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Originally posted by Sidd Finch
In theory that is true but in practice I'm not certain. I believe that a significant number of people do not take full advantage of 401ks even now -- either because they are ignorant, or because they feel they can't afford it.
It is very possible that the most significant effect of expanding 401k options will be that people who already save a lot of money will shift those savings from taxable to tax-advantaged accounts. If someone is not using their 401k now, or not putting away the full amount, how will raising the limit change their behavior?
The net result of savings being shifted would be no increase in the savings rate, but a decrease in tax revenues. The decrease in tax revenues, in turn, results in higher deficits, and that in turn only makes the long-term problems facing SS more serious.
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There is actually a middle path. Make SS a true welfare program, need-tested, and unsupported by a separate tax system. At the same time, engae in a major public relations effort to get people to take the money that used to be withheld for SS and instead put it into a 401(k). If people have the opportunity to put money they are used to not receiving into a retirement account, they may be more likely to save it.
