Lawmakers on both sides of the aisle have formally declared that tax incentives are important for retirement saving, and this should be taken into account for tax code reforms.
Reps. Jim Gerlach, R-Pa., and Richard Neal, D-Mass., filed this week a concurrent resolution, otherwise known as a "Sense of the Congress," that affirms lawmakers believe tax incentives are important for a secure retirement, and that "a reformed and simplified Tax Code should include properly structured tax incentives to maintain and contribute to [employer-sponsored retirement plans] and to strengthen retirement security for all Americans."
A Sense of the Congress does not create a law, but rather formally states a majority opinion.
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The consensus comes on the heels of a provision tucked into President Obama's 2013 budget that will limit the tax benefit for retirement savings for families earning more than $250,000. The proposal would reduce the value of deductions for high-income earners by capping the tax rate at 28 percent instead of 36 percent.
But, as ASPPA argued when a similar proposal to reduce or eliminate plan tax incentives was offered by budget hawks during debt-ceiling talks, "Unlike other targeted tax incentives, the tax break for retirement savings is a deferral, not a permanent write off."
"Under the President's budget, these taxpayers wouldn't just lose a current tax break, they would actually be penalized for saving—paying taxes now and taxes later," said ASPPA CEO Brian Graff. "This will discourage small business owners from setting up or maintaining retirement savings plans for their employees."
This time around, the group is applauding the more than 100 members of Congress who have "voiced their support for the employer-based retirement system…the resolution recognizes that current tax incentives for retirement savings have been successful at helping American workers save for a financially secure retirement, and that retirement savings tax incentives should play an important role in any reformed tax code."
Employer-sponsored retirement plans such as 401(k) plans are a crucial component of our nation's retirement system and more Americans save at work than in any other place, ASPPA says. Workers earning between $30,000 and $50,000 are more than 14 times more likely to save for retirement at work than through an individual IRA. Approximately 670,000 private-sector defined contribution plans cover 67 million participants and more than 48,000 private-sector defined benefit plans cover 19 million participants "thanks in large part to these incentives."
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