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Tax politics threaten retirement savings PDF Print E-mail
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Written by Ozaukee Press   
Wednesday, 01 November 2017 17:13

Should American workers finance a massive tax cut for businesses by giving up some of their retirement savings?
    That may sound like a dumb question, but it is being asked seriously in the U.S. Congress.
    The central feature of the tax law changes being considered by Congress is to reduce the business tax rate from 35% to 20%. The resulting loss of revenue, along with tax cuts for high-income payers, is forecast to add $5 trillion to the federal deficit over 10 years. This conflicts with a congressional rule that requires that changes in tax policy have no effect on the federal budget in 10 years.
    Which is why some in Congress want to severely limit the 401(k) plans millions of Americans depend on for retirement income.
    Republicans have been trying to keep the details of their tax overhaul plan under wraps, but members of Congress have said it calls for a drastic reduction in the cap on 401(k) contributions.
    The proposal would impose a $2,400 annual limit on contributions—a mere one-tenth of the $24,000 cap now in effect for workers age 50 and older and more than $15,000 lower than the $18,000 annual cap for younger workers.
    The 40l(k) program is in the sights of those bent on cutting business taxes to the level demanded by President Trump because it allows participants to defer paying taxes on contributions until the money is withdrawn. Limiting contributions would instantly bring in more tax revenue from workers to help offset tax-cut losses.
    William Gale, a former economic adviser to President George H.W. Bush now with the nonpartisan Tax Policy Center, called the proposed caps “just an enormous budget gimmick . . . raiding future revenues to pay for current tax cuts.”
    This is retrograde policy at its worst, concocted to serve a political agenda and threatening to take the quality of life of families backward by denying them adequate access to the retirement program more Americans depend on than any other besides Social Security.
    Since 1980, when the program was added to the tax code, 401(k) accounts have become the most common employer-sponsored retirement plans. They are more important now than ever because company pension plans have mostly disappeared.
    The $2,400 annual cap would be too small to add up to a comfortable next egg and would likely discourage many workers from even bothering to sign up for their employer’s 401(k) plan.
    The genius of 401(k) is not just that it gives workers control over their retirement savings; it is also that it enables them to participate in the country’s economic growth by investing in the stock market with the professional guidance that is included with most 40l(k) programs and paid for by employers.
    The threat to the retirement plans opens another window on political hypocrisy. Advocates for cutting the business tax by more than 40% argue it’s needed to stimulate the economy, yet to facilitate it they would restrict workers’ ability to enjoy the fruits of that prosperity by severely limiting the amount of their earnings they can contribute to 401(k) stock and bond investments.
    President Trump said he would not sign a tax bill that does not cut the business tax to 20%. Then he tweeted there should be no change in the “great and popular middle class tax break” of the 40l(k) program.
    People who have learned that the president’s views have a short shelf life were probably not surprised when he said a few days later that it was all right if the 401(k) proposal was part of legislative negotiation.
    A survey taken last year found that three-fourths of Americans fear they won’t have enough money to support themselves through retirement.
    Sadly, there will be good reason for that number to grow if 401(k) is crippled for a tax cut.

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