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Comment by rada | Hacker News Reader

The actual paper is here:

http://www.kotlikoff.net/sites/default/files/Does%20It%20Pay...

and perhaps the most practical bit is here:

The paper provides four main takeaways. First, thanks to the incredible complexity of the U.S. fiscal system, it's essentially impossible for anyone to understand her incentive to work, save, or contribute to retirement acounts absent highly advanced computer technology and software. Second, the U.S. fiscal system provides most households with very strong reasons to limit their labor supply and saving. Third, the system offers very high-income young and middle aged households as well as most older households tremendous opportunities to arbitrage the tax system by contributing to retirement accounts. Fourth, the patterns by age and income of marginal net tax rates on earnings, marginal net tax rates on saving, and tax-arbitrage opportunities can be summarized with one word - bizarre.

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I don't get the arbitrage takeaway? I thought that income tax was only a part of the puzzle. Maybe half. The other taxes you pay aren't affected by what you put in retirement accounts.

Tax arbitrage means using the difference in tax rates to make extra money. If the tax rate when you contribute to a tax-deferred investment account is higher than the tax rate when you pull the money out, voila, you've profited from tax arbitrage. So I am not sure why you are thinking of income vs. other taxes. The authors are simply saying, if you are a high earner in a top federal tax bracket, it really pays to put money into tax-deferred investments.

OK, I thought the takeaways were implying that you were finding some inefficiency in the system. Rather they were simply saying that retirement accounts work as advertised.

Just an odd takeaway, since that's the expressly stated purpose of most retirement accounts. But fair enough.

The strange thing here is that retirement accounts with a tax deferment policy benefit the higher earners much more than they benefit people in lower tax brackets.

This isn't very consistent when the social issue that has really driven these polices into existence is trying to convince lower earners to save for retirement so that the state doesn't have a huge outgoing on pensions etc.

> First, thanks to the incredible complexity of the U.S. fiscal system, it's essentially impossible for anyone to understand her incentive to work, save, or contribute to retirement acounts absent highly advanced computer technology and software.

If the article is arguing that everyone pays roughly the same taxes, that would mean we have a de facto flat tax anyway so the incentives should be clear.

> Second, the U.S. fiscal system provides most households with very strong reasons to limit their labor supply and saving.

That would mean unemployment would be low, given the lower labor supply.

> Third, the system offers very high-income young and middle aged households as well as most older households tremendous opportunities to arbitrage the tax system by contributing to retirement accounts.

If one had a crystal ball, yes. Marginal tax rates are at some the lowest in 60 years, so it is entirely possible that they will be higher at the time of retirement withdrawal.

> Fourth, the patterns by age and income of marginal net tax rates on earnings, marginal net tax rates on saving, and tax-arbitrage opportunities can be summarized with one word - bizarre.

Doesn't sound very objective.

  thanks to the incredible complexity of the U.S. fiscal system, 
  it's essentially impossible for anyone to understand her incentive to work

The second line is true regardless if the first. Under what circumstances is $0.3, $0.6 or $.09 worth performing an extra $1 of labor? It depends on how you value your leisure time, whether you have a specific goal for the money in mind, whether your math skills are sufficient to even understand how much extra the $1 will net you, etc. That's not a reason for not simplifying the system, but it is a reason for the first and second argument to be plainly false: households do not, and are often incapable of, reason(ing) based on the fiscal system.

I beg to differ. Go to someone in the street and tell them if they'll work an extra shift for X amount of money: most people can answer that question.

So maybe you meant that it's impossible to generalise it to the whole population because everyone has different "goal for the money in mind" and value of "leisure time"?

I don't think that's the paper that this particular piece was take from, but maybe I am wrong. It looks to me like this is the actual paper:

http://www.kotlikoff.net/sites/default/files/Comparing%20Ave...

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