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Thursday, March 27, 2014

Brennan Presents Smooth Retirement Accounts at Boston College

BrennanThomas J. Brennan (Northwestern) presented Smooth Retirement Accounts at Boston College yesterday as part of its Tax Policy Workshop Series hosted by James Repetti and Diane Ring and funded by the Paulus Endowment for Tax Programs:

I introduce the concept of “smooth retirement accounts” (SRAs) to provide a method for taxing retirement savings evenly over time. I contrast this with the back-loaded taxation of traditional accounts, and I use lifetime utility maximization models to demonstrate that future non-linear and uncertain tax brackets can distort savings incentives and portfolio allocations for traditional account holders. I also contrast SRAs with the front-loaded taxation of Roth accounts, and I argue that SRAs would bring a reasonable portion of retirement account taxes into the current budget window without leading to the extreme result of Roth accounts that leave no tax receipts beyond the year of contribution. Because SRAs can eliminate investment and savings distortions for taxpayers, as well as help set government budgetary incentives correctly, I recommend that they be created by Congress as a replacement for the current choices of Roth and traditional accounts.

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