TREASURY CHOICE RAISES FEARS OVER PENSION-FUND TAX

                         Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: SUNDAY, February 7, 1993                   TAG: 9302070056
SECTION: NATIONAL/INTERNATIONAL                    PAGE: A-10   EDITION: METRO 
SOURCE: The Washington Post
DATELINE: WASHINGTON                                LENGTH: Medium
TREASURY CHOICE RAISES FEARS OVER PENSION-FUND TAX
The nomination of Alicia H. Munnell as assistant treasury secretary for economic policy has pension-industry experts convinced the Clinton administration is considering new taxes on pension funds that could raise hundreds of billions of dollars for deficit reduction.
Munnell, who has been director of research for the Federal Reserve Bank of Boston, was described as "perhaps the most prolific and persistent proponent of pension taxation" in a background paper prepared last year for the Texas retirement system by David Vienna & Associates, a firm that does lobbying and pension research.
"The United States has the ability to tax pensions on a current basis and the time has come to do it," Munnell wrote in the March-April 1992 issue of the New England Economic Review.
Tax breaks on company-sponsored pension plans are not as well known as the deduction for home mortgage interest or the exclusion of employer contributions for health care, but they cost the government more in lost revenue.
Income-tax collections would be more than $51 billion a year higher without the special tax treatment of pensions.
Munnell argued in her article that the cost of special pension-fund tax treatment is too high because, in her view, pensions mostly benefit a relatively highly paid segment of the work force.
She also wrote that pension tax breaks shift, rather than increase, total national savings because individuals covered by pension plans typically save less on their own.
Treasury spokesman Jack R. DeVore Jr. said Munnell would not comment before her confirmation by the Senate.
Pension plans receive special tax treatment in various forms and any effort to curtail or limit that would be opposed by corporations, organized labor and retirees.
The primary tax break is that neither company contributions to pension plans nor the earnings of pension funds are taxed on an annual basis. Instead, pension benefits are subject to the personal income tax when they are paid to retirees.
In her article, Munnell advocated a new 15 percent annual tax on company contributions as well as the annual earnings in the plans. If such a provision had been in place in 1990, it would have raised about $55 billion, she wrote.
To offset the new taxes, retirees generally would pay no personal income tax when they received pension payments. Nevertheless, the overall effect of the taxes probably would be to reduce pension benefits by 15 percent, she wrote.

by Archana Subramaniam by CNB