Using a dynamic life-cycle model, we show how ‘Rothification’ – that is, taxing 401(k) contributions rather than payouts – will alter saving, investment, consumption, and Social Security claiming patterns. We show that taxing pension contributions instead of withdrawals leads to delayed retirement, somewhat lower lifetime tax payments, and relatively small reductions in consumption. Overall, we find few reasons for policymakers to favor taxing pension contributions versus pension payouts on egalitarian or revenue-enhancing grounds. Research by Vanya Horneff and Raimond Maurer of Goethe-Universität Frankfurt, and Olivia S. Mitchell of The Wharton School via Journal of Pension Economics & Finance.…Read More
