The congressman who heads 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 fresh promise that the savings plan used by tens of millions of Americans will be untouched.
Trump appeared to bolster that pledge Wednesday, saying he moved swiftly to end speculation that the tax-deferred savings program may be changed because it’s vital for middle-class retirement security.
But he went on to muddy the waters, when asked about Rep. Kevin Brady’s statements that a change to 401(k)s could still be considered.
“Maybe it is, and maybe we’ll use that as negotiating,” Trump said during an impromptu news conference as he left the White House for a trip to Texas. “But trust me … there are certain elements of deals you don’t want to negotiate with … and Kevin knows it, and I think Kevin Brady is fantastic, but he knows how important 401(k)s are.”
Brady, chairman of the House Ways and Means Committee, said earlier Wednesday he’s discussing the issue with Trump, who had earlier shot down the possibility of changes.
And a senior Republican senator signaled he’d vote for a tax bill even if it crimped 401(k) tax benefits.
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.”
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.
Another senior member of the panel, Sen. Chuck Grassley, R-Iowa, went further. He indicated he would vote for a tax bill that reduced 401(k) tax benefits if the overall legislation brought the needed tax overhaul and cuts. “We’ve got to have tax reform, and I can’t fall on the sword for one issue,” Grassley told Iowa reporters on a call.
Noting disarray among Republicans, Rep. Richard Neal, the senior Democrat on the Ways and Means Committee, said, “To do tax reform, you need money. And right now, even as we speak, they appear to be going wobbly on some of the issues they’ve raised with great certainty in previous weeks.”
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.”
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.
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.