Last week, lawmakers began the intricate process of parsingwhich itemized deductions in the tax code could be used to pay forlower individual rates under tax reform, as the Senate Finance Committeeheld the first of what is expected to be many hearings on how todeliver middle-class tax relief.

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The committee was divided over proposals that would eliminatestate and local tax deductions and cap mortgage interest writeoffs.

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But one proposed pay-for evoked bipartisan skepticism.

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The so-called Rothification of the country’s retirementsystem would eliminate or cap deductions on contributions toworkplace retirement plans and IRAs.

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Withdrawals on Roth accounts are made tax-free in retirement.Withdrawals on traditional 401(k)s and IRAs are taxed as regularincome in retirement.

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Requiring all or some portion of retirement contributions to bemade on an after-tax basis would bring hundreds of billions in taxreceipts into the 10-year budget window.

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“You gotta be kidding me,” said Sen. Sherrod Brown, D-OH. “Thetwo best ideas to pay for massive tax cuts for Wall Street are tocut Medicare, raise the eligibility age to 70 for Social Security,and then steal from the retirement accounts of working middle-classAmericans?”

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The White House has not publically said that it intends toaddress Medicare and Social Security solvency through taxreform.

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To the contrary, President Trump has sent strong signals that hewill kick the can down the road on Social Security, to the dismayof fiscal conservatives.

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Brown’s commingling of the private retirement system withentitlement programs is telling, even if his characterization ofthe White House’s ambition on Social Security reform is notaccurate.

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It signals that the progressive wing of the Democratic party isprepared to go to the mat to preserve tax incentives to save inworkplace retirement plans.

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The Rothification of the country’s retirement system would betantamount to “slapping taxes on retirement savings of workingmiddle-class families,” said Brown.

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Ironically, Brown’s sentiment is in lockstep with the WallStreet interests he criticized. Fidelity, The Capital Group, andother asset managers of retirement savings are part of the Save OurSavings Coalition, which is lobbying to block Rothification.

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Other committee Democrats voiced concern over Rothificationduring the hearing. Senators Ron Wyden, D-OR, the ranking member ofthe Finance Committee, Debbie Stabenow, D-MI, Ben Cardin, D-MD, andBob Casey, D-PA, joined Sen. Brown in co-signing a letter to theWhite House and leaders in both parties, urging that Rothificationbe pulled from tax reform debate.

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“Tax reform should increase working families’ take-home pay,encourage savings, grow jobs and the economy, reward companies thatinvest in American workers and their communities, and maintainsound fiscal policy. So-called ‘Rothification’ of retirementsavings fails that test on all counts,” the Senators wrote.

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Republicans, tax experts also dubious of Rothification

Three of the four witnesses before the committee were tax policyexperts. Each testified that Rothification has the potential tonegatively impact retirement savings rates.

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“If one were to have such a dramatic change in retirement policyyou would want to have a group like the Joint Committee on Taxationestimate what the affects would be on savings rates,” said LilyBatchelder, a professor of law and policy at NYU. She previouslyserved on the National Economic Council in the Obama White House,and as the chief tax counsel for Democrats on the Senate FinanceCommittee.

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Alex Brill, a fellow at the American Enterprise Institute, aconservative think tank, underscored the value of tax policies thatpromote retirement savings. “These policies are critical for thelong-term economic viability of the country,” he said.

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In questions from Sen. Rob Portman, R-OH, Brill acknowledgedthat the impact of Rothification on savings rates is uncertain.

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He too called for further study on the issue. “Policy makersshould be cautious,” said Brill, who previously served as the chiefeconomist on the House Ways and Means Committee.

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The witnesses also raised concern that using Rothification tomove tax receipts into the 10-year budget window would have along-term negative impact on budget deficits.

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“It would raise a lot of revenue within the budget window andlose a tremendous mount of revenue outside the budget window,” saidBatchelder, who cautioned against using Rothification as a “budgetgimmick” to pay for tax cuts.

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