401(k) off table; now what?

Numerous promises limiting where GOP can find new revenue

WASHINGTON» Republicans are accelerating efforts to fill in key details of their plan for massive tax cuts, but as lawmakers work to turn their proposal into legislation, President Donald Trump’s numerous tax promises are proving difficult to keep.

On Monday, Trump promised the party would not touch tax benefits for 401(k) retirement plans, protecting a popular benefit for more than 50 million Americans but also further limiting the areas where Republicans could seek to raise new revenue.

His vow to protect 401(k) plans, made in a Twitter post, comes just days before House Republicans are planning to introduce a bill that would dramatically slash corporate tax rates, consolidate tax brackets for families and individuals, and eliminate the alternative minimum tax and estate tax.

Rep. Kevin Brady, R-Texas, who leads the House Ways and Means Committee and the initial drafting

of the tax legislation, is expected to release the bill as soon as next week. He told reporters it remains on track, but he declined to make a firm commitment on timing. Brady said Republicans had not yet made key decisions, such as whether to add an additional income tax bracket for high earners and on how to implement a planned estate tax repeal.

“I want to get this to the president’s desk by the end of the year, and we’re on a schedule to do that,” Brady said.

The remaining indecision shows the competing pressures tax writers face as they attempt to deliver the massive tax cuts Trump has promised while also minimizing the effect of the tax cuts on the deficit.

The challenge has become particularly acute now that the Senate has passed its budget resolution, which the House of Representatives is expected to approve by Thursday. This procedural step allows them eventually to pass a tax bill in the Senate with just 50 votes, instead of the 60 typically required to advance major bills.

They must now write legislation that can pass the House and Senate, something they still haven’t done despite dozens of meetings in the White House and on Capitol Hill. They remain unable to reconcile all of Trump’s assurances that there will be massive tax cuts benefitting everyone with Senate rules that limit how much they can do.

House Republicans are still working through key details that could derail the bill if mishandled. Still, GOP congressional aides on Monday expressed con- fidence that their bill was coming together rapidly.

The budget resolutions allow the tax bills to add $1.5 trillion to the deficit over 10 years, a large amount nonetheless far outstripped by the more than $5 trillion in promised tax changes Trump has laid out so far.

Now Republican negotiators are looking at cutting back on many of the deductions families and businesses use to limit their taxes to offset the lower rates, but Republicans and the White House are under pressure to back away from some of the demands.

One of the changes Republicans had floated was simplifying the tax benefits tied to retirement benefits, fueling concerns that they could make changes to 401(k) plans. Americans are allowed to contribute up to $18,000 pre-tax into their 401(k) plans each year as a way to incentivize saving for retirement. Lowering that pre-tax threshold could raise more revenue but face a backlash from many Americans who use the accounts to save for retirement.

After several news reports in recent days saying the changes were possible, Trump weighed in on Monday and said no changes would occur. Now the tax writers must look for other areas where they can raise money, and their options appear to be dwindling.

“You are trying to stuff a $4 trillion or $5 trillion tax cut in a $1.5 trillion box,” said Steve Moore, who was one of President Trump’s top economic advisers during the 2016 campaign. “That means something has to give here.”

Senate rules will prevent Republicans from passing a tax bill with a simple majority if it adds to the deficit after 2027. Republicans have promised not to jettison Americans’ ability to deduct their mortgage interest, charitable contributions and now income for 401(k) contributions, limiting the number of other changes they could make to raise revenue.

Party leaders now believe they will be able to make only some of the tax cut changes permanent, and others will only be temporary, expiring after 10 or fewer years.

Business groups are lobbying Republicans to ensure that the corporate tax cuts are permanent, but this could put Republicans in an awkward position of promising companies better tax treatment than families, particularly as Trump has said the plan will primarily be a middle class tax cut.

“They have probably overpromised and are trying to find a way to fit the plan into whatever constraints they have,” said Mark Mazur, director of the Tax Policy Center, who was a senior official in the Treasury Department during the Obama administration.

And there are numerous parts of the tax package that will be difficult to enforce, leading to concerns that wealthy individuals could try and game the changes to further lessen their tax bill.

Chief among the problems is finding a way to prevent upper-income households from taking advantage of Trump’s vow to slash the rate certain businesses pay.

Lawmakers are concerned the wealthy could take advantage of this change to lower their taxes, even though the rate is supposed to apply to businesses, not individuals. Republicans haven’t settled on a way to prevent such abuse even though they’ve known it was a problem for months, although competing House and Senate proposals could emerge.