The Ways and Means Committee Pension Tax-Cut Legislation: Unsound Policy That Digs The Nation’s Fiscal Hole Deeper

Peter R. Orszag
Peter R. Orszag Vice Chairman of Investment Banking, Managing Director, and Global Co-Head of Healthcare - Lazard

July 22, 2003

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The mark-up of pension legislation in the House Ways and Means Committee on July 18 generated unusual controversy on procedural matters. This paper examines the substance of the legislation, which the Ways and Means Committee approved and which could come to the House floor later this week or (more likely) after Congress returns from its summer recess.

The legislation is a revised version of a bill introduced earlier this year by Representatives Rob Portman and Ben Cardin. As with earlier Portman-Cardin bills, this measure includes both promising and problematic provisions. Most of the provisions that involve the largest revenue losses, however, represent problematic policy. At a time when the nation faces substantial budget deficits for the foreseeable future, these provisions would make the deficits still larger, primarily by providing additional tax subsidies to high-income individuals. Moreover, most of those individuals would likely save without the new tax breaks, and even without additional tax subsidies they tend to be much better prepared for retirement than other Americans with less income and wealth.

According to the Joint Committee on Taxation, the legislation would cost $48 billion over ten years. This cost is artificially low, however, because some provisions in the bill sunset before the end of the ten-year budget window. In 2010 alone, the legislation would cost $8.6 billion. This indicates that the cost of the legislation would likely exceed $100 billion in the second decade it was in effect.