A new study from ASPPA says the potential savings projected by the Joint Committee on Taxation and the Treasury Department’s Office of Tax Analysis by eliminating tax breaks for 401(k) plan contributions are overstated by as much as 77%.
Federal budget negotiators on the committee and at Treasury have said an estimated $67 billion could go into government coffers in 2012 alone by eliminating tax breaks for 401(k) plan contributions.
But their accounting is flawed, according to the study commissioned by the American Society for Pension Professionals and Actuaries, Arlington, Va. Measuring the difference between current taxes deferred and revenues received from prior-year deferral “overstates the value of retirement savings provisions,” the study states.
The better method would be to measure savings “on a present-value basis, which would help policymakers understand the lifetime tax benefits,” the study said.
“It’s really robbing from future tax revenues,” said Judy Miller, ASPPA director of retirement policy. She argues that the better calculation of tax expenditures is over the lifetime of the 401(k) accounts. “This is a tax deferral, not an exemption,” Ms. Miller said in an interview.
Officials from the committee or Treasury were not available for comment at press time.
“It has always been a flawed methodology,” agreed Edward Ferrigno, Vice President of Washington Affairs for the Profit Sharing/401k Council of America, in an interview. “We really should be looking at the end result.”