Could Retirement Savings Be a New Form of Political Protest?

Could Retirement Savings Be a New Form of Political Protest?

A few weeks ago I received a text from an old college friend , asking for some interesting financial advice.  It read:

Her: Hey- do you know anything or any place I can look into about not paying federal taxes? Or ways around all that?

I was taken aback. While we at the lab do a lot of work to improve the financial lives of low and middle income families, committing a felony by avoiding federal income tax is not a strategy we often recommend.

When I received the message, I was taken aback. First, because I thought the expression “the only certainties in life are death and taxes” was pretty self explanatory. Second, and maybe more importantly, because my friend is a card carrying liberal New Yorker.

The idea that she would be against funding things like planned parenthood and the Environmental Protection Agency, which I know she is a pretty big fan of, was out of character to say the least. Then came the explanation:

Me: Ok, I think you are going to have to clarify. You for sure have to pay federal taxes somehow.

Her: Walls and pipelines and anything else DJT can come up with.Since he won’t be using it for science and research. Or education.

Looking back, I find this conversion particularly prescient. Just a few days later, Bloomberg published an article suggesting that a large number of Americans are either planning to pay their taxes quite late this year, or are just rolling the dice and not filing at all. The article sites Mr. Trump as a possible reason, along with plain old procrastination and confusion.

After a few entertaining exchanges about shell companies, opening bank accounts in Switzerland, and running a small yoga company for her roommate and dog at a loss, we landed on something a little more interesting.

It resulted in an entertaining “solution”: Retirement savings.

How Saving for Retirement Could be Used to Protest

Around 54.7% Americans pay some form of income tax the other 45% are disqualified because they don’t make enough.

The average federal income tax rate in America is around 15% for Americans who pay taxes (though this is an oversimplification. Our tax code is a mess).This means that the average American household could avoid $150 in taxes for every $1000 they contribute to a traditional IRA each year.

If every tax paying household in America put an additional $1,000 into a traditional IRA for the next 4 years, you would reduce government revenue by about $14,070,000,000 ($14 Billion). For comparison, we now know that Mexico will not be paying for the wall, and that President Trump has proposed a budget of $4-$6 billion to start construction.

The kicker for my liberal friends who feel that taxes usually go to productive government projects? Because you’d be contributing to a Traditional IRA, that money will still be taxed, just  much later when you withdraw it during retirement.. If they’re lucky, it will be put to use by a different administration whose core values are more in line with theirs. Conservatives on the other  hand get to pay less taxes. An easy win for them.

Getting America’s Retirement Savings Back on Track

Oh, and by the way, this whole calculation says nothing about how good this would be for the large number of Americans who have drastically under saved for retirement. We as a nation would collectively save about $9.3 Trillion for the future. $4,000 over 4 years would also represent an average increase of 25% in retirement savings for Americans under 30 and a 6% increase for the Median household in America. At a reasonable rate of growth, that represents a full year of retirement for the average millennial.

Additionally, A grassroots effort to protest via retirement savings also does little to nothing to help the 36% of Americans who have under $500 in savings prepare for retirement. These folks are presumably among the 43% of Americans who are not earning enough to be be taxed, and therefore also are not earning enough to save for retirement.

However, the current administration isn’t doing much to help them either, so for now it is up to us to find other ways to help them save for the long term. Perhaps we can start by framing their wages in annual terms, instead of as hourly wages to help them think long term. You can learn more about how creating a long term mindset can help people save for retirement here.