with moderate incomes. Though the Democratic plans vary, they all would include the carrot of government contributions to stimulate saving, and they all would rely on employers to play a role in signing up workers and steering some of their wages into new accounts.

Clinton would provide a 100% federal match on the first $1,000 saved by households earning up to $60,000 and a 50% match on that amount for those earning $60,000 to $100,000. She would encourage employers to enroll their workers in new accounts and to help build them by offering payroll deductions.

At a bagel shop in New Hampshire, she blasted the White House for what she said was a failure to address the issue of retirement security more effectively.

“Right now, the way the Bush fiscal policies have played out, this is all going to be dumped on you, your generation, and it is so wrong,” she recently told a member of the “Facebook generation” who asked her about Social Security. “I resent so much about it.”

At a round table of supporters in Las Vegas, Obama said he would shelter seniors who earn less than $50,000 from all federal income tax, and he would further stimulate saving by lowering payroll taxes for working people.

He would offer a 50% federal match on the first $1,000 of savings by households that earn less than $75,000, and he would require employers to sign up workers and offer payroll deductions.

“It’s harder to save. It’s harder to retire,” Obama said in a November speech that laid out his retirement savings proposal. “You’re doing your part; you’re meeting your responsibilities. But it always seems like you’re treading water or falling behind. And I see this every day on the campaign trail.”

John Edwards also would require employers to offer payroll deductions. His plan would apply to families earning less than $75,000, and he would have the government match the first $500 in savings, dollar for dollar.

Democrats hope that the savings proposals, estimated to cost about $20 billion, will strike a chord with members of the public who sense a wide gulf between rich and poor and who may believe that working Americans face an unfair financial struggle in today’s economy.

Edwards, for example, has vowed to fight corporate moves to cut pension benefits for the rank and file.

“I will ensure that corporations honor the pension promises they’ve made to workers by giving workers a claim for lost pensions, just like lost wages,” the former senator from North Carolina recently wrote in the Wall Street Journal.

Clinton has lashed out at the spotty nature of the pension system, which is typically unavailable to the unemployed and part-timers.

“Why should we be satisfied with our current system, a system in which a mother who chooses to stay home and raise her children misses out on savings opportunities others can access?” she asked last fall.

Obama declared recently, “Part of the problems in terms of retirement security is just making enough money in the first place to be able to save.”

In Congress, proposals to create workplace-based savings programs for those who have no pension coverage have captured some Republican support.

In the race for the White House, however, “the difference [between the parties] is dramatic,” said Gene Sperling, a senior economic advisor to Clinton. “Our view is that the current savings system is upside down, that the largest increases go to those most well off, and the least of the incentives go to people who are struggling to save.”

Yet some predict that if the Democrats manage to turn nonsavers of modest income into capitalists, the political advantage will ultimately flow to the free-enterprise policies of the GOP.

Said Norquist, “What you’re doing is creating little baby Republicans in 10 years.”

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jonathan.peterson @latimes.com

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(BEGIN TEXT OF INFOBOX)

LEADING CANDIDATES’ PROPOSALS

Hillary Clinton

Proposes savings plans with a 100% federal match for the first $1,000 for households earning less than $60,000 and a 50% match for the first $1,000 for households earning $60,000 to $100,000. Employers would be encouraged to offer payroll deductions.

John Edwards

Advocates savings accounts featuring a 100% federal match on the first $500 saved by families earning less than $75,000. Employers would be encouraged to enroll workers and offer payroll deductions.

Barack Obama

Proposes savings plans featuring a 50% federal match on the first $1,000 saved by households earning less than $75,000. Employers would be required to enroll workers and offer payroll deductions.

Rudolph Giuliani

Would enhance the system of tax-advantaged retirement accounts by simplifying categories, easing limits to participation and penalties for withdrawals. Would cut taxes on capital gains and qualified dividends.

Mike Huckabee

Would replace the federal income tax with a sales tax and offer some private investment options in Social Security. Would offer retirees the option of a one-time lump-sum payment of Social Security benefits.

John McCain

Has expressed support for private savings accounts in the context of overhauling Social Security. Emphasizes helping families through low taxes that strengthen the overall economy.

Mitt Romney

Would eliminate taxes on interest, dividends and capital gains for taxpayers with adjusted gross income below $200,000 to spur savings by the middle class and would ease rules on tax-advantaged retirement accounts.