On April 11, Representatives Rob Portman and Ben Cardin introduced legislation to make changes in the tax laws governing pensions and Individual Retirement Accounts (IRAs). As with earlier Portman-Cardin proposals, this legislation includes a mix of promising and problematic provisions. Most of the provisions that involve the largest revenue losses, however, represent problematic policy. At a time when substantial budget deficits loom as far as the eye can see, these provisions would provide additional tax subsidies to high-income individuals who would likely save without these new tax breaks and who already tend to be much better prepared for retirement than other Americans with less income and wealth.
The revenue losses that these provisions would engender would exacerbate the already dire fiscal outlook. Although an official revenue estimate is not yet available for the legislation, Representative Portman has indicated that the bill as a whole would cost more than $100 billion over the next 10 years. Such costs would presumably be on top of the $350 billion to $550 billion in reconciliation tax cuts allowed by the recently adopted budget resolution. In the face of large budget deficits, there is serious doubt that the nation can afford the costly and not-well targeted subsidies the legislation includes.
Among the provisions in the new Portman-Cardin legislation that involve the most substantial revenue reductions are: the acceleration of scheduled increases in the amounts that can be contributed to 401(k)s and IRAs; an increase from $160,000 to $220,000 in the income limit for contributions to Roth IRAs by married couples; expansions in income limits for contributions to traditional IRAs by married couples; making permanent all of the pension and IRA provisions from the 2001 tax act; and a weakening of the “minimum distribution” rules intended to ensure that tax-advantaged retirement accounts are used primarily to finance retirement needs, rather than for other purposes such as estate planning by wealthy individuals. These proposals would provide substantial additional tax subsidies to upper-income households who least need additional help in preparing for retirement, while providing little or no benefit to the majority of families struggling to save for retirement.