About | HeinOnline Law Journal Library | HeinOnline Law Journal Library | HeinOnline
LOG IN
LOG IN

138 IRET Congressional Advisory 1 (2002)

handle is hein.taxfoundation/iretcgadv0135 and id is 1 raw text is: INSTITUTE FOR RESEARCH ON THE ECONOMICS OF TAXATION IRET is a non-profit 501 (c)(3) economic policy research and educational organization devoted to informing the public about policies that will promote growth and efficient operation of the market economy. October 9, 2002 Advisory No. 138 INVESTOR RELIEF BILLS WORTH PASSING The House Ways and Means Committee has approved two bills aiding savers. The bills would help the economy and would be good tax policy. H.R. 1619 would raise from $3,000 to $8,250 the amount of capital loses that individuals may deduct against other taxable income each year, effective in 2002, and would index the amount for inflation, rounded up in $50 increments, thereafter. That loss limit has not been raised since 1978. This is a modest increase, barely keeping up with inflation (and falling far short of the rise in the stock market and the growth of income and the economy, which would justify more than twice that new level). H.R. 5558 would move forward the increased deductions permitted for individual retirement accounts and pension plans being phased-in under the 2001 tax cut, and would raise the age at which taxpayers are required to begin drawing money from their retirements accounts. The 2001 tax cut scaled up the maximum IRA deduction to $5,000 by 2008; the Ways and Means bill will move that forward to 2003. The limit on 401(k) and other deferred compensation plans, scheduled to reach $15,000 in 2006, would also be moved forward to 2003, as would scheduled increases in the additional contributions to IRAs of $1,000 and to pension plans of $5,000 for people over age fifty. The bill would raise the age for required minimum distributions from IRAs, now 70-1/2, to 73 in 2003, 74 in 2005, and 75 in 2007. Expanding IRA and pension contribution limits and extending the age for mandatory withdrawals would move the tax system a bit closer to its saving-consumption neutral ideal. An ideal reformed tax system would grant all saving tax deferred status (or equivalently, give it Roth IRA treatment - no deduction, but tax exempt withdrawals) with no limits on contributions and no mandatory distributions at any age (or penalties for early withdrawal). The expanded loss deductions being proposed are also consistent with a saving- deferred tax, in which stock purchases would normally be deducted in the year made, and sales proceeds would be taxed in the year received. The saving incentives would help some 40-plus million households with IRAs and over 40 million holders of 401(k) plans cope with the current sagging stock market. Just as important, they would boost national saving, lower the cost of capital, encourage investment, strengthen the economy, and increase wages and employment. Higher wages and employment made possible by the larger stock of capital and stronger economy would help even those workers who do not currently participate in saving plans by boosting their current income and by creating more favorable opportunities to save in the future. The whole population would benefit. Critics who claim that higher capital loss deduction limits would encourage selling and lower the stock market are wrong. The provision would make stock ownership safer and more attractive, boosting share values. Saving is beneficial for the economy, whatever the age of the saver. Most people who reach age 70 will still be alive at age 80, and large numbers will A * I 66~ I ~6I

What Is HeinOnline?

HeinOnline is a subscription-based resource containing thousands of academic and legal journals from inception; complete coverage of government documents such as U.S. Statutes at Large, U.S. Code, Federal Register, Code of Federal Regulations, U.S. Reports, and much more. Documents are image-based, fully searchable PDFs with the authority of print combined with the accessibility of a user-friendly and powerful database. For more information, request a quote or trial for your organization below.



Contact us for annual subscription options:

Contact Us

Already a HeinOnline Subscriber?

Log In

profiles profiles most