Are government experts slightly cooking the books when it comes to stating the real costs of federal retirement tax incentives?
Research released Monday by ASPPA suggests that the accounting process used by two federal tax policy watchdogs is flawed and is considerably overstating the savings possible by dropping such retirement incentives – par for the course in an election year, but not at all in the best interest of employees.
The release comes a day before ASPPA's Judy Miller, director of retirement policy and chief of actuarial issues, is set to testify before the House Ways and Means Committee and its hearings on tax reform and tax-favored retirement accounts, a divisive subject.
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"We urge the Committee not to dismantle what's working with our retirement plan system and put the retirement future of American workers in jeopardy," said Brian H. Graff, ASPPA CEO and executive director. "The amount of perceived revenue that would be 'raised' by cutting retirement savings incentives is a paper fiction. As we try to make sense of our nation's budget, let's start by making sure our analysis is based on numbers that make sense."
Judy Xanthopoulos, a former Joint Committee on Taxation economist, and tax attorney Mary Schmitt, conducted analysis of the methods used by the JCT and the Treasury Department's Office of Tax Analysis, and say that methodology considerably overstates the savings possible if the incentives were removed.
At present, they note, the method ignores the fact that money contributed on 401(k) plans is taxed on the way out, but that the budget is scored on a cash basis with a 10-year budget window.
"Since retirement contributions typically are not all distributed within this 10 year window – the scoring disproportionately reflects the tax cost of the contribution without offsetting the tax revenue that is shared with the U.S. Treasury upon distribution," ASPPA notes.
Instead, using present-value analysis, the researchers said the five-year cost of retirement savings tax expenditures are actually 54 percent less than those formulated by both the JCT and the OTA.
Tuesday's hearing, headed by Congressman Dave Camp (R-MI), chairman of the Ways and Means Committee, will be digging into a series of proposals aimed ostensiably at simplifying and improving overall participation in DC and IRA retirement savings plans in America.
"While many argue that the existing menu of tax-favored retirement plans provides choice and flexibility for familes and employers alike, others have questioned whether the ad hoc development of retirement savings incentives has led to undue complexity and inefficiency that reduce the effectiveness of these incentives," Camp said.
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