February 12, 2013
Tax Policy Center Hosts Program Tomorrow on Time to Rethink Retirement Saving Policy?
The Tax Policy Center hosts a program tomorrow on Tax Expenditures and the Deficit: Time to Rethink Retirement Saving Policy?:
As policymakers continue to search for ways to shore up the nation’s fiscal status, tax subsidies may be ripe for the picking. Tax subsidies for retirement saving account for more than $90 billion annually in lost Treasury revenue. New research suggests that the tax subsidy for contributions to retirement accounts only affects the behavior of certain financially sophisticated households and does not raise overall saving significantly, however, automatic enrollment can raise both retirement saving and overall saving. Over 60 million Americans participate in 401(k) plans. Are there less expensive, more progressive ways to generate the same or more retirement saving and overall saving than the current tax treatment of contributions to retirement accounts? ...
[A] new study ... examines whether a nudge or a subsidy is a better way to increase saving. [Active vs. Passive Decisions and Crowd-Out in Retirement Savings Accounts] The study also draws crucial distinctions between active and passive savers and the implications of the two groups for retirement saving policy. Speakers include study co-authors Raj Chetty and John Friedman of Harvard University, as well as Director of the Retirement Security Project William Gale.
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Thank you Paul for announcing this the day before it happens. People often read same-day announcements hours after the event, leading to frustration.
I'll be interested to see whether the presenters at this conference score the revenue loss using the traditional 10-year budget horizon. Although that method is standard for budget analysis, it essentially ignores the loss of future revenue from withdrawals, which are 100% taxable under the current rules and which would become tax-free after elimination of deferral.
Changes to deferral policy should be scored according to Present Value rather than using a 10-year horizon. The presenters are smart enough to know this. If they nevertheless use the 10-year horizon I will interpret that decision as ideologically motivated.
Partisans on the right have been just as guilty in this area. Their use of the 10-year horizon for scoring was an intentional error that made creation of Roth accounts appear to be a good deal for the government when the opposite was true.
Posted by: AMTbuff | Feb 12, 2013 2:36:47 PM
Just great. They told us in the 80s don't rely on SS, so we save. Now that we saved, sorry, we can spend it better and you don't need that much for retirement.
Posted by: Sandy P. | Feb 12, 2013 3:34:51 PM
I listened to this program and was surprised by Bill Gale's exposition of the fairness of deferral. He pointed out that it taxes income as it is consumed rather than as it is earned. It is a form of income averaging, improving horizontal equity.
Some audience questions were based on the faulty accounting I mentioned previously, but the presenters did not embrace that premise. Their conclusions did not rely on revenue effects at all. "Tax Expenditures" should probably have been omitted from the title since that subject was not discussed.
Posted by: AMTbuff | Feb 19, 2013 2:35:04 PM