Election 2008: The Pocketbook Issues

The next President could make big changes to the ways Americans invest and save for retirement

by Ben Steverman

Senator and Presidential candidate Hillary Clinton (D-N.Y.) greets auto workers as they arrive for work, during a predawn visit to the Chrysler Jeep manufacturing plant in Toledo, Ohio, on Mar. 3, 2008. Robyn Beck/AFP/Getty Images

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So far the Presidential campaign has focused on foreign policy, immigration, health care, and, of course, the broader economy. But candidates Clinton, McCain, Obama, et al. are also being urged to tackle the financial issues that affect Americans' pocketbooks.

While the issues involved—tax incentives for saving and ways to sign up workers for individual retirement accounts, for example—may not seem like big attention-grabbers compared to the macro topics being discussed, they are vital to the financial health of the U.S. and its people.

Among the questions the next President will tackle: How should investments be taxed? What changes should be made to Social Security? How can Americans be encouraged to save more for retirement? (For more on the specific policy positions on pocketbook issues taken by Presidential candidates Hillary Clinton, Mike Huckabee, John McCain, Ralph Nader, Barack Obama, and Ron Paul, see "The Candidates on the Pocketbook Issues.")

Under the Radar

Some answers are controversial, reflecting the battles during the Bush Administration over taxes and Social Security. For example, Republicans favor lower taxes on investment income, tending to support President George W. Bush's tax cuts on dividends and capital gains and his proposals to end the estate tax. Democrats are more skeptical, with some asserting that it's unfair to tax wealth at rates so much lower than taxes on wages.

Other financial proposals haven't attracted much controversy or attention, despite the fact that they could involve sweeping changes in the way Americans save their money and prepare for retirement. One key factor is the U.S.'s dismal savings rate. Even as millions of baby boomers prepare for retirement in the next couple of decades, Americans are spending more than they sock away for the future. After drifting lower since the mid-1980s, the savings rate, according to the Bureau of Economic Analysis, is now –0.1%.

Policy experts have watched with alarm as, instead of saving and investing for the future, more Americans are sinking into debt with credit cards and outsize mortgages. At the same time, the availability of traditional pensions is shrinking and the long-term financial solvency of Social Security is wobbly.

Automatic Retirement Savings?

The timing of these problems couldn't be worse, corresponding with a wave of Americans approaching retirement: By 2010, the Census Bureau estimates there will be 81 million Americans between 45 and 64 years old, a 27% increase from a decade earlier.

Many believe Americans could start saving a lot more each year if only investing were more automatic. "Saving is not easy enough today," says J. Mark Iwry, a fellow at the Brookings Institution. "We know how to make it significantly easier."

A former Treasury official in the Clinton Administration and the first Bush Administration, Iwry is pushing ways to automatically sign up workers for retirement accounts linked to their employers' payroll systems. Rather than requiring employees to fill out paperwork, employers already can automatically deduct a portion of their employees' paychecks to 401(k) retirement plans. Employees can opt out if they want, but, at companies that have embraced automatic 401(k) sign-up, the vast majority of workers choose to save through the 401(k).

Looking for Bipartisan Buy-In

Iwry proposes doing the same for everyone, requiring all employers to sign their workers up for individual retirement accounts and using the payroll system to divert a small percentage of paychecks to retirement savings. The program would be voluntary: Employees could stop sending money to their IRAs at any point.

The leading Democratic candidates, Senators Barack Obama (D-Ill.) and Hillary Clinton (D-N.Y.), embraced and incorporated these ideas in their platforms. Republican candidates including Senator John McCain (R-Ariz.) and Mike Huckabee haven't addressed the issue yet on the Presidential campaign, but Iwry says it has "broad bipartisan buy-in" and "strong cross-ideological appeal" in Congress.