The TrumpIRA Looks and Feels Like Obamacare

The Trump accounts do for retirement savings what Obama did for health insurance

Obamacare rally in Washington in 2017. Source: Lorie Shaull, Creative Commons

President Trump hates Obamacare, but the TrumpIRA that he announced today in an executive order has a lot in common with it — only for retirement savings rather than health insurance.

Obamacare was and is a compromise between liberals who wanted a single-payer system — Medicare for all — and conservatives who wanted to stick with a private insurance system. Obamacare reduced the number of uninsured Americans by setting up health exchanges where people could sign up for policies and by providing premium subsidies based on income.

Likewise, the TrumpIRA is a compromise that should increase retirement protection for Americans who work in the private sector but don’t have an employer-sponsored plan. It’s a private-public hybrid that allows people to shop for a plan on an exchange and get a federal match for their contributions.

The federal government will match half of each eligible worker’s contributions up to $1,000 a year. The full match is available only to married couples filing jointly who make at or below $41,000; heads of household who make at or below $30,750; and single filers making at or below $20,500. The amount phases out at higher incomes. Not huge, but better than nothing.

With Trump throwing his support behind the accounts, Republicans in Congress are likely to take the next step and pass some version of the Retirement Savings for Americans Act, which would add three key features: automatic enrollment; a default contribution rate set at 3 percent of a worker’s income; and matching contributions of up to 5 percent

The Retirement Savings for Americans Act is based on a 2021 white paper for the Economic Innovation Group by the liberal economist Teresa Ghilarducci and the conservative economist Kevin Hassett, the director of Trump’s National Economic Council. [Disclosure: I have done some paid editing work for the Economic Innovation Group.]

You never know with these bipartisan projects: They can be loved by both sides or hated by both sides. In this case, it seems more like love.

In an interview today, Ghilarducci said she’s excited about the executive order and prospects for quick passage of the Retirement Savings for Americans Act. She said Trump “basically said that the current system of tax breaks and tweaks, starting with defined benefit plans and defined contribution plans, isn’t working.”

In a statement, the Economic Innovation Group cited simulation work from RAND showing that the Retirement Savings for Americans Act would “enable the lowest earners (those who consistently earn in the bottom 10 percent of the earnings distribution) to save approximately $126,000 over a 40-year working career.” A worker at the median of the earnings distribution could approach $585,000 in savings, it said.

Those retirement savings might actually save the federal and state governments money in the long run, largely because people with more assets wouldn’t need so much government aid, RAND suggested.

Don’t see why Trump had to slap his name on the accounts, but other than that, they’re a definite step in the right direction.