Research Report Reassessing the Fiscal Gap
The Role of Tax-Deferred Saving
Alan J. Auerbach, William G. Gale, Peter Orszag
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A variety of recent studies have found that the United States faces a substantial fiscal gap -- that is, a sizable imbalance between projected federal outlays and receipts. A recent study by Boskin (2003) suggests these findings are overstated because they largely or entirely omit projected revenues from tax-deferred saving plans. This paper reassesses estimates of the long-term fiscal status of the United States in light of Boskin's analysis and draws three principal conclusions. First, the nation continues to face a substantial long-term fiscal gap, as conventionally estimated. Second, Boskin's projections of revenue from tax-deferred accounts have only a very modest effect on the long-term fiscal outlook because almost all of the relevant revenue is already incorporated into the revenue projections that generate sizable fiscal gaps. Third, the primary focus of Boskin's analysis is the overall effect on the budget from retirement accounts -- not how much of that effect is already included in the budget projections. We also find that his estimated overall budgetary effect is substantially overstated.
Research Areas Economic mobility and inequality Taxes and budgets
Tags Fiscal policy Federal budget and economy