Top House tax writer won’t rule out changes to 401(k) plans
WASHINGTON — The head of the House tax-writing panel isn’t ruling out changes to the 401(k) retirement program to raise revenue for tax cuts, despite President Donald Trump’s promise that the savings plan used by tens of millions of Americans will be untouched.
Ways and Means Committee Chairman Rep. Kevin Brady said Wednesday he’s discussing the 401(k) issue with Trump, who has shot down the possibility of changes to the popular program.
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.
Republican lawmakers have been considering changes to the 401(k) structure, such as limiting the amount of tax-deferred contributions employees can make, as a way to help finance tax cuts.
Asked specifically if the retirement program was no longer a possible target, Brady said, “We’re working very closely with the president.”
“We think, in tax reform, we can create incentives for Americans to save more and save sooner, which can help them,” said Brady. “So we are exploring a number of ideas in those areas. … We are continuing discussions with the president, all focused on saving more, saving sooner.”
Efforts to determine how firmly Trump is holding the line on 401(k)s failed Monday. Interviewed on MSNBC, Trump’s legislative liaison Marc Short gave no indication.
Asked about the issue, Brady’s counterpart in the Senate, Republican Orrin Hatch of Utah, also indicated possible changes to 401(k)s remain on the table. “I’m open to looking at anything,” he said.
Hatch, who heads the Senate Finance Committee, said he didn’t have a personal view on it.
While retaining the possibility of changing 401(k)s, Brady also said he continues to seek a compromise with rebellious GOP lawmakers from high-tax states over the Republican tax plan’s proposed elimination of the federal deduction for state and local taxes.
“I do expect to reach an agreement with our high-tax (state) lawmakers,” Brady, R-Texas, told reporters at a Christian Science Monitor breakfast. “It’s a work in progress. We’re making good progress.”
Republican leaders are expected to put forward their proposed tax legislation next week.
One compromise being considered, to avoid repealing the state-local deduction altogether, would cap it at a single taxpayer’s adjusted gross income of $400,000 and $800,000 for a married couple.
Opposition in the House has threatened the enactment of an ambitious overhaul of the U.S. tax system that Republicans hold essential to retaining their majority in next year’s elections. Republicans are scrambling to find new revenue sources to pay for anticipated tax cuts exceeding $1 trillion.
The deduction for state and local taxes is a widely popular break used by some 44 million Americans, especially in high-tax, Democratic-leaning states like New York, New Jersey, Illinois and California.
Trump administration officials and the congressional Republican leaders who crafted the tax overhaul plan eye the estimated $1.3 trillion in lost revenue over 10 years that the state-local tax deduction costs the government. They want to recoup it to help pay for the tax cuts proposed in the far-reaching, nearly $6 trillion plan.
The GOP plan calls for steep tax cuts for corporations and promised reductions for middle-income taxpayers, 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.
Crucial details of the plan have yet to be worked out, notably what income levels would fit with each tax bracket.
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-deferred status. That cost the government $82.7 billion in lost revenue in the budget year ending Sept. 30, 2016 — a potentially juicy target for Republican tax-cutters.
“This has always been a great and popular middle class tax break that works, and it stays!” Trump tweeted Monday. “There will be NO change to your 401(k).”
Brady’s comments sparked fresh outrage from Democrats. “Republicans in Congress are rolling back retirement protections … at exactly the time (pensions) are being rolled back,” said Sen. Ron Wyden of Oregon, the top Democrat on the Senate Finance Committee. “It’s clear. Republicans cannot keep their hands off your 401(k).”
AP Congressional Correspondent Erica Werner and AP writer Andrew Taylor contributed to this report.