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.