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Graff: Camp’s Attack on Retirement Savings ‘a Mistake’

The tax reform proposal unveiled Feb. 26 by Rep. Dave Camp (R-MI), Chairman of the House Ways and Means Committee, includes numerous provisions attacking the current tax incentives for retirement savings. (For more details on the plan’s retirement provisions, see an analysis from ASPPA’s Congressional Affairs Manager Andy Remo.) Two proposed changes would be especially damaging to participants in workplace retirement plans:

• Individuals in the 35% tax bracket would be subject to a new 10% surtax on all contributions made to a qualified retirement plan – that is, both employer and employee contributions. This would mean double taxation of retirement savings in a way similar to a provision in President Obama’s 2013 budget proposal, but even more onerous.
• A freeze on all annually indexed contribution limits until 2023.

The response from ASPPA and NAPA was swift and blunt. “The result of the 10% surtax is double taxation of plan contributions. It totally ignores the fact that these contributions are tax deferrals, not a permanent exclusion, and will be subject to ordinary income tax when they are withdrawn after retirement,” said Brian Graff, ASPPA’s Executive Director/CEO, in a statement. “Should this proposal become law, a small business owner could pay a 10% surtax on all contributions made to a qualified retirement plan today, then pay tax again at the full ordinary income tax rate when they retire,” Graff said. “Penalizing small business owners for contributing to a plan is going to make them think twice about sponsoring a plan at all, and their employees could lose their workplace retirement plan as a result. Double taxation is hardly what we hoped to see in any tax reform proposal.”

Graff also expressed concern about the impact of the proposed freeze on contribution limits until 2023. “After all, the cost of living in retirement is not going to be frozen,” he pointed out. “On top of the double taxation mistake, this is a real blow to employer-sponsored retirement plans, and to American workers’ retirement security.

“We were very disappointed to see these provisions” in Camp’s tax reform proposal, Graff continued. “Had the reduction to retirement savings tax incentives been limited to requiring 401(k) contributions above 50% of the contribution limit to be Roth only, we would have considered that acceptable as part of broader tax reform. Unfortunately, that is not the case, and we must strongly oppose this tax reform proposal given its negative impact on American workers’ retirement security.”