Reforming US Pension and Retirement Taxation
By Lowtax Editorial
03 July, 2014
As in many countries, the tax code in the United States attempts to encourage people to save for their retirement by providing various tax incentives. However, as many savers, retirement plan providers and lawmakers have observed, the current system is riddled with complexities and inconsistencies and costs the Federal Government tens, even hundreds of billions, in foregone tax revenue to maintain. Here, we look at ideas for reform of pension and retirement taxation as part of a possible comprehensive overhaul of the tax code, and other recent developments in this area.
On April 17, 2012, the United States House of Representatives Ways and Means Committee held a hearing on possible modifications to tax-favoured retirement savings plans, including employer-sponsored defined contribution plans and individual retirement accounts (IRAs), which might be considered as part of comprehensive tax reform.
Apart from US Social Security, which is financed by payroll taxes paid by workers and their employers, and was outside the scope of the hearing, many American employers offer employees the option of participating in employer-sponsored retirement and pension plans, which generally receive favourable federal income tax treatment, costing some USD200bn per year in foregone federal revenue.
Under those employer-sponsored plans, employees usually own their own accounts, and control the investment of account assets, thus bearing the risks and rewards of asset performance. In general, contributions to defined contribution (DC) plans are deductible for the employer, excluded from the employee’s income, grow tax-free, and are taxed upon distribution.
There are several types of DC plans, the most common of which are 401(k) plans for private employers, and they can also be offered as ‘Roth-style’ accounts: contributions to such accounts are made on an after-tax basis but earnings and distributions are tax-free.
Individuals may also be eligible to save through IRAs, which are similarly tax-advantaged, although with much lower contribution limits. Traditional IRAs are taxed similarly to 401(k) accounts, but individuals participating in employer-sponsored plans cannot contribute to a traditional IRA if they exceed certain income levels.
In his opening statement to the hearing, the Committee’s Chairman Dave Camp (R – Michigan) confirmed that the overwhelming majority of American workers with access to a workplace retirement plan are participating in that plan. According to the Bureau of Labour Statistics, 78% of full time workers have access to a workplace retirement plan, and 84% of those workers participate in the plan (meaning 66% of all full-time workers participate).
There is, he said, a proliferation of tax-favoured retirement accounts and some have questioned whether the large number of plans with different rules and eligibility criteria leads to confusion, reducing the effectiveness of the incentives in increasing retirement savings.
In addition, ideas have been offered for increasing participation in retirement plans and better targeting the incentives, and have questioned whether an employee should participate in additional incentives such as the Savers Credit, a non-refundable tax credit available to eligible taxpayers who make salary-deferral contributions to their employer sponsored plans, worth 10-50% of the individual's eligible contribution of up to USD2,000.
However, as Congress works towards comprehensive tax reform, he added that “it is important to keep in mind that these savings vehicles affect average people who depend on these resources for their retirement. We must ensure that we do not inadvertently take steps that result in unintended consequences that could threaten the retirement security of ordinary families.”
He believed that there are three important principles to keep in mind when evaluating tax-favoured retirement vehicles: simplification; increased participation, particularly by low- and middle-income taxpayers; and whether the tax benefits are effective and properly targeted.
Judy A. Miller, Chief of Actuarial Issues and Director of Retirement Policy, American Society of Pension Professionals and Actuaries, pointed out the two features that set the retirement savings incentives apart from other individual tax incentives.
The retirement savings incentive is income deferral, not a permanent exclusion, as every dollar that is excluded from income this year will be included in income in a future year. “Unfortunately, that is not reflected in the cash basis measurement of the retirement savings ‘tax expenditure’,” she observed.
Furthermore, non-discrimination rules for employer-sponsored plans assure the plans do not discriminate in favour of highly compensated employees, and limit the amount of compensation that can be included in determining benefits. “As a result,” she stated, “this tax incentive is more progressive than the current progressive tax code.”
Overall, she did not believe that the large number of plans with different rules and eligibility criteria leads to confusion, reducing the effectiveness of the incentives in increasing retirement savings. “Consolidating all types of defined contribution plans into one type of plan would not be simplification. It would disrupt savings, and force state and local governments and non-profits to modify their retirement savings plans and procedures,” Miller cautioned.
What is needed, she concluded, is an expansion of the availability of workplace savings. “Measures should definitely be considered to make it easier for employers, particularly small businesses, to offer a workplace savings plan to their employees.”
Randy Hardock, Partner, Davis & Harman LLP, testifying on behalf of the American Benefits Council, had a similar message for the Committee: “With about 100m active and retired workers accumulating retirement savings under employment-based retirement plans and IRAs, today’s retirement policies are working …For that reason, the first, and most important, principle we urge this Committee to consider in the context of tax reform is: do no harm.”
Hardock urged policymakers to avoid any actions that would make it more difficult for individuals to save for retirement or that would discourage employers from starting or continuing to maintain retirement plans. “Thus, the wisest course in most instances will be to not enact new laws or new regulations that would disrupt the success of the current system,” he argued.
“Changes in the retirement plan tax incentives,” he continued, “would require each plan sponsor to re-evaluate and completely redesign its retirement plan offerings and could force them to consider eliminating their plans entirely. Proposals that purport to increase short-term federal tax receipts by redirecting, eliminating, or eroding the existing retirement savings incentives achieve those additional taxes largely because individuals are saving less for retirement.”
“Any short-term revenue gain that might be derived from changes in the retirement savings incentives is largely illusory because when a worker saves less money today it will mean smaller distributions (and less tax revenue) when the individual retires.”
Camp’s Tax Reform Plan
On February 26, 2014, Camp issued his long-awaited comprehensive income tax reform discussion draft, which proposes to reduce maximum tax rates and simplify the tax code over 182 pages of a section-by-section "summary."
In terms of the taxation of pensions and retirement, the tax reform package would allow up to USD8,750 (half of the contribution limit) to be contributed either to a traditional retirement account (where tax is paid when taking a pension) or a "Roth" account (where contributions are made after tax). Any contributions in excess of USD8,750 would be dedicated to a Roth-style account – making these savings tax-free during retirement. Details of Camp’s plan in respect of pensions and retirement are as follows:
Elimination of income limits on contributions to Roth IRAs and other changes
Under current law, taxpayers may contribute to traditional Individual Retirement Accounts (IRAs) up to USD5,500 for 2014, with an additional USD1,000 catch-up contribution permitted for those at least 50 years old. These contribution limits are indexed for inflation. Contributions to a traditional IRA are deductible, earnings are not taxed currently, and distributions are included in income. Taxpayers may also make non-deductible IRA contributions with after-tax dollars, and earnings on amounts invested in the IRA are not currently taxed, but distributions (less previously taxed contributions) are subject to tax. Additionally, taxpayers may contribute up to the same limits to Roth IRAs but with after-tax contributions. Earnings and distributions from Roth IRAs are excluded from income. The USD5,500 and USD1,000 annual limits apply in the aggregate to the three types of IRAs.
Taxpayers covered by employer-sponsored retirement plans may not contribute to a traditional IRA if they are married filing separately, or if they exceed certain income levels. In 2014, the phase-out range for participation in a traditional IRA is USD60,000 to USD70,000 for singles and heads of households, USD96,000 to USD116,000 for joint returns for a spouse who is covered by an employer-sponsored plan, and USD181,000 to USD191,000 for the spouse who is not covered. Taxpayers not covered by an employer-sponsored plan may contribute to a traditional IRA regardless of income. There are no income limits on eligibility to contribute to non-deductible traditional IRAs. For Roth IRAs, eligibility does not depend on participation in an employer plan, but the contribution limit phases out over a range of USD114,000 to USD129,000 for singles and USD181,000 to USD191,000 for joint returns.) These amounts are indexed for inflation.
Under the provisions, the income eligibility limits for contributing to Roth IRAs would be eliminated and new contributions to traditional IRAs and non-deductible traditional IRAs would be prohibited. The inflation adjustment of the annual limit on Roth IRA contributions also would be suspended until tax year 2024, at which time inflation indexing would recommence based off of the frozen level. The provisions would be effective for tax years beginning after 2014.
Camp’s Reasons for Change: These provisions would help Americans achieve greater retirement security by effectively increasing the amounts they have available at retirement. These provisions would also help Americans save for retirement by simplifying their options.
Repeal of special rule permitting re-characterization of Roth IRA contributions as traditional IRA contributions
Under current law, an individual may re-characterize a contribution to a traditional IRA as a contribution to a Roth IRA (and vice versa). An individual may also re-characterize a conversion of a traditional IRA to a Roth IRA. The deadline for re-characterization is October 15 of the year following the contribution or conversion. When a re-characterization occurs, the individual is treated for tax purposes as having made the original contribution to the second account or as not having made the conversion. The re-characterization must include any net earnings related to the contribution.
Under the provision, the rule allowing re-characterization of Roth IRA contributions or conversions would be repealed. Note that under other provisions of the discussion draft, no new contributions to traditional IRAs would be permitted. The provision would be effective for tax years beginning after 2014.
Camp’s Reasons for Change: This provision would prevent a taxpayer from gaming the system by converting to a Roth IRA, investing in an extremely aggressive fashion and benefiting from any gains (which are never subject to tax), but retroactively reversing the conversion if the taxpayer suffers a loss to avoid taxes on some or all of the converted amount.
Termination for new SEPs; Termination for new SIMPLE 401(k)s.
Under current law, certain employers may offer a Simplified Employee Pension (SEP) IRA, which generally may only accept employer contributions. (Certain grandfathered SEPs, called SARSEPs, also may accept employee contributions.) The maximum contribution to a SEP is the lesser of the overall limit for contributions to a defined-contribution plan (USD52,000 for 2014, indexed for inflation) or 25 percent of the employee’s compensation. Employers must make contributions on behalf of all employees, which generally must be the same percentage of compensation for all employees.
For employers with no more than 100 employees, the Savings Incentive Match Plan for Employees (SIMPLE) option allows sponsoring employers to set up a SIMPLE 401(k) plan or a SIMPLE IRA. Under the SIMPLE 401(k) plan, the employer generally may satisfy the non-discrimination rules by matching contributions up to 2 percent of compensation or non-elective contributions up to 3 percent of compensation. A SIMPLE 401 (k) must allow each eligible employee to participate through salary reduction contributions equal to a specified percentage of compensation up to USD12,000 for 2014 (indexed for inflation). Under the SIMPLE IRA, sponsoring employers generally must follow similar contribution requirements, and the employee annual contribution limits are the same, but with individual IRA accounts established for the participating employees.
Under the provisions, employers would not be permitted to establish new SEPs or SIMPLE 401(k) plans after 2014. Employers would be permitted to continue making contributions to existing SEPs and SIMPLE 401(k) plans. SIMPLE IRAs would continue to be available. The SEP provision would be effective for tax years beginning after 2014, and the SIMPLE 401(k) provision would be effective for plan years beginning after 2014.
Camp’s Reasons for Change: The provision reduces the complexity of choices facing employers looking to start a retirement plan, encouraging employers to make a workplace retirement plan available to more Americans.
Rules related to designated Roth contributions
Under current law, 401(k) plans may offer either traditional accounts alone or both traditional and Roth accounts. Contributions to a traditional 401(k) account are not included in the employee’s income and earnings are not currently taxed, while distributions are treated as taxable income. Contributions to a 401(k) Roth account are made out of the employee’s after-tax income. Earnings in a Roth account are not taxable currently, and distributions generally are not taxable if the employee meets certain holding period and age requirements. If a 401(k) plan has a Roth option, the employee (but not the employer) may contribute to the Roth account, the traditional account, or both. Employer contributions to a 401(k) plan for employees with Roth accounts must be made into separate traditional accounts for the employee for whom the contribution is made. For these purposes, 403(b) plans and 457(b) plans are treated like 401(k) plans.
Under the provision, employees would generally be able to contribute up to half the maximum annual elective deferral amount (including catch-up contributions for employees at least 50 years old, if applicable) into a traditional account. (For 2014, the maximum annual elective deferral amount is USD17,500, and the maximum catch-up amount is USD5,500 (for a total of USD23,000 for such employees)). Any contributions in excess of half of these limits – USD8,750 and USD11,500, respectively – would be to a Roth account. Employees could contribute up to the entire annual elective deferral amount into a Roth account if they wish. Plans would generally be required to offer Roth accounts. Employer contributions would continue to be made to traditional accounts.
The provision would not apply to employers with 100 or fewer employees. In addition, employers may choose to have Roth accounts in a SIMPLE IRA, and if an employer with a SIMPLE IRA elects to limit traditional employee contributions to half the annual contribution limits, the employee contribution limits to such SIMPLE IRA would be increased to the contribution limits for a 401(k) plan. For purposes of this provision, 403(b) plans and 457(b) plans would be treated like 401(k) plans. The provision would generally be effective for plan years and tax years beginning after 2014. The SIMPLE IRA portion of the provision would be effective for tax years and calendar years beginning after 2014.
Camp’s Reasons for Change: The provision would help Americans achieve greater retirement security by effectively increasing the amounts they have available at retirement. Many people saving in traditional 401(k) plans do not consider the taxes that will be due upon distribution, and assume that their entire account balance will be available to them upon retirement. In contrast, the entire balance in a Roth account is distributed free of tax, and is available for retirement needs.
Modifications of required distribution rules for pension plans
Under current law, owners of traditional IRAs and employees in employer-sponsored retirement plans (both defined contribution and defined benefit plans) are subject to required minimum distribution (RMD) rules, which generally require the IRA owner (other than Roth IRAs) or employee (if he has retired, except for a 5 percent owner) to take minimum distributions beginning at age 70-and-a-half or pay a 50 percent excise tax on the amount of such distributions. Special rules apply when the IRA owner (including a Roth IRA owner) or employee dies before the entire account balance has been withdrawn. If the death occurs on or after the required beginning date for RMDs, the remaining amount must be distributed to the beneficiaries at least as rapidly as distributed to the descendant as of the date of death (but over the life expectancy of any designated beneficiary, if longer). Absent a designated beneficiary, the distribution period is the remaining life expectancy of the IRA owner or employee at the time of death. If an IRA owner or employee dies before the required beginning date and any part of the benefit is payable to a designated beneficiary, distributions generally must begin within one year of death and are spread over the life expectancy of the designated beneficiary. If the IRA owner or employee dies before the required beginning date and there is no designated beneficiary, the entire remaining account balance generally must be distributed to the estate by the end of the fifth year following the death.
Under the provision, if an employee becomes a 5-percent owner after age 70½ but before retiring, the required beginning date for RMDs would be April 1 of the following year. With respect to IRAs and employer-sponsored retirement plans that exist when the IRA owner or employee dies distributions would be required within five years (regardless of whether the IRA owner or employee dies before or after RMDs have begun). An exception would apply if the beneficiary is a spouse, is disabled, chronically ill, not more than 10 years younger than the deceased, or is a child, and would permits distributions to begin within one year of death and be spread over the life expectancy of the beneficiary. However, if that beneficiary dies or a child beneficiary turns 21, the general five-year-distribution rule would apply upon such occurrence.
The provision regarding RMDs after the death of an IRA owner or employee generally would be effective for distributions with respect to IRA owners or employees who die after 2014. The provisions would not apply to certain qualified annuities that are binding annuity contracts in effect on the date of enactment and at all times thereafter. The provision changing RMDs for 5-percent owners generally would become effective for employees becoming 5-percent owners with respect to plan years ending in calendar years beginning before, on, or after the date of enactment – except that the provision would not result in a required beginning date earlier than April 1, 2015.
Camp’s Reasons for Change: The provision would simplify the current complex required minimum distribution rules and reduce the compliance burdens on seniors and beneficiaries of IRAs and other retirement plans. It would also address the issue in current law that permits deferral of tax on retirement savings not only until the account owner’s retirement, but also well past the owner’s life if the beneficiary choses to spread the RMDs over his life expectancy.
Reduction in minimum age for allowable in-service distributions
Under current law, defined-contribution plans generally are not permitted to allow in-service distributions (i.e., distributions while an employee is still working for the employer) attributable to tax-deferred contributions if the employee is less than 59½ years old. For State and local government defined-contribution plans, and for all defined-benefit plans, the restriction on in-service distributions applies if the employee is less than age 62.
Under the provision, all defined-benefit plans as well as State and local government defined-contribution plans would be permitted to make in-service distributions beginning at age 59½. The provision would be effective for distributions made after 2014.
Camp’s Reasons for Change: Americans would be encouraged to continue working or working part-time instead of retiring early in order to access retirement savings at age 59½. The provision would also provide uniformity across various plan types.
Modification of rules governing hardship distributions
Under current law, defined-contribution plans are generally not permitted to allow in-service distributions (distributions while an employee is still working for the employer) attributable to elective deferrals if the employee is less than 59½ years old. One exception is for hardship distributions, which plans have the option of offering participants, but only if the plan follows guidelines such as that any distribution be necessary for an immediate and heavy financial need of the employee. Treasury regulations require that plans not allow employees taking hardship distributions to make contributions to the plan for six months after the distribution.
Under the provision, the IRS would be required within one year of the date of enactment to change its guidance to allow employees taking hardship distributions to continue making contributions to the plan. The provision would be effective for plan years beginning after 2014.
Camp’s Reasons for Change: Harsh rules that often trap individuals and families going through difficult financial circumstances would be removed and the current rule requiring individuals who lose their jobs to roll over any outstanding retirement plan loans to an IRA within 60 days or be subject to taxes and penalties on the loan amount would be removed.
Coordination of contribution limitations for 403(b) plans and governmental 457(b) plans
Under current law, 401(k) plans generally may allow employees to make elective deferrals of up to USD17,500 for 2014 and an additional USD5,500 catch-up contribution for those who are at least 50 years old. Total employer and employee contributions may not exceed USD52,000 for 2014. Contributions generally may not exceed employee compensation and may only be made by active employees. These amounts are indexed for inflation.
Certain employees with more than 15 years of service who are participants in 403(b) plans may make an additional contribution of up to USD3,000 per year. Entities sponsoring 403(b) plans (typically tax-exempt organizations) also may make non-elective employer contributions of up to USD52,000 in 2014 (indexed for inflation) for up to five years after the employee has separated from service. Similarly, a church may contribute a maximum of USD10,000 per year, even if the participant has no taxable compensation, up to a lifetime limit of USD40,000 per participant. For foreign missionaries with USD17,000 or less in adjusted gross income, a church may contribute up to USD3,000 per year (even in the absence of U.S. taxable compensation).
Participants in 457 plans sponsored by State and local governments are allowed to make additional contributions of up to USD35,000 for 2014 (indexed for inflation) for the three years prior to normal retirement age. State and local government employees may participate in both a 457 plan and either a 403(b) plan or a 401(k) plan in which case the employee may make the maximum allowable annual contributions to each of the plans.
Under the provision, all defined-contribution plans would be subject to the annual contribution limits currently applicable to 401(k) plans and would not have additional limits for different classes of employees at certain types of employers. The provision would apply to plan years and tax years beginning after 2014.
Camp’s Reasons for Change: The provision would simplify the Code by treating employees the same regardless of whether they work for private, non-profit or public employers.
Application of 10-percent early distribution tax to governmental 457 plans
Under current law, early distributions from employer-sponsored retirement plans and IRAs are generally subject to an additional tax of 10 percent. This additional tax does not apply to early distributions from 457 plans sponsored by State and local governments.
Under the provision, participants in governmental 457 plans would be subject to the 10-percent additional tax on early distributions. The provision would be effective for withdrawals after February 26, 2014.
Camp’s Reasons for Change: The provision would simplify the Code by treating employees the same regardless of whether they work for private, non-profit or public employers.
Under current law, the myriad retirement plan alternatives generally have contribution limits that are indexed for inflation. For 2014 the maximum benefit under a tax-qualified defined benefit plan is an annual payment equal to the lesser of an employee’s average compensation for the three highest compensation years or USD210,000. For 401(k), 403(b), and 457 plans (as well as grandfathered SARSEPs), the maximum annual elective deferral by employees is USD17,500 (not counting catch-up contributions for employees at least 50 years old). The maximum combined contribution by employer and employee to a defined contribution plan (as well as SEPs) in 2014 is USD52,000. SIMPLE IRA and SIMPLE 401(k) plans sponsored by small businesses are subject to a maximum annual contribution of USD12,000 (not counting catch-up contributions for employees at least 50 years old) for 2014.
Employees in certain retirement plans who are at least 50 years old may make additional catch-up contributions beyond the otherwise applicable annual contribution limits. For 401(k), 403(b), and 457 plans, the maximum annual catch-up contribution is USD5,500 for 2014. For SIMPLE IRAs and SIMPLE 401(k) plans, the maximum annual catch-up contribution is USD2,500 for 2014.
Under the provisions, the inflation adjustments for the maximum benefit under a defined benefit plan, the maximum combined contribution by an employer and employee to a defined contribution plan, the maximum elective deferrals with respect to each type of SEP, SIMPLE IRA, and defined contribution plan (i.e., 401(k), 403(b), and 457(b)), and catch-up contributions would be suspended until 2024, at which time inflation indexing would recommence based off of the frozen level. The provision generally would be effective after 2014. More specifically, the inflation adjustments for qualified plan benefit and contribution limitations would be effective for years ending with or within a calendar year beginning after 2014; the inflation adjustments for qualified plan elective deferral limitations would be effective for plan years and tax years beginning after 2014; the inflation adjustments for SIMPLE retirement accounts would be effective for calendar years beginning after 2014; and the inflation adjustments for catch-up contributions for certain employer plans and for governmental and tax-exempt organisational plans would be effective for tax years beginning after 2014.
Camp’s Reasons for Change: When interest rates are relatively low, as they have been for the last several years, these provisions would have little or no effect on the annual contribution limitations. For example, the maximum employee contribution levels of USD12,000 for SIMPLE IRAs and USD17,500 for 401(k) plans were the same in 2013 and 2014.
Tax-Free Pension Transfers Simplified
On April 3, 2014, the Department of the Treasury and the Internal Revenue Service issued guidance designed to help individuals accumulate and consolidate retirement savings by simplifying the process of transferring savings from one retirement plan to another, without tax complications.
The guidance is intended to increase pension portability by making it easier for employees changing jobs to move assets to their new employers' retirement plans.
The law allows a tax-free transfer of savings, generally referred to as a "rollover," to a new employer's plan. However, until the change, the receiving plan must have protected its tax-qualified status by determining that the source of the funds – the former employer's plan – is also tax-qualified, and that the incoming transfer complies with applicable rules.
The Treasury acknowledged that this stipulation "can pose a practical impediment to completion of the rollover, as the receiving plan may require individuals to obtain a letter or other paperwork from the sending plan, and neither plan may have a strong incentive to streamline the rollover process. Savers are often required to jump through a series of hoops, and many ultimately give up in frustration." The result is more leakage of savings from the retirement system and less financial security for individuals in retirement.
The new ruling simplifies the rollover process by introducing an easy way for a receiving plan to confirm the sending plan's tax-qualified status. The plan administrator for the receiving plan can now simply check a recent annual report filing for the sending plan on a database that is readily available to the public online. This eliminates the need for the two plans to communicate (with the individual as go-between), expedites the rollover process, and reduces associated paperwork, the agencies said.
"All too often, individuals moving from one job to another find it too difficult to take their retirement plan savings with them to a new employer," said Senior Advisor to the Secretary and Deputy Assistant Secretary for Retirement and Health Policy, Mark Iwry. "This guidance is designed to make it easier for people to roll over their retirement savings to a new employer plan when they change jobs, helping them preserve and accumulate assets for retirement."
Plan administrators are also reminded that the conduit individual retirement account (IRA) requirements – which allowed an IRA to be rolled over to an employer-sponsored qualified plan from an IRA only if the IRA was funded solely with rollover distributions from another employer-sponsored plan – no longer apply.
Highway Bill Revenue Raisers Target Retirement
On June 26, 2014, the United States Senate Finance Committee delayed a markup to its Chairman Ron Wyden's (D – Oregon) legislative proposal for a USD9bn short-term fix to the Highway Trust Fund (HTF), in the hope that a bipartisan solution may still be reached during the first half of July.
The HTF's problems, according to forecasts, are acute as it will encounter a shortfall by August this year. It has already required an infusion of USD54bn from the Federal Government's general fund since 2008.
The HFT mainly depends on federal fuel taxes for its funding, but those "gas taxes" have remained unchanged since 1993. The Congressional Budget Office has calculated that, in the past ten years, outlays from the HTF have exceeded revenues by more than USD52bn, and, if action fails to be taken, outlays will exceed revenues by an estimated USD167bn over the 2015-2024 period.
There have been recently been a variety of suggestions as to where additional resources for the fund could be found. However, as yet, none have found sufficient favor to get close to being enacted.
Proposals have included the obvious – but politically difficult in an election year – suggestion to provide long-term, stable funding for the HTF by hiking gas taxes.
Wyden's own short-term HTF fix, which would have provided funding to the end of this year from long-term sources, includes, among other ideas, forcing those who have inherited retirement plans to take taxable distributions over a maximum of five years, worth USD3.7bn.
However, Wyden delayed championing his package of measures following Republican opposition. In particular, Dave Camp expressed his disappointment with Wyden's proposals, adding that "there is no way tax hikes to pay for more spending will fly in the House."
The Legislative Outlook
Any observer of US politics would know that Congress, in its current state, is deeply divided along ideological lines and is incapable of tackling a number major issues, with tax and spending being one of the most difficult. The delay in dealing with the HTF funding shortfall represents a fairly typical example of this. So Camp’s tax reform plan, including his pension and retirement tax proposals, would be extremely unlikely to pass this year. Most tax reform advocates, including Camp himself, have come to accept this. All eyes then are cast towards November’s mid-term elections in the hope that the current Congressional deadlock can be broken and these issues can be addressed in 2015, although optimism in this respect is in short supply.
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