A pledge by the president not to change a popular retirement savings tax-break is emerging as an area of tension with Republicans in Congress — and introducing tension to his broader tax reform bid.
A pledge by Donald Trump not to change a popular retirement savings tax-break is emerging as an area of tension with Congress as the US president pushes ahead with his plan to slash personal and corporate taxes.
The sticking point is 401(k) plans, named after a provision in the US tax code that allows a person to contribute up to $US18,000 a year (sometimes matched by an employer) to a retirement savings plan tax-free, or at least tax-deferred. The measure has been in place since 1978, and proved popular.
The president tweeted on October 24 that there would be no change to this system:
There will be NO change to your 401(k). This has always been a great and popular middle class tax break that works, and it stays!
— Donald J. Trump (@realDonaldTrump) October 23, 2017
However, the Republican-controlled Congress is not on board.
The Wall Street Journal reports Texas Republican Kevin Brady, the chairman of the House’s tax-writing Ways and Means Committee, said lawmakers were considering changes to 401(k) plans, despite Mr Trump’s insistence that the popular break for retirement savings should be untouched. The most talked-about idea: reducing the amounts that individuals and households can contribute to these plans without being taxed.
Meanwhile, Democrats are attempting to exploit the standoff, saying the Republicans want to squeeze middle class 401(k) contributions to help fund tax breaks for business.
On the positive side of the ledger, Mr Trump and Republicans and Congress have found common ground on a 20% border tax (now dropped), and legislation has been passed that ensures once a tax bill is finally ready, it can be put through the Senate with a simple majority rather than two-thirds approval.
On the negative, Mr Trump must still win-over Republican deficit hawks who are wary that he is generally loath to cut any big-ticket spending, particularly now healthcare reform – and the associated hundreds of billions in Medicare spending cuts – is now on the back burner.
Then there’s the sheer complexity of the tax code.
Plus the fact that although legislation to reform it can now pass by a simple majority in the 100-seat Senate, where the Republicans have a majority of two, Mr Trump has opened new Twitter feuds with two Republican Senators: Jeff Flake of Arizona and Bob Corker of Tennessee. Neither Senator will run for re-election, which is something of a victory for Mr Trump – but mid-term elections are not until November next year. Throw in the fact that the president is also in a bitter feud with at least one other Republican senator (John McCain, also of Arizona) and getting any major legislation through the Senate continues to look like a challenge.
Booming share markets indicate Wall Street thinks the president will ultimately come through on tax cuts. And he might. But it will be by no means easy.
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