The Two-Income Trap by Elizabeth Warren; Amelia Warren Tyagi Read Free Book Online Page A

time for such second thoughts is long past. If she leaves her job, these families stand to lose everything.
    There is a better path out of the Two-Income Trap. Give families some breathing room. As befits a society in which the safety net must be built one family at a time, money in the bank is still the first line of defense against any economic bump in the road. Any program that helps families save money is a program that helps keep the middle class secure. At the moment, the federal government offers a handful of programs that give tax breaks to families who put money aside for specific expenses such as retirement, medical care, or college tuition. 15 These programs certainly sound promising, but they ask families to do something that is almost impossible in a capricious world: They ask them to predict the unpredictable. To take advantage of these programs, families need to know in advance which expenses will hit them and when they will need extra cash.
    What happens when an unforeseen disaster strikes—when Dad loses his job or when Mom asks for a divorce? Families face events that elude all that careful planning. The first line of defense is their all-purpose passbook savings account, an account that is tax disadvantaged. If things get really bad, many families find that the only way to survive is to cash out their retirement accounts. The huge penalty associated with that withdrawal—set in place as a disincentive to withdraw early—doubles the pain. Not only has the family just wiped out any chance for a comfortable retirement, the government just took a hunk of their only savings—at a time when the family was already under extreme financial stress.
    If the standard government policies were turned sideways, instead of asking each family to carve its nest egg into separate little taxadvantaged slices, middle-class families could be rewarded for all savings. All savings—not just savings specifically designated for retirement or education—should be exempt from taxes. Many liberals
have opposed such a change for fear that it would disproportionately benefit the wealthy, who are the only ones with ample savings. 16 But this concern could easily be remedied. The tax change could be implemented on a sliding scale, so that those with modest means could save tax free, while the wealthy continued to be taxed. Or the government could compensate for the lost tax revenues by increasing other taxes on well-to-do households.
    The fear of letting the rich off too easy should not overshadow the fact that middle-class families desperately need to build their own safety nets. America’s personal savings rate has plummeted in the past thirty years, so that it now stands effectively at zero. 17 Encouraging savings shouldn’t be about token programs for one or two specified uses. It should be a concerted government policy aimed at helping families build safety nets strong enough to see them through good times and bad.
    Over the past generation, the Two-Income Trap has left the modern family in a position that is thick with irony. Today’s parents are working harder than ever—far harder than their single-income counterparts of a generation ago—holding down full-time paying jobs and still covering all their obligations at home. Yet, paradoxically, without the safety net once provided by the stay-at-home mother, they are more vulnerable to financial disaster. They have little money left to build their own safety nets, and government policies tax most of their efforts to provide for themselves. They are caught: can’t afford to work, can’t afford to quit, and can’t survive if something goes wrong.
    If the risks of the world had remained exactly the same over the past generation—the same risk of getting laid off, the same odds of getting divorced, the same chance that Grandmother would grow too frail to live without assistance—then the Two-Income Trap would have imposed a moderate dose of hardship on American families as