Maurice is Micro-Right and Macro-Wrong

Two errors have been made in the discussion of whether pensions should be taxed. The error I made was not getting enough personal information from Maurice before posting, although in my defense it is not my business to know the details of his family’s finances, and I did not want to pry. The error he made, and continues to make in his latest post, is in following Mickey Kaus’ first rule of journalism, which is to always generalize wildly from your own personal experience.

Maurice’s father may be getting double-taxed on his pension. I trust Maurice’s info on his family, but we don’t know whether his dad was able to take a tax deduction for those contributions, which is very likely and would make his union-pension similar to a traditional IRA. Anyway, the point is moot, as the majority of traditional pensions in America, the defined benfit plans, are corporate- and employer- funded. In those majority of cases, the income was never counted or taxed for the individual.

Maurice may be right about union-sponsored, post-tax plans, and if so I completely agree that, presuming no tax deduction at the time of contribution, they should be tax-exempt during retirement.  But that is a minority of pensions in America. Most pensions are employer-funded. Most people who receive pensions never paid any taxes at all on that money. As long as we are taxing anyone’s income, those penions should be taxed as well.