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Trump says popular retirement program will be unscathed in tax plan


October 23. 2017 9:22PM
President Donald Trump holds up a list of politicians as he speaks about tax reform in Harrisburg, Pa., on Oct. 11. (REUTERS/Joshua Roberts)

WASHINGTON — President Donald Trump on Monday dismissed the possibility of curbing a popular tax-deferred U.S. retirement savings program to help pay for his sweeping tax cuts, and voiced doubts about adding another top bracket targeting the wealthiest Americans.

The potential scaling back of 401(k) plans, which for four decades have helped millions of workers save for retirement, is one of several important details yet to be ironed out in a major tax overhaul that Trump promised as a candidate and wants his fellow Republicans who control Congress to pass by year’s end.

The White House and its congressional allies have floated the idea of paring certain tax deductions to make up for revenue that would be lost due to their proposed tax cuts, the centerpiece of which is a sharp reduction in the corporate income tax rate.

The Wall Street Journal and the New York Times reported on Friday that Republicans were considering an annual cap of about $2,400 on pre-tax contributions to 401(k) plans, roughly 13 percent of what workers under age 50 currently can contribute on a tax-deferred basis. That would slash the amount of money that workers can save for retirement in 401(k) plans, which typically are invested in a portfolio of mutual funds.

“There will be NO change to your 401(k),” Trump wrote on Twitter. “This has always been a great and popular middle class tax break that works, and it stays!”

Tampering with 401(k) plans, which have largely replaced defined benefit pensions in the United States, would risk alienating tens of millions of workers as well as Wall Street, which generates fees from managing the plans. Many companies match a percentage of their employees’ 401(k) contributions.

It also would provide ammunition to Democrats, who have painted Trump’s plan, with its $6 trillion in tax cuts, as a gift to the rich and corporate America that would balloon the federal deficit.

More than 94 million Americans are covered by defined contribution plans like a 401(k), according to a recent study by asset manager Vanguard. Total assets in such plans exceed $7 trillion.

Democrats, aware of the appeal of tax cuts to many working-class Americans including some who abandoned the party in the 2016 election, said the potential 401(k) changes represented the unraveling of the nation’s retirement savings.

“This is going to devastate American families if we don’t give people an incentive to save,” Democratic Senator Heidi Heitkamp said on CNBC. “It is absolutely the wrong direction.”

Securing congressional passage of his tax plan is critically important to Trump, who has yet to get major legislation through Congress since taking office in January, including a healthcare overhaul he also promised as a candidate last year.

The White House argues that tax cuts are needed to boost economic growth and create jobs, but has shown sensitivity in recent weeks to arguments that it is endangering America’s long-term fiscal health.

Based on the outline of the plan that was unveiled last month, independent experts have concluded that corporations and the highest earners would benefit the most, and many upper middle-income people would face higher taxes.

There are signs Republicans may add a fourth income tax bracket affecting high earners to the tax blueprint, which envisions reducing the number of brackets to three from the current seven.

The idea of an additional top tax bracket was floated by Republican House of Representatives Speaker Paul Ryan.

In an interview broadcast on Fox Business Network on Monday, Trump appeared to pour cold water on the idea.

“It may not happen,” Trump said. “The only reason I would have (it) ... is if for any reason I feel the middle class is not being properly taken care of.”

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