In September, President Trump struck a bipartisan deal with House Minority Leader Nancy Pelosi (D-CA, 12th) and Senate Minority Leader Chuck Schumer (D-NY) that provided some immediate federal funding for the various emergencies resulting from an active hurricane season, extended the temporary suspension of the debt limit, and funded all other federal government operations until December 8, 2017. Congress also passed a separate bill that would allow hurricane victims to access their 401(k) savings without incurring IRS penalties and taxes and loosen 401(k) plan loan rules. Specifically, the legislation would waive the 10 percent early withdrawal penalty (limited to $100,000 in withdrawals) and allow for the taxes on the distribution to be paid ratably over three years. Retirement plan loan limits in the impacted areas would also be effectively doubled to $100,000 and loan repayment periods would be extended.
On September 27, 2017, the Trump Administration and Republican Congressional leadership released their plan to change federal tax laws entitled “Unified Framework for Fixing Our Broken Tax Code.”
On the individual side, the Framework calls for a reduction in the current individual income tax brackets from seven to three: 12, 25 and 35 percent, with the potential for an additional top rate for high income earners. It omits any mention of reducing current rates on investment income (capital gains, dividends, and interest). It calls for doubling the standard deduction and increasing the Child Tax Credit, and repealing the Alternative Minimum Tax (AMT) and the estate tax. It also includes a proposal from the House Republican Better Way tax plan to cap the top tax rate for pass-through business entities at 25 percent.
On the corporate side, the Framework calls for a reduction of the top marginal corporate tax rate from 35 percent to 20 percent. It would allow for immediate expensing of new investments for at least five years, and provides for a one-time repatriation tax on corporate profits sitting overseas. It calls for a move from the current worldwide tax system to a territorial tax system.
The Framework was purposefully vague about changes to the tax incentives for retirement savings. One significant change reportedly being considered is to require some or all contributions to a qualified retirement plan to be made on a Roth or after-tax basis. But we just won’t know the details until we see the legislative text of the package.
The legislative process with tax reform will begin with the House Ways and Means Committee. Representative Kevin Brady (R-TX, 8th), Chairman of the House Ways and Means Committee, has said publicly that he will not release the legislative text of the tax plan until after Congressional Republicans finalize and pass a Budget Resolution for fiscal year 2018. The Republicans are aiming to complete their work on a Budget Resolution for fiscal year 2018 by the end of October.
Other Retirement Policy Legislation
On September 27, Representative Richard Neal (D-MA, 1st), Ranking Member of the House Ways and Means Committee, and Senator Sheldon Whitehouse (D-RI) introduced the Automatic IRA Act of 2017 (H.R. 3499 and S. 1861). The legislation would require employers who have 10 or more employees, and who also do not provide another qualified retirement plan for them, to enroll every worker automatically in a payroll deduction IRA program unless the employee opts out. The bill increases the small employer pension plan start-up tax credit to defray any cost to the employer of setting up the accounts. Given Republican control, the legislation is not expected to advance in the 115th Congress.