WASHINGTON — President Trump said early on Monday that his proposed tax plan would not prompt any changes to Americans’ tax-deferred retirement plans, pushing back against reports that the Republicans are weighing a proposal that would significantly reduce the income workers can save in these popular programs.
There will be NO change to your 401(k). This has always been a great and popular middle class tax break that works, and it stays!
— Donald J. Trump (@realDonaldTrump) October 23, 2017
Mr. Trump’s shutdown of the proposal is the first of what many Republicans privately fear could be a presidential pattern that disrupts their efforts to pass a sweeping overhaul of the tax code. In it, Mr. Trump appeared to rule out a politically difficult idea, which, if enacted, would have provided some revenue to help pay for the tax plan.
Republicans’ ability to win passage of a tax package hinges on its ability to survive a complex set of legislative restrictions in the Senate. Republicans are attempting to cut business tax rates deeply, and also to cut individual tax rates, using a legislative route that allows them to bypass a Democratic filibuster and pass a bill with a simple Senate majority. To do that, they will need to make some tough political choices, eliminating some popular tax breaks, or employing some budgetary accounting tricks, in order to offset lost revenues from rate cuts.
Mr. Trump’s tweet concerned one of those accounting maneuvers, which would have allowed Republicans to effectively borrow tax revenues from the future to offset some rate cuts today. Reducing 401(k) contribution limits would force retirement savers to pay more in taxes today, as they sock away money, but less in the future, when they began withdrawing retirement funds tax-free.
Republicans had not decided whether to include a reduced cap on contributions in their final version of the tax bill even before Mr. Trump’s tweet.
Details of the Republicans’ tax bill have been closely held, and they would not comment on Friday about possible changes to 401(k) policies. It was not clear from Mr. Trump’s Twitter post on Monday whether he meant that he would not support a bill including alterations to 401(k) limits or that he knew the Republicans’ draft bill did not include such changes. Several sources said last week that such changes were under consideration as House Republicans prepare to release a tax bill in the coming weeks.
Democrats and other critics of Mr. Trump’s tax plan have said it would not help middle-class Americans, despite White House and Republican promises. “Tax cuts for corporations and the wealthiest Americans should not be paid for by increasing taxes on middle class Americans saving for retirement,” a group of Democratic senators, led by Senator Sherrod Brown of Ohio, wrote to the administration in September.
Any plan to cap 401(k) savings could bolster those arguments.
Republicans are discussing proposals that would potentially cap worker contributions at $2,400 annually for 401(k) retirement accounts, lobbyists and consultants have said. Currently, workers can put away $18,000 a year in tax-deferred plans; workers who are over 50 years old can save up to $24,000.
Advocacy groups have sprung up in Washington to fight any proposed change to those limits. One of those groups, the Save our Savings Coalition, said in a statement on Monday that it was “thrilled to see the President’s statement today, though we will continue to fight to ensure lawmakers do right by the middle class by preserving and expanding our retirement system as tax reform moves through Congress.”