More Tax Gimmicks

MORE TAX GIMMICKS….Here’s the latest smoke and mirrors from the Republican tax bill: a provision that allows high-income taxpayers to convert regular IRA’s to Roth IRAs starting in 2010.

Because people would pay taxes on the money converted, the provision would raise an estimated $6.4 billion in tax revenue in 2011 and 2012.

“But there’s a huge revenue loss in the long run” as taxpayers realize profits on their Roth IRAs without paying taxes on them, said Leonard E. Burman, co-director of the Tax Policy Center, a Washington research group.

The proposal’s revenue gains would dissolve by 2018, he said, and the Treasury would give up nearly $100 billion in expected revenue by 2049.

Here’s the gimmick. On a regular IRA, you pay no taxes on contributions, but you do pay taxes when you withdraw money. Roth IRAs are just the opposite. So when you do the five-year projections, this bill makes the deficit look a little better because more people are paying taxes on their contributions in 2010-2012 as they switch to a Roth. But the cost is $100 billion or so in the out years.

But hey. As long as it makes the five-year projection look better, that’s all that matters. If you’re a Republican, anyway.

Washington Monthly - Donate today and your gift will be doubled!

Support Nonprofit Journalism

If you enjoyed this article, consider making a donation to help us produce more like it. The Washington Monthly was founded in 1969 to tell the stories of how government really works—and how to make it work better. Fifty years later, the need for incisive analysis and new, progressive policy ideas is clearer than ever. As a nonprofit, we rely on support from readers like you.

Yes, I’ll make a donation