That’s because efforts at tax reform, stalled for most of the year, threaten to wipe away at least some of the $83 billion in annual tax exclusions related to pension plan contributions and earnings.
Russell Sullivan, who watches Capitol Hill as a senior advisor with McGuireWoods Consulting, says there’s plenty of reason to be skeptical lawmakers will tackle tax reform any time soon.
Speaking Wednesday at the 67th annual Plan Sponsor Council of America meeting, Sullivan acknowledged inversions – in which companies such as Burger King have reincorporated abroad to cut their tax bill – could provide momentum for tax reform.
But there are a number of big hurdles that stand in the way, he said. For starters, tax reform cannot happen without all-out support from the president, Sullivan said.
The Obama White House offered a general draft on business taxes about two years ago but no details have followed. The last time the tax code saw a major overhaul was in 1986, after former President Reagan made it an administration priority.
The complexity of such an overhaul could simply overwhelm it, Sullivan said, noting that once Americans see how many tax breaks they stand to lose in order to get a significantly lower tax rate, they may not want it. Along those lines, targeted industries also can be expected to gear up to protect their specific deductions or credits.
And then there’s the question of whether Republicans will tackle tax reform, which hinges on whether the GOP can take control of the Senate in the coming midterms.
Rep. Dave Camp, R-Mich., the House’s top tax writer, earlier this month criticized President Obama for not releasing a detailed plan to overhaul the tax code. “I think we all get elected to lead,” he said. “We need some leadership.”
Camp, chairman of the House Ways and Means Committee, released his own plan in February, though it has received little support, even from members of his own party.
Several retirement groups denounced Camp’s proposed overhaul, including the National Tax-deferred Savings Association.
Chris DeGrassi, executive director of the NTSA, issued a statement earlier this year saying, “This legislation … threatens retirement savings for American workers in traditionally lower paying professions, such as clergy, teachers, and nonprofit employees. Chairman Camp wants the government to take money from these workers who already struggle to save for later and he wants to spend it now.”
Camp is retiring at year’s end and most likely will be replaced by Rep. Paul Ryan, R-Wisconsin, who, as Sullivan noted, is expected to launch into tax reform “in earnest” once the next Congress opens early next year.
Other top tax writers — Senate Finance Committee Chairman Ron Wyden, D-Oregon, and ranking member of the Senate Committee on Finance Sen. Orrin Hatch, R-Utah, also say they believe tax reform should be a top priority, but partisan differences over questions such as whether the United States should raise more revenue have kept matters stalled.
For the retirement industry, that might not be a bad thing.