The Senate Finance Committee opens hearings this week on why Americans have stopped saving. Last year's savings rate was negative -- meaning American households saved nothing and went into debt -- for the first time since the Great Depression. So far this year, the savings rate has remained negative.
The question is why. You'd think the savings rate would increase as America's huge baby-boom generation came into their prime earning years, with retirement nearly in sight. Seventy-six million Americans born between 1946 and 1964 have to save big time to create nest eggs large enough to take them through retirement and decrepitude. But they aren't saving.
You'd think that the stock market recovery would spawn more savings. With the Dow breaking through the 11,000 barrier, more people have more wealth. But that hasn't increased the savings rate.
You'd think the economic recovery would lead to more savings. We're in the fifth year of an expanding economy. Corporate profits have nearly doubled since 2000. But ordinary workers aren't saving a thing.
The answer is most Americans don't save because they can't save. Despite the surge in corporate profits, the median wage (half of Americans earning more, half earning less) has gone nowhere. In fact, if you figure in the effects of inflation, you find that most peoples' wages and benefits have been dropping. Add in the soaring costs of health care and fuel, and the picture is even worse. Americans aren't saving -- they're going into debt -- for the simple reason they're earning less and have to spend more.
So America's so-called "savings crisis" has a lot to do with what's happened -- or, more precisely, what has not happened -- to corporate profits. Companies no longer share nearly as much of their profits with their typical employees as they used to. This is because their typical employees no longer have the bargaining clout they used to.
These days, anybody who insists on a higher wage can be replaced by someone in another country who'd be happy to have the job at a fraction of that wage. Alternatively, any impertinent employee can be replaced by a computer and a software program that can do the job more cheaply. The result is that no one other than top executives is getting a raise.
Meanwhile, labor unions can't increase the bargaining power of ordinary workers because unions are weaker than they've been in seventy-five years. Union membership has fallen to under 8 percent of the private-sector workforce.
Given all of this, how do we increase household savings? The administration wants to make saving more attractive by expanding tax-deferred savings plans, such as Keoghs, IRAs, and 401-Ks. The idea is to increase the amounts of money can be squirreled away without paying taxes on it now.
These plans are great for people with lots of extra taxable income. But if you're like most people, you don't have much taxable income. You don't even itemize your deductions. And you certainly don't have much extra money to squirrel away.
Here's a more home-spun idea for increasing household savings. Companies should raise the wages of their employees and put the raises into 401-K accounts. With profits nearly doubling since 2000, corporations can give their workers raises without raising prices. As an inducement, the government should give companies a tax break equal to, say, a quarter of the employee savings they generate.
This plan would be a cheaper and fairer means to increase household savings than doling out more tax breaks to the rich. And it would have the added benefit of allowing millions more Americans to retire with a nest egg.
Robert B. Reich is co-founder of The American Prospect. A version of this column originally appeared on Marketplace.
