Friday, September 19, 2008
Charlotte Crane (Northwestern) presents Honoring Expectations about Taxes: Are Roth IRAs Different? at the University of Toronto today as part of the James Hausman Tax Law and Policy Workshop Series. Here is the abstract:
The U.S. Congress has created a situation in which, after 2010, there may be a significant number of taxpayers holding an enormous amount of wealth the return on which they will claim should be permanently exempt from tax. This paper examines the policy choices available to Congress should it come to regret having allowed the creation of these tax-prepaid accounts It focuses first on the general nature of traditional retirement accounts, and the ways in which Congress has and could be expected in the future to alter the terms of these accounts. It concludes that Congress should feel free to change the tax treatment and other terms of these accounts in ways that might significantly affect the value of existing accounts, just as it should feel free to change the tax treatment of any other asset or investment position. It then considers whether there is anything different about the tax pre-paid IRAs, especially those that are converted traditional IRAs. It concludes that although the claims of the holders of these accounts are qualitatively different from the holders of other tax-preferred investments, they should not be viewed as sufficiently different to render such accounts immune from any change. Nevertheless, the potential power of these claims suggests that Congress should avoid creating them in the first place.