IRA's to the Rescue?
By Arnold Kling
Roughly $400 billion a year is contributed to various tax-deferred saving vehicles, and the amount is likely to grow with nominal income growth and the increased limits on tax-deferred contributions recently passed into law. Immense additional future deferred taxes, larger than the long-run actuarial deficits in Social Security and Medicare, will accrue on these new contributions and their nominal returns plus the future returns on already accumulated balances.
Boskin is describing future tax payments from IRA’s and other tax-deferred savings accounts. As people reach retirement age and make withdrawals from these accounts, they have to start paying taxes. Boskin suggests that these future tax payments are not being counted in revenue forecasts, leading to large under-estimates of future government revenue.
For Discussion. Boskin is saying that government tax receipts will rise relative to GDP because of the effects of future withdrawals from IRA’s and similar accounts. Given that Social Security and Medicare will require larger tax receipts as a share of GDP in the future, does Boskin’s discovery “solve” the Social Security and Medicare crisis?