Trump Promises His Tax Plan Won’t Limit 401(k) Contributions

Trump. Photo: Saul Loeb/AFP/Getty Images

President Trump’s tax plan has a math problem. Congressional Republicans have given themselves permission to pass tax cuts that add $1.5 trillion to the deficit over the next decade — but not a penny more. That may sound like it should be more than enough. After all, Barack Obama’s stimulus package — the world-historic crime against fiscal responsibility that the GOP has been lamenting since 2009 — cost a little more than half that sum. But according to the Committee for a Responsible Federal Budget, the GOP’s initial framework for its tax cuts would add $2.2 trillion to the deficit over the next decade.

And the Republican plan has only grown more expensive since it was first released. The single biggest pay-for in the GOP’s initial plan was the abolition of the state and local tax deduction — a measure that would increase federal revenue by an estimated $1.3 trillion by decade’s end. But such a move would have increased taxes on some upper-middle-class families in high-tax areas. Naturally, blue state Republicans didn’t like that. And neither did Donald Trump, who was (reportedly) furious to learn that he had put such a provision in his tax plan. So, Republicans scrapped that idea. Now, their ostensible plan is to limit the deduction to individuals with incomes lower than $400,000. Once you price in the revenue lost from this revision, the GOP framework would add more than $3 trillion to the deficit by 2028.

Thus, congressional Republicans are searching under the tax code’s couch cushions for anything that looks like a new source of revenue. As of late last week, the party had found at least one: According to the New York Times, House Republicans were proposing to cap the amount of untaxed income that workers can stash in their 401(k) retirement accounts each year at $2,400. Currently, workers under 50 years old can put away as much as $18,000, while those above that age can set aside $24,000.

But the move would also increase the immediate tax burden of lots of upper-middle-class households. And, once again, Trump has no interest in being associated with anything like that.

Donald Trump insists that Republicans cut the corporate tax rate by (an exorbitantly expensive) 15 percent. He wants to cut the tax rate on pass-through businesses by nearly as much — and to abolish the estate tax and alternative minimum tax, and cut marginal rates on income. There is no way to do all this — while limiting the ten-year deficit impact to a mere $1.5 trillon — without passing politically difficult pay-fors.

And there’s no way for congressional Republicans to pass politically difficult pay-fors if the president disavows every unpopular revenue-raiser he gets wind of.

So, there may be no way for Republicans to pass their tax plan.

Trump Promises His Tax Plan Won’t Limit 401(k) Contributions