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.

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