According to a new report by the Congressional Research Service, the “cost” of the retirement savings tax deferral for traditional IRAs and retirement plan contributions for the self-employed is estimated at $14.9 billion in 2013 and is projected to increase to $17.6 billion in 2014 — an increase of 18%. The CRS, which provides exclusive policy and legal analysis to members of Congress, included the estimated and projected deferral numbers in a report detailing the projected costs of individual tax deductions in the tax code for 2014. The report did not explain CRS’ rationale for setting the projected increase at 18%.
What the report fails to mention is that the tax incentives for retirement savings — unlike the home mortgage interest deduction, the deduction for state and local taxes or the deduction for charitable contributions — are a deferral of taxes, not a tax deduction. Income that is deferred into a retirement plan today will still be taxable when the funds are received in retirement.
Reports like this are a reminder that NAPA needs to keep educating members of Congress about the importance of the tax incentives that power the private employer-based retirement system. The tax incentives for retirement savings have been successful in providing retirement benefits for tens of millions of American worker and their families. Defined contribution plans, including 401(k)s, encourage workers at all income levels to save. That’s why they have become the primary vehicle for building financial security in retirement for American families. Reducing these tax incentives would in many cases reduce the cash that small business owners have to work with, resulting in fewer plans or lower employer contributions, thereby putting the retirement security of American workers at risk.
Andrew Remo is ASPPA’s Congressional Affairs Manager.
