November 24, 2009
Helping Families Save
The United States has historically had one of the lowest personal savings rates in the world. Whereas developed countries in Europe and Asia often have national savings rates around 10%, our personal savings rate has gone so far as to dip into negative territory in recent years after embarking upon a steady drop beginning in the late 1980’s.
Obviously, today’s economic times make it extraordinarily difficult for families to save when they are already struggling to pay the bills. Yet, saving rates have actually surged during this recession. Americans are taking protective actions in uncertain economic times.
State policies can help families with long-term savings and investments. Sensible retirement plans should be exempt from taxation. Encouraging savings not only helps improve quality of life for retirees, but it lessens the dependency on government already financially strapped.
Legislation is currently circulating in the State Legislature seeking to encourage and incentivize savings in retirement plans and Individual Retirement Accounts (IRAs). This legislation would amend Wisconsin’s income tax laws to conform to federal tax laws. Federal law allows the deferral of federal taxes for contributions to IRAs of up to $6,000 and up to $16,500 to 401Ks. If the proposed legislation is not enacted, Wisconsin tax law will revert to 2001 levels beginning in 2010, which would allow for contributions up to $2,000 to IRAs and $7,500 to 401Ks.
Wisconsin taxpayers that make maximum contributions to their retirement accounts under federal law would be taxed under state law for exceeding state contribution limits. This discrepancy not only creates complications for taxpayers, but discourages savings through increased taxes.
As a co-sponsor of this legislation, I believe incentivizing savings and removing barriers for citizens to contribute to their retirement is sound economic policy. State tax laws should not hinder individuals to plan and save for their future.
Let me know what you think about incentivizing retirement savings. You can visit my website, www.harsdorfsenate.com, to offer your opinion, take my online polls, or visit my blogs on issues before state government.