U.S. tax incentives for retirement savings should be simpler and encourage more participation by low- and middle-income taxpayers, said Dave Camp, chairman of the House Ways and Means Committee.
Camp, the top Republican tax writer, said today that he hasn't drawn conclusions about what Congress should do on retirement savings as it overhauls the tax code by lowering rates and curtailing tax breaks.
Camp also said he supported the idea of requiring automatic enrollment in individual retirement accounts. President Barack Obama and Representative Richard Neal, a Massachusetts Democrat, support making employers who don't offer retirement plans enroll their workers in IRAs.
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"I basically, in general, like the concept," Camp, a Michigan Republican, told reporters after a hearing on retirement tax policy. "I think it's got a lot of merit."
Camp and House Republicans have called for lowering tax rates and reducing breaks, prompting supporters of tax incentives for retirement, housing, charity and other items to defend their place in the code. Republicans are searching for ways to raise $4.6 trillion over 10 years to meet revenue targets and turn the six-bracket system with a top rate of 35 percent into a two-bracket structure with rates of 10 and 25 percent.
The hearing on retirement savings, which coincided with the annual tax-filing deadline, focused on ways to strengthen and simplify the current system rather than raise revenue.
U.S. households can use tax-deferred and tax-advantaged accounts such as tax-deferred retirement accounts, employer-sponsored 401(k) plans and a "saver's" tax credit for lower-income workers.
Congress should be careful about upsetting today's retirement system for the sake of lower rates, said Representative Sander Levin of Michigan, the top Democrat on the committee.
"It's reckless to simply say we're going to get down to a certain figure without saying how you're going to get there," Levin said after the hearing.
Retirement savings tax incentives are costing the government more than $130 billion in revenue this year, making them among the most expensive U.S. tax breaks, according to the Joint Committee on Taxation.
Benefits Advocacy Group
Tapping those savings for revenue may be counterproductive, said Randy Hardock, a partner at Davis & Harman LLP in Washington who testified on behalf of the American Benefits Council, a group that advocates for employer-sponsored plans.
That's because short-term revenue gains for the government would come from reductions in savings, which generate more taxable income. The flip side, he said, is that the government would receive less revenue in future years when tax-deferred money comes out of retirement accounts.
Because of that dynamic, Camp cautioned against focusing on the estimates of revenue from curtailing or eliminating retirement incentives.
"It's almost like a one-dimensional look at things," Camp said.
Several panelists at the hearing said they support the automatic IRA proposal, which wouldn't require employers to match contributions.
"Savings change behavior," said David John, senior research fellow at the Heritage Foundation, which supports smaller government. "It brings people closer to the community. It makes them more future-oriented."
The Neal bill is H.R. 4049.
Bloomberg
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