House Republicans are discussing a proposal to drastically cut the amount of their salaries Americans can contribute to 401(k) retirement accounts, the New York Times writes.
Hungry for Outgoing Tax Revenue
Lobbyists and consultants tell the publication that GOP lawmakers have floated a cap as low as $2,400, compared to the $18,000 American workers can currently divert to their 401(k)s without first paying tax on the money, or $24,000 for workers 50 years and older. Cutting the contribution limit could help Republicans meet the tax revenue shortfall that would occur as a result of the business tax rate cuts central to their tax reform plan, the New York Times writes. A cut to the 401(k) cap would essentially create more tax revenue now as it would likely cause Americans to put their savings into the taxable-contribution Roth individual retirement accounts, according to the paper.
But reducing 401(k) contribution limits will likely be met with opposition from middle-class Americans, asset managers — and even the Senate, the New York Times writes. The method the GOP is using to deflect a filibuster of their overall tax overhaul bill by the Democrats relies on a budget reconciliation bill, which states that new bills can’t raise budget deficits after a decade, according to the publication. And Rohit Kumar, a former Senate aide who leads the tax policy services practice at accounting firm PricewaterhouseCoopers, tells the New York Times that cutting the 401(k) limits would raise money now but would eventually lose money down the line. In any case, individual retirement contributions in 2018 are estimated by the congressional Joint Committee on Taxation to “cost” $115 billion in foregone taxes, while the Republicans’ tax cut would cost $1.5 trillion, the publication writes.
GOP lawmakers in the House who are behind the tax bill have been mum on the 401(k) cap cuts, according to the New York Times. Last week, however, Rep. Richard E. Neal of Massachusetts, the top-ranking Democrat on the Ways and Means Committee, said that the GOP tax proposals “would hurt those saving responsibly for retirement at a time,” the publication writes. Meanwhile, a study conducted by Harvard and Yale researchers could find no correlation between the timing of taxation of savings accounts and the level of savings, according to the New York Times.
