Published:
Cambridge, Mass: National Bureau of Economic Research, November 1996
Published in:NBER working paper series ; no. w5815
Extent:
1 Online-Ressource
Language:
English
DOI:
10.3386/w5815
Identifier:
Reproduction note:
Hardcopy version available to institutional subscribers
Origination:
Footnote:
Mode of access: World Wide Web
System requirements: Adobe [Acrobat] Reader required for PDF files
Description:
Pensions are widely thought to be attractive tax shelters which encourage saving for retirement. They allow people to save before-tax dollars and to compound investment returns without current taxation. However, the taxation of pension assets as they are distributed in retirement or as they pass through an estate may turn the shelter into a trap, at least for large pension accumulations. Pension distributions can face marginal tax rates as high as 61.5 percent; pension assets passing through an estate can face virtually confiscatory marginal tax rates between 92 and 99 percent. The analysis of this paper shows the circumstances under which these extraordinarily high marginal tax rates will be encountered. They are not limited to the rich. In fact, people of modest incomes who participate in a pension plan over a long career may face such rates. The paper presents a comprehensive examination of the taxation of pensions and discusses the optimal responses of households to the incentives created by the tax system