Trump, House Tax Chief Send Mixed Signals on 401(k) Tax Break
(Bloomberg) – President Donald Trump repeated his desire to keep tax breaks for workers’ 401(k) contributions Wednesday -- just hours after the chief tax writer in the House said his panel was exploring ways to change retirement savings in legislation he plans to release next week.
Trump told reporters that preserving the 401(k) tax-deferred retirement plans is very important to him, and that he wanted to make that clear. Earlier in the week he had said on Twitter that there would be “NO change to your 401(k),” calling them a “great and popular” tax break for the middle class.
“I wanted to end that quickly,” Trump said Wednesday of discussions on limiting the tax break. “I didn’t want that to go too far, which is why I ended it very quickly,” Trump said as he departed the White House for a trip to Dallas. He added that Representative Kevin Brady, the chairman of the House Ways and Means Committee, “knows how important 401(k)s are.”
Nonetheless, Brady didn’t rule out changes to the retirement plans earlier Wednesday morning. Asked if proposals to limit the 401(k) break were dead after Trump’s tweet, he said Republicans are "exploring a number of ideas" to "create an incentive for Americans to save more and save sooner."
“We want more Americans to save more. We want them to save earlier in their life. Right now we are not a nation of savers," he said, adding that House leaders are working with the White House on any solutions.
Speculation about the tax treatment of 401(k) retirement accounts has been swirling in Washington for months, as Congress tries to come up with revenue raisers to offset the historic tax cuts Trump has promised. Currently, workers can contribute as much as $18,000 a year -- or $24,000 a year for those over 50 -- to the accounts from their pretax earnings.
Reports last week said Republicans were considering reducing that cap to as little as $2,400 annually. The move would pull future tax revenues forward by requiring Americans to pay taxes on retirement savings now instead of when they tap their nest eggs.
‘Class Five Rapids’
The Sept. 27 tax framework released by the White House and GOP leaders sought to lay out some clear goals -- including setting a corporate tax rate of 20% and cutting tax rates on businesses and individuals -- but it doesn’t offer answers to some of the toughest questions, such as where to set income brackets or which corporate tax breaks to end. The House and Senate may go their separate ways in filling in the blanks -- and possibly changing key provisions included in the framework -- ultimately walking back what Trump has said is non-negotiable.
“We’re about to go through class five rapids, which are the biggest rapids you can go through, and we got to make sure everyone stays in the boat and we get the boat down the river,” House Speaker Paul Ryan said at a Reuters Newsmaker event Wednesday morning, referring to the need for GOP members to be unified as lobbyists fight to preserve special tax breaks. “That’s why this hasn’t been done in 31 years.”
Brady also said he expects to announce a deal with concerned Republicans from high-tax states on the state and local tax deduction "before the bill will be laid out next week."
"We’re working toward a solution," he said at a Washington breakfast hosted by the Christian Science Monitor. "These lawmakers brought us good ideas."
The Texas Republican said he doesn’t believe cutting state and local tax deductions will force states like New Jersey and New York, which pay Washington more in taxes than they receive in services, to become even bigger net donors.
Brady said the House expects to adopt the Senate budget this week and that his committee plans to mark up the bill "shortly after" it’s released.
"No decision’s been made on a top rate," he said. "We also have not set the brackets and the income levels because we want to make sure we’re addressing the concerns from members in high-tax states."
He stopped short of promising that no middle-class American will pay higher taxes, saying he "can guarantee that every American will be better off" due to a combination of lower taxes and higher paychecks under the tax overhaul.
Brady also declined to say whether carried interest will be changed in the bill.