Political risks in Roth IRA conversions

Over at Bank Investment Consultant, comments on the political risks that could affect Roth IRA conversions.

One risk is obvious--how long before Congress changes the tax treatment of Roth IRAs for those "rich" taxpayers who somehow never pay their "fair share"?  Not very long at all, I suspect.  The subtle way will be to count Roth distributions for purposes of calculating the new Medicare surtax and the tax on Social Security benefits.  The unsubtle way would be to directly tax Roth distributions for higher income taxpayers after the recovery of basis.

One commenter suggested an opposite risk I had not considered.  What if there is no mad stampede for Roth conversions this year after all?  The tax hurdle is too high for many, and if you have to tap the Roth to pay the taxes, you probably won't be much better off.

Let's say that hundreds of billions is still sitting in pre-tax IRAs in 2013, and Congress is desperate for more revenue.  Might they sweeten the conversion pot, perhaps taxing the conversion at a flat rate?  What if they allowed long-term capital gain tax rates to apply?  There would doubtless be very few pre-tax IRAs left after that, with a veritable flood of new money for the Treasury.

Sound far-fetched, perhaps wishful thinking?  Maybe.  But there's the recent precedent of the first-time home buyers' "tax credit."  The first installment was really a loan that had to be repaid to the IRS.  Then it was replaced by a much better version, a genuine credit the potentially never has to be repaid.