The Bush Economic Policy Clown Show: in the Center Ring
The Bush Clown Show: In Side Ring II

The Bush Economic Policy Clown Show: in Side Ring I

The latest act in the Bush clown show:

IRA Swaps Could Cost U.S. Billions in Tax Revenue - New York Times: By DAVID CAY JOHNSTON: President Bush is scheduled to sign into law on Wednesday an extraordinary deal for high-income people with retirement savings accounts. By paying $1 in income taxes before the taxes are due, these investors may be able to avoid future taxes equivalent to $3.50. The deal is a one-time opportunity in 2010 for anyone to convert a conventional individual retirement account, where taxes are deferred until money is withdrawn, into a Roth IRA, where investment gains are tax-free. Conversions are now limited to people who make less than $100,000 a year....

Those who do not take advantage of the opportunity to roll money into a Roth may think about the deal differently. The tax savings, like all of the Bush tax cuts, would be financed with federal borrowing, adding to the government's interest expense. The estimate comparing how much money the government collects up front versus the taxes it will lose in the future comes from the Tax Policy Center... run by tax experts who served President Ronald Reagan, the first President Bush and President Bill Clinton.

Part of the tax savings arises from rules, set by Congress, that require people to withdraw money from traditional retirement accounts starting the year after the one in which they turn 70. For Roths, mandatory withdrawals apply only to heirs, permitting the magic of compound interest to swell the accounts' value for a much longer time for those willing to leave the money alone. Leonard Burman, co-director of the Tax Policy Center, said the estimated tax savings was based on current income tax rates. The savings would be greater if tax rates rose in the future, as Mr. Burman says they will because the government is spending more than it is taking in.

The Treasury Department made two senior tax policy advisers available on condition that they not be named. Those advisers expressed respect for the care Mr. Burman applies to his work. But they noted that the government makes tax estimates only for 5- and 10-year periods, while Mr. Burman's is for 43 years. Under the 10-year period covered by the Congressional Joint Committee on Taxation's official estimate, the Roth conversions would raise $6.4 billion in taxes in the short run. But because the government will not collect taxes on the future investment gains, the Tax Policy Center estimates that through 2049, the conversions will cost the government $53.3 billion....

Roth IRA's are now available only to couples making less than $160,000 and single people making less than $110,000. But in 2010 anyone, regardless of income, would be permitted to roll over unlimited sums from IRA's into a Roth. Everyone interviewed agreed that the smart strategy would be to pay the taxes from a source outside of the retirement account being converted to a Roth. That would preserve the amount of money available to generate tax-free returns....

Ed Slott, a Long Island accountant who publishes a newsletter about how to get the most out of retirement accounts, said that for savers, this was the best deal from the government in a long time. "You can't beat a zero tax rate," said Mr. Slott, author of "Parlay Your IRA Into a Family Fortune."