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44 U. Mich. J.L. Reform 83 (2010-2011)
Encouraging Savings under the Earned Income Tax Credit: A Nudge in the Right Direction

handle is hein.journals/umijlr44 and id is 85 raw text is: ENCOURAGING SAVINGS UNDER THE EARNED INCOME TAX CREDIT: A NUDGE IN THE RIGHT DIRECTION Vada Waters Lindsey* During 2007, 3.6 million or 9.7% of people in the United States age 65 or older were below the poverty level. In light of the number of elderly people living below the poverty level, it is important that everyone, including low-income workers, have the opportunity to save for retirement. Low-income workers face many chal- lenges to saving for retirement. The barriers to saving include the lack of access to retirement plans and lack of investment savvy. For example, only 42 % of workers employed in service occupations in the private industry have access to employer re- tirement plans. The percentage drops to 39% for part-time employees. This Article proposes that the earned income tax credit (EITC) be expanded to en- courage saving to help reduce the poverty level. The Article argues that the EITC should be structured to nudge low-income workers to invest in retirement plans and individual retirement accounts to lower the likelihood that they will live below the poverty level at retirement. The Article then discusses the importance of saving and the ways in which the government has encouraged lower income workers to accumulate wealth. Because these efforts have not succeeded in increasing the sav- ings rate of low-income workers, the government must take additional measures to encourage them to save. This Article outlines a detailed plan for the adoption of a saving component to the EITC and outlines the importance of automatic contribu- tions in conjunction with the EITC to maximize the success of the saving component. The plan also includes a government match in certain circumstances but requires forfeiture of the match for early withdrawals. I. INTRODUCTION Generally, retirees rely on the three-legged stool of Social Se- curity, pension plans, and personal savings.' However, while upper-income taxpayers frequently take advantage of the tax in- centives provided by traditional 401 (k) retirement plans and Individual Retirements Accounts (IRAs), lower-income taxpayers * Associate Professor of Law, Marquette University Law School. B.A., Michigan State University; J.D., DePaul University College of Law; LL.M., Georgetown University Law Cen- ter. I am grateful for comments from my colleagues who participated in a Marquette Works- in-Progress Workshop. I am also grateful to Erica Hayden, Marquette University Law School Class of 2010, for her invaluable research assistance. This Article is dedicated to the memory of my dear sister, Veronica Flournoy. 1. Stephen F. Befort, The Perfect Storm of Retirement Insecurity: Fixing the Three-Legged Stool of Social Security, Pensions, and Personal Savings, 91 MNN. L. REv. 938, 939 (2007). 83

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