Will Republicans fund tax cuts by tapping retirement piggy bank?

Tax reform is up next for our Attention Deficit Disorder Republican government, which just rushed through a chaotic, ugly battle to reform our complex healthcare system. The fight over tax reform promises to be just as chaotic and ugly – and it could mean big changes for Americans saving for retirement.

The Republican tax plan will include huge tax cuts for the wealthy and corporations, reducing top income tax rates, rates on investment income and corporate tax rates. Our lawmakers will need to find new revenue somewhere to offset the cuts. That is where retirement saving could come into play.

To understand why, it is important first to understand this term: “Tax expenditure.”

This is Washington budget-speak for tax revenue foregone due to special tax treatment. The phrase refers to billions of dollars in tax code exemptions, deductions or credits. Tax expenditures are designed to benefit specific activities or groups of taxpayers; the most important include deductions taken by employers for employee health insurance costs, capital gains and mortgage debt interest.

The spectacular collapse of the U.S. House healthcare bill last week will ratchet up pressure to find revenue as part of any tax reform bill, since the proposed healthcare reforms were expected to cut federal deficits by $337 billion over the next decade. By some estimates, the tax reformers will need to find $1 trillion or more in new revenue.

Retirement saving is an attractive target – and one that has been in Republicans’ crosshairs before. Tax expenditures for retirement saving exceeded $158 billion in 2015, and will be more than $1 trillion from 2015 to 2019, according to the nonpartisan Tax Policy Center. That includes tax breaks on traditional pensions, 401(k)s and traditional and Roth IRAs.

“Going to the retirement trough certainly is one possibility,” said Shai Akabas, director of fiscal policy at the Bipartisan Policy Center.

Learn more at Reuters Money.

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