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PSCA Executive Reports

April 07, 2017

Legislative Update: Status of Health and Tax Reform

The big news over the last month was the drama surrounding the so far unsuccessful House Republican and Trump Administration efforts to pass the American Health Care Act (“AHCA”), a bill that would repeal and replace portions of the Affordable Care Act (“ACA”).  The Republican ACA repeal and replace effort was derailed on March 24 as House Republicans failed to gather enough votes to pass the AHCA.  House Speaker Paul Ryan (R-WI) pulled the bill from the floor just before the scheduled vote after it became clear that it did not have the votes to pass.  Since then, the White House and Congressional leaders have continued to meet with members of the conservative Freedom Caucus and moderates who opposed AHCA to work on possible refinements that could garner the necessary votes to pass the bill.  Members of Congress have now left town for a 2-week recess, but House leaders have indicated that they could be called back to Washington sooner if negotiations are successful.

Meanwhile, key Congressional leaders, including House Ways and Means Committee Chairman Brady (R-TX), have indicated that House Republicans will now turn their attention to work on comprehensive tax reform legislation, which is a top priority for both Speaker Ryan and President Trump.  However, tax reform will likely prove challenging.  The failure to pass health care reform complicates the budget baseline, and there is still not unanimity on key issues, including the border adjustment tax which is a key plank of the House Republican “A Better Way” blueprint.  Speaker Ryan stated recently that “the House has a plan, but the Senate doesn't quite have one yet — and they’re working on one” and that “"the White House hasn’t nailed [down a plan] so even the three entities aren’t on the same page yet on tax reform.”  In addition, White House Press Secretary Sean Spicer recently said that the White House would be “driving the train” on tax reform and later that it would be “putting out principles” to guide lawmakers as they reform the tax code.  

It is difficult to predict how tax reform will move as a procedural matter.  The House is likely to take the lead, and the plan before the derailment of health care reform was to pass a partisan tax reform bill through budget reconciliation (under a new budget resolution for the 2018 fiscal year to be considered later this spring) so as to avoid a Democratic filibuster in the Senate.  However, it is possible that strategy could shift in light of the failure in the health care arena.  For example, Congressional leaders could consider repurposing the 2017 fiscal year budget reconciliation instructions for tax reform.  White House officials have also indicated that the White House may try to entice support from moderate Democrats.  

As we have previously reported, it remains likely that lawmakers will consider significant changes to the retirement system as part of any comprehensive tax reform package.  Both Speaker Ryan and Chairman Brady have stated that they want tax reform to be revenue neutral, and they have said at various times that tax reform would come with “significant trade-offs” and that “the only way to lower rates for everybody is to eliminate the hundreds of special tax provisions for some.”  In order to accomplish tax reform on a revenue-neutral basis, Congress will need to reduce tax expenditures significantly, which puts the tax incentives for retirement at risk.  And virtually every recent tax reform proposal has attempted to limit the tax preference for retirement plans.  

To date, neither the House nor Senate leadership has released a detailed plan for the impact of tax reform on the retirement system.  However, House Republican leadership did reference generally (in its “A Better Way” report) a proposal to consolidate and reform the multiple different retirement savings provisions and consider the creation of Universal Savings Accounts.  And House Ways and Means members are reportedly considering possible changes that would move IRAs and defined contribution plans to a Roth system, with after-tax contributions and tax-free distributions, as a possible revenue raiser. Similar proposals were included in former Ways & Means Chairman Dave Camp’s (R-MI) Tax Reform Act of 2014, which would have required all defined contribution plans to permit Roth contributions and impose a limit under which no more than 50% of contributions can be made on a pre-tax basis.

The Plan Sponsor Council of America (PSCA) has joined the Save Our Savings (SOS) Coalition, a newly-launched group of industry experts advocating on behalf of Americans’ retirement system and against attempt to cut current tax incentives for retirement savings. In addition to PSCA, the membership of the SOS Coalition includes: American Benefits Council, American Retirement Association, Committee on Investment of Employee Benefit Assets, Defined Contribution Institutional Investment Association, Employee Benefit Research Institute, Financial Services Roundtable, Investment Company Institute, New Economics for Women, Northern Trust, Principal, SPARK Institute, TIAA, and Women's Institute for a Secure Retirement. For more information, visit www.saveoursavings.org.

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