The Bush administration has decided to delay action on reforming the tax code until 2007, prompting relief from an insurance industry that had been girding to battle a part of the plan that would have limited tax-free inside buildup on insurance products to $10,000 annually.
At the same time, a vote this year on legislation reforming the defined benefit pension system is unlikely, House Republican leaders conceded last week. That means action on legislation that contains many provisions sought by the insurance industry won’t occur until the first quarter of 2006 at the earliest.
A Treasury Department spokesman stressed that no final decision has been made on a tax reform proposal, although one is “likely.” The spokesman noted that Treasury Secretary John Snow said on Dec. 7 that “no timetable has been set for action” on tax reform. Snow added, “We certainly recognize the importance of giving the president a proposal both in substance and timing that can enjoy wide public support.”
The department has been told by the administration to propose simplification of the tax system based on the recommendation from an advisory panel appointed by Bush. The panel recently submitted its recommendations.
Under the proposals, annual premiums toward inside buildup would be limited to $10,000.
Moreover, defined contribution plans, such as 401(k)s, would be consolidated into the Save at Work plan that would, according to the panel report, “replace existing IRAs, Roth IRAs, nondeductible IRAs, deferred executive compensation plans, and tax-free ‘inside buildup’ of the cash value of life insurance and annuities.”
Responding to the president’s plan, Frank Keating, chairman and CEO of the American Council of Life Insurers, Washington, said the trade group was “pleased” that the White House “recognizes that the options laid out by the panel were not completely thought through.”