The Tax Benefit of Income Smoothing

Abstract

A worker can contribute pre-tax dollars to a private pension plan. Under a progressive tax, this feature reduces income taxes. Ippolito (1986} argues that an individual in 1979 can reduce lifetime taxes by 20%. We re-examine his analysis using the complete time-series of US income tax history and find that the tax benefit of income smoothing is much smaller.

Keywords: income tax history, private pensions, tax progressivity

JEL Classification: D91, G11, G18, G23, H24