Tuesday, May 13, 2014
Norman P. Stein (Drexel) & John A. Turner (Pension Policy Center, Washington, D.C), Equity in the Distribution of Tax Preferences for Pensions: Capping the Amount Allowable in Tax-Preferenced Retirement Plans, 15 Fla. Tax Rev. 87 (2014):
This paper proposes setting a cap on the amount an individual can hold in tax-preferenced defined contribution plans and IRAs of $5 million, indexed for inflation. This simple proposal would improve the equity of the distribution of tax preferences in the pension system. The discussion has not fully detailed how the proposal might be implemented, but has instead focused on the concept and the broad outlines of the proposal. The proposal is in keeping with the intent of Congress and the tax and pension policy communities to limit the maximum tax preference an individual can receive on a pension plan. It is similar in concept to a limitation in pension law in the United Kingdom. The proposal would be relatively easy to enforce. The proposal would result in an increase in taxes paid by some wealthy people, without an increase in marginal tax rates.
The paper also briefly discusses some alternative approaches that merit consideration. Each of the proposals would increase tax equity and would address the perception that wealthy individuals in the United States enjoy special tax preferences that are not open to most Americans. It would also raise some additional tax revenues in a time of budgetary stress.