Discouraging Retirement Savings Is No Way to Reduce the Federal Deficit

Kathryn Nix / June 01, 2011

It’s a fact that runaway spending, not lack of revenue, is the cause of long-term federal deficits. Still, some continue to push for higher taxes to solve the problem. A favorite tool of would-be revenue raisers is to eliminate “tax expenditures”—revenue the federal government “forgoes,” they say, due to tax preferences given to priorities like employer-sponsored insurance, mortgage interest payments, and contributions to retirement accounts. (Of course, since the money was never Uncle Sam’s to begin with, it’s inaccurate to say the federal government is somehow deprived by collecting less revenue.)

Eliminating certain tax expenditures, however, would not raise enough revenue to fix the problem, and it would discourage behavior that is good for the economy and for Americans’ financial security.

Removing the tax preference for retirement plans in particular would do more harm than good. (more…)