Reducing retirement savings incentives would hurt working families while doing less to cut the federal deficit than the budget hawks predict, pension experts say.
Judy Xanthopoulos, an economist, and Mary Schmitt, a tax lawyer, write in an analysis distributed by the American Society of Pension Professionals and Actuaries (ASPPA), Arlington, Va., that the real cost of the retirement savings incentives is about 55% to 75% lower than the budget hawks have estimated.
Officials at the federal Office of Management Budget have reported — both during the Bush administration and the Obama administration — that tax breaks for 401(k) plans, individual retirement accounts (IRAs) and other retirement plan programs lead to many billions of dollars in lost federal income tax revenue, or “tax expenditures.”
Analysts at the congressional Joint Committee on Taxation (JCT) estimate, for example, that retirement savings incentive tax expenditures will increase to $174 billion in 2013, from $120 billion this year.
Some would be budget-cutters have suggested capping, reducing or even eliminating the incentives as a strategy for controlling the federal budget deficit.
JCT tax analysts and analysts at the Office of Tax Analysis (OTA) at the U.S. Treasury Department now compute retirement savings incentive tax expenditure estimates by measuring the difference between current taxes deferred and revenues received from prior-year tax deferrals, Xanthopoulos and Schmitt write in the ASPPA analysis.
“This cash-flow measure is appropriate for deductions or exclusions from income where the tax benefit occurs in the year of the deduction, but it overstates the value of retirement savings provisions in absolute terms,” Xanthopoulos and Schmitt say.