DP8425 The Tax Benefit of Income Smoothing

Author(s): Kristian Rydqvist, Steven Schwartz, Joshua Spizman
Publication Date: June 2011
Keyword(s): income tax history, private pensions, tax progressivity
JEL(s): D91, G11, G18, G23, H24
Programme Areas: Financial Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=8425

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.