Under President Trump’s aggressive plan to overhaul the country’s tax code, “retirement savings will be protected,” according to Gary Cohn, Trump’s chief economic advisor and director of the National Economic Council.

During a press conference rolling out the framework for the White House’s plan for tax reform, Cohn and Treasury Secretary Steve Mnuchin said the Trump plan would eliminate most of the tax breaks that mainly benefit high-income individuals.

While pledging to protect retirement savings, the White House plan does not include details on whether the existing tax-preferred treatment of contributions to 401(k) and other defined contribution plans are spared under the Trump plan, or whether they will be replaced with new after-tax incentives to save. Individual deductions on mortgage interest and charitable giving will be spared.

The Trump plan would lower the corporate tax rate from 35 percent to 15 percent, and reduce the existing seven individual tax brackets to three—10, 25, and 35 percent. A one-page outline of the plan does not include the income thresholds for the new tax brackets.

The plan would also eliminate the 3.8 percent tax on dividend income created by the Affordable Care Act, repeal the alternative minimum tax, and do away with the so-called death tax. The current standard deduction would be doubled, meaning the first $24,000 of a married couples earnings would not be taxed.

“This isn’t going to be easy. Doing big things never is,” said Cohn. “But one thing is certain: I would never, ever bet against this President. He will get this done for the American people.”

Cohn and Mnuchin did not say whether the plan would be revenue neutral, but said it would create “trillions” in additional revenue through the economic growth the plan would generate and the elimination of most of the existing deductions, such as those for state and local taxes.

Cohn said the White House is in ongoing “robust” discussions with leaders in the House and Senate, and that President Trump is determined to pass tax reform legislation this year.

The non-partisan Joint Committee on Taxation says defined contribution plans will cost $583.6 billion in forgone tax revenue between 2016 and 2020. Traditional IRAs will cost $85.8.

Republicans are reportedly considering several options that would eliminate or reduce the tax-preferred treatment of 401(k) contributions.

Ed Murphy, president of Empower Retirement, recently told BenefitsPRO that a proposal to shift the entire defined contribution system to an all after-tax, or Roth structure is “highly unlikely.”

Retirement advocates and non-partisan economists are concerned that the Roth structure does not provide enough incentive to save for retirement. A recent report from BrightScope and the Investment Company Institute showed 80 percent of respondents said the pre-tax treatment of 401(k) contributions are a “big incentive” to save for retirement.

In a statement, House Speaker Paul Ryan, R-WI, and Ways and Means Committee chairman Kevin Brady, R-TX, said the White House plan will “serve as critical guideposts” for Congress.

Some advocates for tax reform are concerned the White House is relying on overly optimistic growth expectations to rationalize the deep tax cuts.

“The tax code is in desperate need of reform to simplify it, make it fairer, and grow the economy,” said Maya MacGuineas, president of the Committee for a Responsible Federal Budget, in a statement.

“At the same time, we have to recognize the simple facts that tax cuts are not the same as reforms, nor do tax cuts pay for themselves. Actual reform is going to require identifying specific tax expenditures to eliminate or reform. Relying on overly rosy economic assumptions to offset the revenue loss from tax reductions will not only lead to disappointing results, it will undermine the potential growth benefits from reforming the tax code,” added MacGuineas.

The elimination of some tax breaks under the White House plan is encouraging, MacGuineas said. But “tough choices” will have to made to assure the aggressive tax cuts can be paid for.

Instant Insights /

White House vows to protect retirement savings under tax plan

More From HR Executive

Related Stories

Recommended For You