While the White House is vowing to have a tax reform package on the Senate floor by November, few details have emerged as to exactly what it will look like.
What is known is that the tax-preferred treatment of contributions to qualified retirement plans is still under discussion, according to Marc Short, the White House legislative affairs director.
Short’s comment was made Monday at a forum on tax reform hosted by Americans for Prosperity, a conservative activist group, that included Treasury Secretary Stephen Mnuchin.
(Related: 5 Reasons Tax Reform Is Still Alive)
Offering no specifics, Mnuchin made repeated guarantees that reform will happen this year.
He also underscored that tax reform is a linchpin to the Trump administration’s pro-growth agenda. By simplifying the code, reducing corporate and business tax rates, and lowering individual rates it aims to stimulate overall economic growth and wage inflation for the middle and working classes.
While the wealthiest Americans would see their individual rate reduced, Mnuchin said they would not necessarily pay less in taxes, as reform will eliminate most of the deductions that the secretary said largely benefit top earners.
“Rich people have been able to take advantage of the tax code,” said Mnuchin. “This is not about a tax cut for the rich. It’s about tax simplification.”
Mnuchin’s message to special interests: Be prepared to not get everything you want.
The retirement services industry is mounting an aggressive campaign on Capitol Hill to protect the tax-preferred treatment of contributions to 401(k)s and IRAs.
Plan and IRA contribution deductions will cost about $670 billion in forgone revenue between 2016 and 2020, according to the nonpartisan Joint Committee on Taxation, which advises Congress with research on the tax code.
Last week, a joint statement from the White House and congressional leaders said reform would not include a new border adjustment tax, a primary pay-for in the House Republican Blueprint on tax reform, released last year. That new tax on imported goods was expected to raise $1.2 trillion in revenue over 10 years.
It was also the largest offset to the blueprint’s goal of slashing the corporate tax rate from 35% to 20%, which the nonpartisan Tax Policy Center estimates will cost $1.8 trillion over 10 years.
With that major pay-for scrapped, the tax break on contributions to qualified retirement plans may be an all the more attractive source of revenue.
Will Hansen, senior vice president of retirement policy at the ERISA Industry Committee, doesn’t think lawmakers will stoop to tap a popular individual deduction to pay for a break in the corporate rate.
“It would be political suicide to reduce the corporate tax rate and then use an individual deduction to pay for it,” said Hansen. ERIC represents the interests of large sponsors of 401(k) plans, many of which stand to benefit from a reduced corporate rate.
Can’t Get There From Here
Last April, Gary Cohn, director of the White House’s National Economic Council, said, “retirement savings will be protected” under tax reform.
Rep. Kevin Brady, R-Texas, chairman of the House Ways and Means Committee, has made similar pledges in the media.
But those vows were made before Short’s recent comments suggesting treatment of retirement plans was still on the table.
They were also made before the failure of Republicans’ efforts to repeal and replace the Affordable Care Act.
After suffering that political humiliation, a victory on taxes will be all the more incumbent for an embattled White House and congressional Republicans going into the 2018 midterm elections.
The fate of retirement plans will also depend on how ambitiously the White House and Congress lower corporate, business and individual rates.
In the Republican blueprint, individual rates would be reduced to 12, 25 and 33%. The blueprint is a framework for reform, and does not include the specifics of proposed legislation. Its language on retirement savings plans is open-ended.
The Tax Policy Center says the blueprint’s reduced individual rates would cost $1.5 trillion over 10 years.
That cost would be offset by the $1.9 trillion raised by eliminating all itemized personal deductions — including 401(k) contributions. Under the think tank’s score of the blueprint, deductions of charitable donations and interest on mortgage payments are spared. The White House and congressional Republicans have said those are the only two deductions that can be guaranteed to survive reform.
This week, Senate Majority Leader Mitch McConnell said he would use budget reconciliation to pass tax reform. That would require only a simple majority in the Senate to pass, but it would also place stricter requirements on tax cut pay-fors.
But the White House has contradicted McConnell, and said it is not necessarily committed to relying on budget reconciliation to pass tax reform.
At the Americans for Prosperity forum, Short and Mnuchin said the administration has had productive meetings with congressional Democrats.
Short also suggested Senate Democrats from upper Midwest states may have a hard time explaining opposition to tax reform to constituents. Democratic Senate seats in Ohio, Indiana, Missouri, West Virginia and North Dakota — states that all broke for President Donald Trump in 2016 — are up for grabs in 2018.
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