President Trump jumped ahead of Republicans’ long-planned tax reform maneuvering Monday with a morning tweet that ruled out a proposal under consideration to change the tax treatment of retirement savings.
At the moment, Republicans on the House and Senate committees responsible for taxes are supposed to be working out the tax reform details, after their leadership negotiated for months with the Trump administration over a broad framework. The White House has promised that it will be flexible regarding those details.
“Things that aren’t agreed to in advance, they go into committee, and that’s the process that starts” this week, Office of Management and Budget Director Mick Mulvaney said Sunday on CBS.
Yet Trump dismissed the possibility of a major provision that Republicans might have used to raise revenues for the tax rate reductions he has called for.
The specific measure in question is regarded by some experts as a budgetary gimmick, rather than a serious policy change.
Republicans were considering lowering the limits on pre-tax contributions to 401(k)s, which are funds that are taxed when they are withdrawn in retirement. Instead, savers would be directed toward Roth IRA-style savings vehicles, in which funds are contributed on an after-tax basis, but then can be withdrawn tax-free upon retirement. Such a switch would make it appear that the government was raising more money in the 10-year timeframe Congress uses to assess the cost of legislation, even though over a long period time it might not make a difference.
Trump’s tweet aimed at cutting off the debate came just days after several reports that the switch was under serious consideration.
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
Jill Hoffman, a tax lobbyist for the Financial Services Roundtable, an industry group, suggested that Trump’s tweet was driven simply by a “pretty organic response” to the negative reaction to those reports.
“It sends a strong signal that anything that they do in the context of tax reform that could cut or change retirement savings … is going to be problematic politically,” said Hoffman, whose group represents financial firms that manage tax-privileged accounts.
Senate Democratic Leader Chuck Schumer took advantage of the surprise comment from Trump to criticize the GOP tax reform effort. “[T]he fact that Republicans were even considering raiding America’s retirement savings to pay for a giant tax cut for corporations, states, shows just how backward their plan is,” the New Yorker said in a statement.
Schumer’s Republican counterparts were more reserved about the impact of Trump’s tweet.
“At least for right now, it’s in everybody’s best interest to keep their gunpowder dry and talk about kind of the high-level stuff and then let the committees get in and start working the details,” said South Dakota’s John Thune, the third-ranking Republican in the Senate.
Thune noted that to assess the effect of ending any particular tax break, it’s necessary to also see the corresponding benefits, such as lower rates, and assess the plan as a whole.
Nevertheless, he acknowledged, “If that’s something that’s a non-negotiable for him, that’ll probably shape the thinking of people up here.”
In the early going, congressional Republicans have encountered predictable concerns from within their party about plans to eliminate popular breaks. Blue-state Republicans in the House, for instance, have raised the possibility of voting against a plan that cuts the state and local tax deduction, which disproportionately benefits their constituents.
Some of the party’s fiscal hawks are concerned that too many such revenue-raisers — or to regular people, the elimination of a tax break — might prove too politically difficult.
“I just don’t hear anybody talking about that,” said Sen. Bob Corker, R-Tenn., talking about the need to raise trillions of dollars in eliminated tax breaks to pay for the tax reform package. “I hear about tax cuts. But it doesn’t work without the base-broadeners.”
Nevertheless, at least one lawmaker stated that the plans for the tax package wouldn’t be determined by Trump’s Twitter intervention.
Rep. Kevin Brady, R-Texas, the chairman of the House Ways and Means Committee, declined to say whether he planned to lower maximum contributions to 401(k)s in the legislative text. But, asked by a reporter whether Trump’s tweet would change what the committee will do, Brady simply responded, “No.”
