Everybody's Got One
A blog. An opinion. An elimination orifice. A dream. An agenda. A past. A hidden talent. A conceptual filter. A cross. A charism (often the same). A task. A wound. A destiny. A lost love. A blind spot. A bad habit. A secret. A passion. A soul ... okay, maybe not everybody ...
Wednesday, June 25, 2003


Econopundit may have found some sources to whom Boskin's paper is old hat, but it's certainly news to me. And, I suspect, to most people. $12 Trillion - with a T - in anticipated tax revenues, currently off the books.

I'm interested in what this means on the individual, micro level. Some implications I can see so far:

All those people who “didn't count on” Social Security in making their retirement calculations probably didn't count on the tax liabilities, either. “Lucky” for them, they may get to use Social Security to pay the income taxes on distributions from their tax-deferred retirement accounts. Which could increase the attractiveness of delaying Social Security – also likely to be taxed, for those with additional income streams – until age 70, about the time required minimum distributions begin.

That third leg of the three-legged stool – private, after-tax savings – starts to look a lot more attractive now, doesn't it?

Intergenerational conflict may diminish, but intragenerational will surely start heating up. All us boomers who became good little ants look to wind up supporting (with taxes paid into general revenue and used to meet Social Security shortfalls) the grasshoppers of our generation. And won't their smug, superior self-indulgence be irritating then.

Tax law isn't static. Last year's proposed Lifetime Savings Accounts – dropped like a hot rock to get the dividend cut through – will be back, with an increasingly vocal constituency. Taxpayers who didn't directly benefit because their dividend-paying holdings are in tax-deferred accounts will have a personal stake in changing the tax treatment of the accumulated gains inside them. That's not just the Investor Class - that's half of all households. And with an expected continuing Republican Congress – in the House perhaps until after the next census – some adjustments are likely. The “fair” way would be to apply capital gains rates to anything in excess of contributions ... but how many people have the records to calculate their basis in a TDRA? (Well, I do, but I'm anal.) And what about employer matches? What treatment should they get? What treatment will they get?

Last but hardly least, everyone with tax-deferred savings of any kind – IRA, 401k, 403b, 457, TSA, Keogh ... and that's pretty much everyone these days – should adjust their personal balance sheet/net worth figure to account for the tax liability. This could range from the simple (and very rough) technique of applying their current marginal rate to the current balance, to calculating PV of expected taxes on the minimum distributions after an expected rate of return for x years ... also only a rough estimate, with a lot of assumptions. But necessary.

posted by Kelly | 2:52 PM link