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Retirement Savings Will Boost Future Tax Revenues: CBO

A new report by the Congressional Budget Office (CBO) confirms that in the years to come the U.S Treasury will receive “significant” tax revenues from retirement plan withdrawals.

In fact, the CBO’s extended baseline projects that revenues as a share of GDP are projected to climb by about 0.3 percentage points between 2015 and 2040, at which point nearly all the Baby Boomers will have reached retirement.

Discussions on Capitol Hill about the tax preferences provided to qualified retirement plans such as 401(k)s frequently position them as a tax “expenditure,” in that they represent a loss of current revenue to the U.S. Treasury that will not be recovered within the 10-year budgeting window.

However, unlike the preferences afforded deductions like mortgage interest expense or employer-provided healthcare, the retirement plan preferences are not a deduction, but a deferral, and — as the new CBO report acknowledges — a deferral that will represent increased tax revenues as these funds are withdrawn.

The CBO is a nonpartisan federal agency within the legislative branch of the United States government that provides budget and economic information to Congress.