The GOP’s Tax Cuts and Jobs Act appeared set for final passage in both the House and the Senate Tuesday evening, but Senate procedural rules appear to be causing a delay that could push passage later in the week.
News reports emerged Tuesday evening to the effect that Senate parliamentary rules have forced the removal of two provisions from the version of the unified bill passed by the House. One of the stricken provisions reportedly addresses 529 plans and would have allowed employees to use these accounts to pay for private schools and home-schooling.
With passage still expected this week, Republican’s rapid timeline has left retirement industry experts to play catchup with their analysis of what the Tax Cuts and Jobs Act may ultimately mean for the employer-sponsored benefits sector. While the final package seems to have backed away from provisions that would have dramatically impacted deferred compensation arrangements, as well as 403(b) and 457 plans, there is some lingering concern about the proposals’ potential impact on small business retirement plans. Chief among these is the warning that certain features of the proposed reforms to the “pass-through” business tax rates could reduce independent business owners’ incentives for offering retirement benefits.
Among the first responses to the House’s success on Tuesday afternoon shared with PLANADVISER was a statement from Financial Services Roundtable CEO Tim Pawlenty, who is a supporter of the tax cuts: “The tax bill will help make American businesses of all sizes more competitive, add more jobs, and increase wages. With a near 35% rate, the U.S. has one of the highest corporate tax rates in the industrialized world. This bill includes meaningful tax reforms that will help make America more economically competitive and increase opportunity for individuals and families.”
On the other side of the debate, the AARP immediately voiced concern and skepticism, with a lengthy statement from CEO Jo Ann C. Jenkins. Here are some excerpts: “We remain deeply concerned by the negative effect the Tax Cuts and Jobs Act will have on the nation’s ability to fund critical priorities. The tax legislation will increase the deficit by approximately $1.5 trillion over the next ten years, and an unknown amount beyond 2027. The large increase in the deficit will inevitably lead to calls for greater spending cuts, which are likely to include dramatic cuts to Medicare, Medicaid, and other important programs serving older Americans.
“Indeed, the non-partisan Congressional Budget Office (CBO) has confirmed that unless Congress takes action, the reconciliation legislation will result in automatic federal funding cuts of $136 billion in fiscal year 2018, $25 billion of which must come from Medicare. Such sweeping cuts would be detrimental to an already vulnerable population.
“Efforts to restructure all or part of the federal tax system should maintain incentives for health and retirement security. Such incentives are not only important to assist individuals in attaining the security they deserve but are vital to our nation’s future economic well-being. The expiration of several of the income tax provisions designed to provide individual tax relief, the introduction of chained Consumer Price Index to the tax code and, for many tax filers, the limitation of the state and local tax deduction, may result in little if any tax benefit for many older tax filers, and for others, a tax increase. In fact, given the distributional analysis of the Joint Committee on Taxation of the House and Senate tax bills, it is reasonable to anticipate that the Tax and Jobs Act may not deliver the tax cuts that older Americans anticipate, and will likely increase taxes for many.”
Jenkins also cites concerns about the repeal of the Affordable Care Act individual mandate, among other items.
Mercer’s Geoff Manville, principal, government relations, warns that passage of the Tax Cuts and Jobs Act before Christmas will put pressure on HR departments and benefits consultants across the U.S.
“Prepare for a pretty tricky period in the months ahead,” he says. “If and when this tax cut package is ultimately successful, employers will likely have some difficulty in knowing how to handle the January 1, 2018, effective date that has been assigned for many of the bills’ provisions. I know our friends in the payroll department are still scratching their heads about how they should be planning to do withholdings in the early part of next year.”
Another response quickly came in from the Save Our Savings Coalition, an alliance of advocates and businesses “dedicated to protecting Americans’ retirement savings.” The group says “millions of hard-working Americans rely on employer-provided retirement plans and IRAs to save for their future. Over the past year, the Save Our Savings Coalition and members of Congress have worked tirelessly to ensure tax reform preserves the ability to save. Fortunately, the legislation headed to the President’s desk not only maintains critical incentives for families to save, but also preserves their freedom to choose the savings plan that fits needs. We commend both the House and Senate for their efforts to protect retirement for middle class Americans.”