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REUTERS
WASHINGTON
President Donald Trump on Monday dismissed the possibility of curbing a popular tax-deferred US retirement savings programme 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 centrepiece 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."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."
