How President Trump’s Tax Cut Will Benefit Foreign Investors More Than An American

How President Trump’s Tax Cut Will Benefit Foreign Investors More Than An American

President Trump said on Monday that he would oppose any effort to reduce the amount of pretax income that American workers can save in 401(k) retirement accounts, effectively killing an idea that Republicans were mulling as a way to help pay for a $1.5 trillion tax cut.

The directive, issued via Twitter, underscored a growing fear among Republicans and business lobbyists that Mr. Trump’s bully-pulpit whims could undermine the party’s best chance to pass the most sweeping rewrite of the tax code in decades.

Overhauling the tax code was never going to be easy given that it requires targeting lucrative and politically popular tax breaks to mitigate the magnitude of cuts Republicans are envisioning. Lawmakers must mitigate the revenue loss from those tax cuts in order to avoid a Democratic filibuster and pass a bill along party lines.

Publicly and privately, supporters of the Republican tax effort say they are concerned that Mr. Trump will make a hard task even harder. The Republican effort to repeal the Affordable Care Act was a similarly difficult effort, and the president’s comments and actions were often not helpful. For instance, Mr. Trump hosted House Republicans in the Rose Garden to celebrate passage of a bill to repeal the Affordable Care Act, only to call the same bill “mean” later. Last week, he confounded Republicans again by backing away from his endorsement of a bipartisan Senate proposal to stabilize health insurance markets.

“The Trump calling things ‘mean’ threat is very real right now,” said Jon Lieber, a former top aide to Senator Mitch McConnell of Kentucky, the majority leader.

Lindsay Walters, a White House spokeswoman, dismissed such concerns.

“The president has been clear and consistent on his top priorities for tax reform: giving middle-income Americans a tax cut and bringing the corporate rate down to 20 percent or lower,” she said. “It shouldn’t be a surprise to anyone that he is continuing to voice his support for policies that will achieve those goals.”

On Capitol Hill, Mr. Trump’s negotiating style can be unsettling. Mr. Trump “can shift on a dime, and he has many unformed policy positions,” said Representative Charlie Dent, Republican of Pennsylvania. “We have to worry about him shifting positions.”

As Republicans finalize the legislative rollout of their tax plan, they are wrestling with several controversial ideas that could be included to help offset the overall cost, which is estimated to be as high as $2.2 trillion over 10 years. Those ideas include phasing in Mr. Trump’s signature proposal to cut the corporate tax rate, reducing it gradually to 20 percent from 35 percent to help lessen the revenue hit in the first decade. The corporate tax cut is estimated to cost as much as $2 trillion over 10 years, though that does not factor in any economic boost from the cut.

Lawmakers have also discussed making the corporate and personal income tax cuts temporary.

Both of those ideas would likely meet resistance from businesses, which are eager for an immediate and permanent tax cut, and Mr. Trump, who had initially called for a 15 percent corporate tax rate.

Other offsets under discussion include limiting deductions for out-of-pocket medical expenses and state and local taxes paid. Republicans are also discussing whether to raise the top income tax rate for top earners and jettisoning a proposal to eliminate the estate tax.

Those ideas could prove crucial to Republicans’ ability to guide a tax bill through a complex set of legislative restrictions in the Senate. Party leaders are attempting to reshape the tax code using a legislative route that allows them to bypass a Democratic filibuster and pass a bill with a simple Senate majority.

To succeed, they will need to eliminate popular tax breaks, phase rate cuts in or out over time, or employ some budgetary accounting tricks to offset lost revenues.

Mr. Trump’s tweet concerned one of those accounting maneuvers, which would have allowed Republicans to effectively borrow tax revenues from the future to offset some rate cuts today. Reducing 401(k) contribution limits would force retirement savers to pay more in taxes today, as they sock away money, but less in the future, when they begin withdrawing retirement funds.

Lobbyists, tax consultants and others said last week that congressional negotiators were discussing proposals to potentially cap pretax contributions at $2,400 annually for 401(k) retirement accounts, though it was not clear if those proposals had made their way into the draft legislation that is expected to be released in the coming weeks.

Currently, workers can put away $18,000 a year in tax-deferred plans; workers who are over 50 years old can save up to $24,000. Under the proposals under consideration, contributions above $2,400 would be directed into so-called Roth accounts that are taxed immediately, a shift known as “Rothification” of retirement savings.

Details of the Republicans’ tax bill have been closely held, and they would not comment on Friday about possible changes to 401(k) contributions. But news that the proposal was under consideration drew immediate protest from Democrats and a variety of interest groups, including financial service professionals and retirement savings advocates.

Mr. Trump appeared to side with those opponents on Monday.

There will be NO change to your 401(k). This has always been a great and popular middle class tax break that works, and it stays!

— Donald J. Trump (@realDonaldTrump) October 23, 2017

It was not clear from Mr. Trump’s Twitter post whether he meant that he would not support a bill including alterations to 401(k) limits or that he knew the Republicans’ draft bill did not include such changes.

The news cheered advocacy groups that have sprung up to fight the retirement changes, including an organization called the Save Our Savings Coalition, which said in a statement on Monday that it was “thrilled to see the President’s statement today.”

Others saw ambiguity — intended or not — in the president’s message. “I doubt this tweet will preclude Rothification,” said Aron Szapiro, director of policy research for the investment research firm Morningstar.

Republicans and tax-reform advocates tend to see ambiguity as a hurdle for a major tax bill. Critics of Mr. Trump say that he is providing far too much of it, on this and other major legislative issues.

“Trump engages in fits and starts and then undermines his side’s negotiating positions half the time,” said Tim Miller, a former communications director for the Republican presidential campaign of Jeb Bush, and a partner at Definers Public Affairs. “He doesn’t care about the details of tax reform, or Obamacare repeal and replace, and thus inserting himself into the negotiations has been largely counterproductive to date.”

What privately alarms even supporters of Mr. Trump’s on Capitol Hill is the possibility that he cannot stomach unpopular issues. Such supporters often point to President Ronald Reagan’s championing of the 1986 tax reform bill, which eliminated many business tax preferences, as a contrast to Mr. Trump’s recent actions. That same dynamic could also be a benefit for industry groups, which may be able to rout a proposal by portraying a change as going against public sentiment.

Many observers in Washington say Mr. Trump has frequently promised more than he can deliver, again pointing to the health care debate, where he campaigned on a promise to provide better, lower-cost coverage to more Americans.

Others point to Mr. Trump’s promises on the budget, where he vowed to reduce the federal deficit and pay down the national debt, while both cutting taxes and leaving two major safety-net spending programs, Medicare and Social Security, untouched.

“On fiscal policy,” said Maya MacGuineas, the president of the Committee for a Responsible Federal Budget, “the president has never met a hard choice he was willing to make.”

Administration officials have tried to counter that attack in recent weeks, particularly as it relates to the tax bill. On Fox News Sunday last weekend, Mick Mulvaney, who heads the White House Office of Management and Budget, said that “we want the very best tax package that can actually pass, and if there’s things the House has to do or the Senate has to do to get that last vote or two to get across the finish line, that’s up to them.”