Retirement Preferences Impact on National Debt

Reducing or eliminating the current tax preferences given to retirement savings is among the many proposals floated to help offset the cost of extending the soon-to-expire 2017 tax cuts. Under current law, taxpayers who participate in 401(k)s are permitted to reduce their taxable income by $23,500 in 2025 ($31,000 for taxpayers aged 50 and older who make catch-up contributions). The IRA pre-tax contribution limit is $7,000 ($8,000 for taxpayers 50 and older). The Joint Committee on Taxation (JCT) has estimated that the tax preferences given to retirement accounts will cost the federal government roughly $2.31 billion in lost revenue between 2024 and 2028, thus contributing to the national debt by reducing the amount of revenue collected by the federal government.

We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about whether the tax preferences given to retirement savings accounts has a negative impact on the national debt.

Below is a summary of the debate that ensued between the two professors.