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PSCA Executive Reports

October 31, 2017

Tax Reform Effort Picks Up Steam

With the clock ticking toward the winter recess, GOP leadership is making an all-out push for tax reform.  Ways and Means Chairman Kevin Brady (R-TX) expects to release a tax reform bill this week, and the bill will likely include material changes to the tax incentive for retirement savings.  However, Chairman Brady has run into significant pushback from the Save Our Savings Coalition in which PSCA participates as a founding board member.     

On Thursday, the House passed the Senate’s budget resolution (216-212) setting up the procedural mechanism allowing the GOP to pass a tax reform bill with a simple majority in both chambers.  The budget vote was very close because 20 Republicans broke with leadership and voted against the budget.      

As previously reported, House leadership has been considering capping the amount of pre-tax contributions participants can make to defined contribution plans with the remainder having to be made on an after-tax (i.e., Roth) basis.  Such a provision – often referred to as “Rothification” – raises substantial revenue because it forces people to pay taxes on their contributions in the 10-year scoring window.  However, it is very controversial because it could negatively affect employers’ willingness to start a plan and participants’ ability to save.     

As other potential revenue raisers have run into significant political roadblocks, it has become clear that House leadership may need the revenue generated by Rothification to offset the cost of tax rate reductions.  Consequently, the Save Our Savings Coalition’s communications team worked with a number of press outlets to sound the alarm, and last Friday, The New York Times ran an article highlighting proposed changes to the 401(k) system.  The article quickly ignited a firestorm of criticism in the press, and last Monday, the President tweeted that there will be “NO changes to your 401(k).”  However, Chairman Brady, House Speaker Paul Ryan (R-WI), and Senate Finance Committee Chairman Orin Hatch (R-UT) promptly issued public statements indicating that Rothification is, in fact, still on the table.  Throughout the week, opposition to Rothification grew, and a number of Republicans have publicly opposed changes to the retirement system.     

Chairman Brady expects to release a bill on November 1 and to hold a markup in the Ways and Means Committee the week of November 6 with the goal of House passage before Thanksgiving.  Currently, the bill is expected to include provisions that would mandate Rothification for contributions over $2,400 or a slightly higher amount along with possible increases in overall contribution limits and the Saver’s Credit.  However, the PSCA and the Save Our Savings Coalition continues to fight to have Rothification removed.     

The Senate Finance Committee could release its tax reform bill as early as next week.


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