Study: Closing Tax Breaks Might Not Whittle Much Deficit

Closing some tax breaks may not do as much to solve the deficit problem as previously thought. Projections about retirement plans such as 401(k) accounts are overstated, according to a study by the American Society of Pension Professionals and Actuaries reported in The Washington Post.

Government estimates show a tax loss of about $600 billion over the next five years as a result of the retirement plans. However, the loss of tax revenues to the government may be as much as 77 percent lower than estimates, the study found.

Various tax breaks deny the federal government about $1 trillion a year. The biggest are mortgage interest deductions and tax-free health benefits. However, the amount of taxes lost does not take into consideration how much actually would come back to the government if the tax breaks were eliminated.

Some experts believe that much of the money would end up in other shelters. The estimates are “an accurate measure of the extent to which the preference is being used by taxpayers,” Ed Kleinbard, former director of the congressional Joint Committee on Taxation, told the Post. “But that’s a completely different question than how much revenue could be raised if the preference were eliminated.”

Judy Miller, regulatory affairs director for the American Society of Pension Professionals and Actuaries, said estimates for taxes that could be recouped if tax breaks ended are “very distorted.”

She told the Post that, “if the system were mature, then it might not make much difference. But the system is still growing,” and the “taxes being deferred are far more significant than the amounts being paid out.”