September 17, 2017
Of course, the paper did not actually warn of the cheap trick the Republicans are considering. It just mentioned it in passing as though it was a serious policy proposal:
“House Republicans are considering a key change to 401(k)s as part of their tax overhaul package: Taxing the money that workers place in their savings plans upfront instead of years later when they take it out in retirement.”
The only possible rationale for taxing money when it is put into a 401(k) account rather than when it is pulled out is to change the timing of tax collections since there will be little net change in revenue over the long-term. By taxing the payments into the system, the government will collect more revenue during the 10-year horizon over which budget projections are made. However, this will be almost completely offset by lower tax collections in later years.
As policy, this makes zero sense. The point of 401(k)s is supposed to be encouraging people to save. There is much research showing that the prospect of an immediate tax saving gives strong incentive to save. This means that eliminating the immediate tax deduction will almost certainly mean less savings in 401(k)s.
There is the advantage that this change will appear to offset the lost revenue from Republican tax cuts for rich people. Unfortunately, most Post readers might not be aware of this rationale for the policy change.
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