The U.S. Treasury estimates that personal income tax receipts in fiscal year 1992 would have been $51 billion higher without the special provisions accorded employer-sponsored pension plans. It is at best unclear that taxpayers are getting their money's worth from this large tax expenditure. Despite a myriad of legislative changes, all of which combine to increase the likelihood that persons covered by pension plans will actually receive benefits, the U.S. pension system is still a very erratic and unpredictable way to provide retirement income and it benefits a relatively privileged subset of the population.

This article argues that the time has come for the current taxation of compensation received in the form of deferred pension benefits. Such treatment is feasible, and is consistent with the broad definition of income envisioned under a comprehensive personal income tax and incorporated in the language of the Internal Revenue Code.