The Biden administration has a plan to replace the tax deduction for IRA and 401(k) plan contributions with a tax credit, former Commodity Futures Trading Commission chief market intelligence officer Andrew Busch told attendees today at the Financial Services Institute's annual conference.

The Biden proposal would “change the tax structure for all ERISA plans and IRAs,” Busch said during the virtual event. “Instead of giving investors a tax deduction, they’re talking about changing it to a tax credit. This may change the dynamics of IRAs and ERISA and 401(k) plans if they get this through, which is a part of what Treasury Secretary nominee Janet Yellen is working on over the next 100 days.”

Slashing the tax deductibility of IRAs and 401(k) plans could disrupt the way middle America saves and accumulates wealth for retirement, said Busch, an economist and futurist. It's not clear what degree of priority the new administration will devote to this proposal.

Last year, the SECURE Act pushed back the age at which Americans are required to take required minimum distributions (RMDs) from their retirement accounts to 72. Other regulatory changes permitted employers to include annuities in 401(k) plans. Furthermore, as more Americans over the age of 65 remain in the work force, several members of Congress have discussed increasing the age for RMDs to 75.

He said one of Yellen’s first priorities will be to reverse much of Donald Trump’s Tax Cuts and Jobs Act. “They’ll really attack that. Yellen has been very clear: They’re going to raise the corporate tax rate from 21% to 28%,” Busch remarked.

He added that Biden is also considering a corporate alternative minimum tax and wants to do away with tax cuts for anyone making more than $400,000 while attempting to make permanent those cuts under $400,000.

Yellen’s focus has to shift from monetary to fiscal policy, he noted. “The biggest thing sitting in her lap right now is the stimulus plan. She has to sell that really well to Republicans to show the amount of money the administration is asking for is needed.”

While President Biden has proposed a $1.9 trillion package, he met with a group of 10 Senate Republicans today to discuss a “skinny stimulus” plan that would reduce the overall price tag to about $600 million.

The “skinny stimulus” proposal is laid out in a letter sent by Sen. Susan Collins (R-ME) and nine other GOP senators to Biden. In it, they lay out their case for reducing individual stimulus checks to $1,000 from Biden’s proposed $1,400. They also want to lower the income ceiling of those receiving another round of individual checks in order to target assistance to those most in need and most likely to spend rather than save the new money. 

The GOP stimulus would also provide money for vaccines and other public-health priorities; provide new money for the small-business loan programs created last year; and extend the current level of federal supplemental unemployment insurance. Money for schools would be curtailed significantly, and funds sought by state and local governments, as well as rental assistance and progressive priorities like a higher minimum wage and paid family leave, are left out entirely.

FSI chief executive and president Dale Brown, who led the session, asked Busch what the flurry of changes could mean for the economy and for financial advisors who manage the long-term financial needs and goals of their clients.

Busch said he is predicting GDP growth north of 4% and rapid job growth, but said both could rise significantly if Biden manages to pass a large stimulus package.

“If Biden gets a $1.9 trillion package through, we could have north of 5% to 6% GDP growth. There’s a lot of forward momentum in the economy and so much depends on getting the virus under control to reopen those sectors of the economy that have been hit the hardest,” Busch said.

“Keep in mind how much stimulus has already been released,” he added. “Some $10.4 trillion has been allocated to the economy. If you are wondering why companies and stocks have recovered, this is why. And there is still $4 trillion that hasn’t made its way into the economy yet.”