Evaluate the effectiveness of the proposal to change the 401K contribution struc

Question

Evaluate the effectiveness of the proposal to change the 401K contribution structure. 1. Do you believe that the proposal to limit contributions and to tax them beforehand rather than n withdrawal is economically efficient or not? Please explain your answers thinking about efficiency on a larger economic level. 2. Would there be an impact on overall savings in the economy? If so, what would that impact be? How might the possibility of a lower savings rate impact economic growth in the long term? If 45 percent of Americans have not saved for retirement at all, what might the affect of this proposal on that trend be? Please be specific. In what specific ways might economic growth be affected? 3.

Explanation / Answer

Yes, this will be economically efficient. This is because it will reduce tax evasion. Since at tax has been deducted at source the overall result would be increase in efficiency. This will bring additional revenue because tax evasion has been reduced . Government can use the additional revenue for welfare programs or for creating infrastructure. Both of these will eventually boost economy by creating and increasing aggregate demand and thus raising economy growth trajectory.

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