The majority of workers don’t have employers who offer them retirement accounts, and the ones who do are lucky: They’re the ones the U.S. Treasury helps the most. In a given year, more than $120 billion in federal money goes towards subsidizing retirement plans, mostly 401(k)s and IRAs. States have some similar rules, which result in an additional $20 billion a year of these subsidies, which come in the form of tax breaks that are the second-biggest tax expenditure, after health insurance. (These tax breaks are larger even than those devoted to mortgage deductions.)
On the surface, this seems like a good thing: The government recognizes that saving up for retirement is important, so it’s incentivizing workers to do that by letting them pay less tax on what they put into their retirement accounts. The problem, though, is how the perks of these tax breaks are distributed: Most of the subsidies go to the top earners, the middle class gets the meager remainder, and taxpayers across the board foot the bill.
The reason that these benefits are distributed so unevenly has to do with the fact that they come in the form of tax breaks. For someone who earns a lot of money and is thus in a higher tax bracket, not having to pay taxes on, say, $2,000 is going to be a lot more valuable than it is for someone who earns less money and is thus in a lower tax bracket. As a result, the highest earners, who tend to max out their contributions to retirement accounts, get about $7,000 per year in tax breaks, and the middle class averages about $400 per year. Low-wage workers, who usually aren’t putting money into these accounts, usually get nothing.