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Comparing Deficit Reduction Proposals Impact on Retirement Policy

admin | July 27, 2011 | 0 Comments

As Congress faces an August 2 deadline to raise the debt ceiling, there’s a growing influx of proposals to curb the growing national debt.

How do Retirement Plans—incorrectly scored by ignoring taxes paid upon future retirement— fare in the myriad of budget proposals? (ASPPA Tax Expenditure Study—May 2011)

ASPPA created the following chart to highlight the differences between the recent proposals.

ASPPA CEO Brian Graff sums up the issue:

“We applaud Congressional attempts to reduce the deficit, lift the debt ceiling, and balance the budget in a way that secures our nation’s future. However, including retirement savings tax deferrals in the same category as permanent deductions and exclusions may put American workers retirement security in jeopardy and not reduce the long-term deficit as expected because the proposal relies on inflated numbers.

In reality, traditional retirement savings tax incentives don’t eliminate income tax on retirement savings, they defer payment of income tax until workers retire and benefits are paid out. The cost of the incentives is overstated because most of the deferred taxes will be paid after the short-term window used in Washington’s budget scoring. Failure to recognize this bad budget math could decimate savings rates where Americans save most—at work. (ASPPA Tax Expenditure Study—May 2011)

We urge Congress to tread carefully. Raising short-term revenues by reducing the tax deferral incentives created to provide retirement security for millions of American workers and retirees is not in the long-term interest of American workers or their children.”

For more about the issue read the article by Washington Post economics reporter Lori Montgomery.
”Study: Closing tax breaks for retirement would do little to help budget”