Taking away tax incentives for 401(k) plans and IRAs would cause a minimum 5 percent decline in retirement savings, a lobbyist for American Funds said.
Reducing or eliminating the tax deductibility of retirement plan contributions is one option Congress is considering to pay for tax reform that has been promised by President Trump, noted Reagan Anderson, vice president of government affairs for Capital Group, parent of American Funds, when she spoke Thursday before attendees at the 23rd Annual Raymond James Women’s Symposium in Tampa, Fla.
The leadership in the House of Representatives is “trying to figure out what revenue sources are most viable for tax reform, and ‘Rothification’ is No. 2 on the list,” she said. “So we’ve been running the numbers,” Anderson said. “If all else is equal, and you take away the tax incentive, we see at least a minimum 5 percent decline in savings.”
Anderson said the Capital Group has been fighting against reducing pretax contributions to retirement plans since February. Over the summer, she said, the House moved away from eliminating tax incentives and began looking at a proposal to allow only $9,000 annually to be contributed pretax.
“We’ve taken their message on tax reform and said we want a simpler, fairer tax code, and bifurcating retirement savings is not making it simpler,” Anderson said. “We’ve talked to everybody and we’ve built a little bit of a firewall in the Senate. No one likes this issue. This is one issue where I think we’re going to have strong bipartisan opposition.”
The No. 1 most contentious issue about how to fund tax reform is the “poison pill” of eliminating the deductibility of state and local taxes. “As soon as they unveiled this, they took the Republicans in the House off campus to talk about it. The staff met and it was a huge battle. If you think about the high-cost states—California, Illinois, New Jersey—there are 52-53 Republicans sitting in those seats. They went and fought like crazy.”
“And the second most contentious issue was this Rothification issue. It’s not good public policy, especially when a couple times a year we have hearings and events talking about the retirement savings crisis in America,” she added.