Among the things missing from President Joe Biden’s revised framework for the Build Back Better Act unveiled by the White House on Thursday? ALL the retirement-related provisions.
This is both good and bad news, with some provisions backed by the retirement industry and others opposed by it all stripped out of the leaner $1.75 trillion social spending and climate bill, as first reported Thursday by the American Retirement Association.
The much-ballyhooed auto-IRA provision? Gone. A series of provisions designed to close the so-called “back door” Roth IRA and “Mega” Roths? Adios.
“As a result of the slashing of the reconciliation bill down to $1.75 trillion the paid family and medical leave provisions were taken out which unfortunately led to the retirement plan coverage expansion provisions being removed. The good news is that all of the Roth-related provisions came out as well—which of course is only fair. So the ‘back-door’ Roth lives for another day. Also, for those who care no changes to the estate tax exemption or grantor trusts so you can stop scrambling,” ARA CEO Brian Graff said in a Thursday statement on LinkedIn.
“Although we are disappointed the retirement plan coverage expansion provisions were dropped, we appreciate that they complied with our suggestion to drop all retirement provisions from the bill. No one wants to eat vegetables without any dessert,” Graff added in an article posted on NAPA-net.org.
ARA said the retirement provisions were still in the mix until as recently as last night. What remains to be seen is whether some of the slashed retirement provisions reappear in some form of a SECURE Act 2.0 retirement reform bill, widely expected to be reintroduced in Congress next year after getting derailed by other issues on Capitol Hill this year despite strong bipartisan support.
Goodbye auto-IRA, Saver’s Credit provisions
The automatic IRA proposal was backed by House Ways and Means Committee Chair Richard Neal (D-MA), who has supported the automatic IRA idea for years. But it was opposed by the top Republican on the committee, Rep. Kevin Brady (R-TX), who feared auto-IRA provision would impose an “onerous new mandate” for businesses, and criticized Democrats in September for taking a partisan approach to retirement-savings legislation, since lawmakers on the committee have previously worked on bipartisan bills on the topic.
Specifically, the auto-IRA proposal would have required employers that have been in existence for at least two years, do not sponsor a retirement plan, and employ five or more people to automatically enroll those employees in IRAs or 401k-type plans. To offset administrative costs, employers would receive a tax credit.
The provision would have required employers to deduct at least 6% from employee paychecks starting in 2023 and automatically increase that savings rate by 1% per year until reaching 10%. Companies with five or fewer employees and those which have been in business for less than two years would be exempt from the requirement.
Also cut was a proposed expansion of the Saver’s Credit, a nonrefundable tax credit for eligible taxpayers who make contributions to retirement plans or IRAs. The provision would have make the Saver’s Credit refundable, and would have required the credit amount to be contributed directly to a tax-favored retirement account, in effect, acting as a matching contribution for savers.
“According to recent analysis commissioned by the American Retirement Association, implementing these proposals could add up to $7 trillion in additional retirement savings over a 10-year period—and create more than 62 million new retirement savers,” Neal said in September.
The pay-fors
The White House said in a Thursday statement detailing the Build Back Better framework that the scaled down (from $3.5 trillion to $1.75 trillion) bill is “fully paid for” with tax increases on corporations, millionaires and billionaires, and stepped-up enforcement against wealthy tax cheats. It also reiterates its often-mentioned stipulation that non one making under $400,000 will pay a penny more in taxes.
“The plan is fully paid for by asking more from the very largest corporations and the wealthiest Americans, and by repealing the Trump Administration’s rebate rule. The framework will help reverse the windfall delivered to wealthy Americans and large corporations in the 2017 tax cut and invest the revenue in American families and workers. No one making under $400,000 will pay a penny more in taxes,” the White House statement said.
Specifically, the White House says the framework will:
• Impose a 15% minimum tax on the corporate profits that large corporations—those with over $1 billion in profits—report to shareholders. “This means that if a large corporation says it is earning a billion dollars, then it can’t avoid paying taxes,” the statement said. The framework also includes a 1% surcharge on corporate stock buybacks.
• Impose a new surtax on the income of multi-millionaires and billionaires—the wealthiest 0.02% of Americans. It would apply a 5% rate above income of $10 million, and an additional 3% surtax on income above $25 million. The Build Back Better framework will also close the loopholes that allows some wealthy taxpayers to avoid paying the 3.8% Medicare tax on their earnings.
• Invest in overhauling tax administration, “so the wealthy finally pay what they owe,” the statement said. “The IRS does not have the resources it needs to pursue wealthy tax cheats. As a result of budget cuts, audit rates on those making over $1 million per year fell by over 60% over the last decade, and the IRS audits only 75,000 of the 4.2 million partnership returns filed each year. The result of a gutted IRS is a two-tiered tax system, where wage earners pay all the taxes they owe, but the top 1% evades over $160 billion per year in taxes.”
“The measures announced [Oct. 28] also make our tax system fairer and level the playing field for workers and small business,” Treasury Secretary Janet Yellen said in a statement. “By increasing tax enforcement, we will begin to close the multi-trillion dollar tax gap that deprives our country of revenue and allows those at the top to avoid paying what they owe.”
SEE ALSO:
• Auto-IRA, Saver’s Credit Provisions of $3.5 Trillion Spending Bill Pass Key Committee
• ARA’s Graff Projects 51 Million New Retirement Savers if Two Bills Get Passed
• Wyden Bill Seeks to Boost 401k Saver’s Credit