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January 21, 2004

Bush Savings Accounts- Theft from Future

For pure intergenerational assault, it's hard to beat Bush's proposed expanded savings accounts.

The idea is to build on the Roth IRA idea to create "Lifetime Savings Accounts" that would allow expanded tax-free distributions in the future. What's nasty about them (and Roth IRAs in general) is that they cost government today relatively little-- income earned today that's put into them is taxed normally, but FUTURE Congresses are theoretically barred from taxing accumulated wealth built up in them.

The long term effects on the budget would be enormous:

The Urban Institute-Brookings Tax Policy Center examined the proposal in last year’s budget and found it would grow sharply in cost over time, with the revenue loss ultimately reaching the equivalent of more than $50 billion a year. Over the next 75 years, the cost of the proposal would be equal to half of the long-term Social Security deficit.
If they operate like Roth IRAs, and can be inherited by children, they will create a whole feudal class of rich people existing tax-free, even as workers income will inevitably have to be taxed more to make up the difference.

Unfortunately, the 2001 law already plans to expand the Roth concept to the 401(k) pension system, so that danger will be partially realized, as I noted in this older column.

In the long run, these tax-free savings accounts are possibly THE largest threat to economic equity in the tax code. They need to be fought with every progressive effort possible.

Posted by Nathan at January 21, 2004 07:20 AM