Boskin Scenario, Revisited
By Arnold Kling
Will deferred taxes on IRA’s and similar savings plans save the Federal Budget, as a recent draft paper by Michael Boskin seemed to suggest? Not according to William G. Gale , Alan J. Auerbach , and Peter Orszag.
Boskin’s projections of revenue from tax-deferred accounts have only a very modest effect on the long-term fiscal outlook because almost all of the relevant revenue is already incorporated into the revenue projections that generate sizable fiscal gaps…We also find that his estimated overall budgetary effect is substantially overstated.
Also, Steve Antler quotes a letter from Boskin.
The term for the share of after-tax withdrawals consumed was inadvertently dropped from the investment equation. While the qualitative discussion remains valid, this did lead to a considerable overstatement of future deferred taxes. I am in the process of correcting this problem, but as the preliminary draft, circulated for comment, has gotten into the public domain (given the Internet age, people have been citing and writing about it before I have had a chance to correct it), I especially want to alert you well before the revised draft is ready for Working Paper status.