This paper shows that previous analyses of IRA-type plans have miscalculated their effect on tax revenue and therefore on national saving by ignoring their impact on corporate tax payments. Recognizing the important effect of IRA plans on corporate tax revenue changes previous conclusions about the revenue effects of IRA plans in fundamental ways. The revenue loss associated with IRAs is either much smaller than has generally been estimated or is actually a revenue gain, depending on the time horizon and key parameter values. In addition to analyzing the effects of traditional tax-deductible IRA plans, the paper presents an alternative nontaxable IRA (in which contributions are not deductible and no subsequent tax is levied on earnings or withdrawals) and shows that, for the most plausible parameter values, the net revenue effect is positive in every year. Although each individual participant eventually withdraws all of his own contributions and accumulated earnings from his IRA account, the net impact on the national capital stock of that individual's participation remains positive even after his death because of the favorable cumulative effects on tax revenue. This is true for traditional deductible IRA plans as well as for the nontaxable IRAs.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
4021.
Length: Date of creation: Mar 1992 Date of revision: Handle: RePEc:nbr:nberwo:4021
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References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Gale, W.G. & scholz, J.K., 1992.
"IRAS and Household Saving,"
Papers
9244, Tilburg - Center for Economic Research.
Other versions:
Daniel Feenberg & Jonathan Skinner, 1989.
"Sources of IRA Saving,"
NBER Working Papers
2845, National Bureau of Economic Research, Inc.
[Downloadable!] (restricted)
Other versions:
Daniel Feenberg & Jonathan Skinner, 1989.
"Sources of IRA Saving,"
NBER Chapters,
in: Tax Policy and the Economy, Volume 3, pages 25-46
National Bureau of Economic Research, Inc.
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