Working Paper: CEPR ID: DP8425
Authors: Kristian Rydqvist; Steven Schwartz; Joshua Spizman
Abstract: A worker can contribute pre-tax dollars to a private pension plan. Under a progressive tax, this feature reduces income taxes. Ippolito (1986} argues that an individual in 1979 can reduce lifetime taxes by 20%. We re-examine his analysis using the complete time-series of US income tax history and find that the tax benefit of income smoothing is much smaller.
Keywords: income tax history; private pensions; tax progressivity
JEL Codes: D91; G11; G18; G23; H24
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Income smoothing (D15) | Reduction in lifetime tax liability (H23) |
| Income smoothing (D15) | Postponement of income tax liability until retirement (J26) |
| Lack of tax progressivity (H29) | Limits the tax benefits of income smoothing (H32) |
| Social security income (H55) | Diminishes potential smoothing benefit (D15) |
| Real interest rates (E43) | Influence on smoothing benefit (C22) |
| Income growth (O49) | Influence on smoothing benefit (C22) |
| Life expectancy (J17) | Influence on smoothing benefit (C22) |