Trump shoots down retirement limit to pay for GOP tax cuts
WASHINGTON (AP) — President Donald Trump shot down a possible approach for raising revenue to finance tax cuts in politically must-do legislation for the Republicans, promising Monday the popular 401(k) retirement savings program will be untouched.
Still, the head of the House’s tax-writing committee indicated that changes to the 401(k) structure may still be on the table as Republicans push an ambitious timetable to get tax legislation written. Asked about the issue, Ways and Means Committee Chair Rep. Kevin Brady said: “I don’t want to get ahead of the committee. That will all be part of the tax reform bill.”
And in response to whether Trump’s tweet changes in any way what the panel was planning to do, Brady replied only, “no.”
Republicans are scrambling to find new revenue sources to pay for anticipated tax cuts exceeding $1 trillion. A proposal to eliminate the widely-used federal deduction for state and local taxes has run into heavy opposition from GOP House members from high-tax states, threatening the enactment of tax legislation that Republicans deem essential to retaining their majority in next year’s elections.
Trump pledged in a tweet there will be “no change” to tax incentives for the 401(k) retirement programs.
The No. 2 Republican in the Senate, Majority Whip John Cornyn of Texas, said he’s “sympathetic” to Trump’s opposition to curbing 401(k)s because “we don’t want to discourage people from saving.”
But he cautioned against ruling out ideas at this stage of the legislative process. “I do think we need to be careful because there are going to be a lot of different trial balloons, and what counts is how you put all this together,” Cornyn said.
The plan crafted by Trump and Republican leaders calls for steep tax cuts for corporations and potentially individuals, a doubling of the standard deduction used by most Americans, shrinking the number of tax brackets from seven to three or four, and the repeal of inheritance taxes on multimillion-dollar estates. The child tax credit would be increased and the tax system would be simplified; most Americans would be able to file their income taxes on a postcard, according to the plan.
Crucial details of the plan have yet to be worked out, notably what income levels would fit with each tax bracket.
With the possibility of the state and local deduction being at least partly preserved, some Republican lawmakers were considering limiting the amount workers could save in 401(k) retirement accounts.
“It was a trial balloon and it crashed,” said Brian Riedl, a senior fellow at the conservative Manhattan Institute. “They’re struggling to find legitimate offsets” for tax cuts.
“Everyone has been promised they are going to be better off with tax reform and that’s really hard to do in a fiscally responsible way,” Riedl said.
Employees’ earnings from defined-contribution retirement plans such as 401(k) s aren’t taxed until retirement; pay-ins by both employers and employees also receive tax-preferred status. That cost the government $82.7 billion in lost revenue in the recent budget year ending Sept. 30, 2016 — a potentially juicy target for Republican tax-cutters.
With 55 million U.S. workers holding some $5 trillion in their 401(k) accounts, the plans have become a touchstone of retirement security for the middle class.