House Republicans Propose Tax and Retirement Policy Changes

A Neuberger Berman analysis shows that House Republicans’ tax and retirement policy proposals may suggest a push toward a universal savings account and a consolidation of current tax code retirement savings provisions.
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An analysis of House Republicans’ tax and retirement policy proposals by Neuberger Berman indicates fundamental tax reform is unlikely, but portends smaller changes.

Fundamental tax reform is “politically unlikely” and would largely depend on one party controlling the House of Representatives, the Senate, and the presidency, says Neuberger Berman.

However, the firm says corporate tax reform is more likely considering “bipartisan agreement that something should be down about it.”

Republicans in the House of Representatives led by House Speaker Paul Ryan (R-Wisconsin), propose that the Committee on Ways and Means create more general savings vehicles and “consolidate and reform different retirement savings provisions …to provide effective and efficient incentives for savings and investment.”

One such vehicle, Neuberger Berman points out, may be a Universal Savings Account in which account holders could contribute cash and withdrawal contributions as well as earnings at any time without penalty, while having full control of their investments.

The House Republicans’ proposal on “Poverty, Opportunity, and Upward Mobility” includes a section on “Building Retirement Security through the Private Retirement System.” This section advocates for open Multiple Employer Plans(MEP)s to make it easier for companies to band together and offer 401(k)s, something which has wide support.  According to Neuberger Berman, “small ball” proposals, such as MEPs may also be possible granted the administration of whichever party wins in November would support them or “at least be prepared to accept them.”

House Republicans’ proposals to lower individual-level taxes on investments income would make 401(k)s marginally less attractive, the paper says. However, it also points that House Republicans’ proposal to lower the corporate tax would “increase returns for all savers, regardless if they are saving inside a plan or outside a plan.”

The proposal also calls for the protection of access to affordable retirement advice. The firm says this proposal appears to be advocating “rejection” or Congressional repeal of the Department of Labor (DOL)’s recent Conflict of Interest, or fiduciary, rule.

NEXT: The PBGC

House Republicans are also urging Congress to avoid a tax-payer bailout of the Pension Benefit Guaranty Corporation (PBGC) arguing that the organization is facing “huge deficits” and that the “PBGC’s financial crisis poses a grave risk to taxpayers and undermines the retirement security of all workers and retirees enrolled in defined benefit plans.”

In recent years, Congress has increased the PBGC premiums several times in order to offset increased deficits; most recently increasing premiums through 2025 by $7.65 billion in the Bipartisan Budget Act of 2015.

The House GOP is urging Congress to “set premium levels that reflect PBGC’s financial needs, protecting retirees and finally ending the threat of a taxpayer bailout.”

However, the firm notes that the proposal “does not draw a clear distinction between the financial condition of the single-employer and multiemployer PBGC programs.” Neuberger Berman says it’s not clear whether House Republicans are willing to raise single-employer premiums despite widespread criticism, or if they are considering using the single-employer fund to bail out the multiemployer fund.

NEXT: Consumption Tax

Moreover, the firm says the House Republicans’ proposals “broadly endorse a consumption tax concept,” in which consumption is defined as income minus savings and investments.

In broad terms, the proposals aim to lower the corporate tax to 20% based on location of consumption rather than location of production. Generally in this scenario, business imports would be taxed because they would be “consumed” in the U.S., while business exports would not be taxed because they would be consumed outside the country.

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