Washington INsider

Washington INsiderblog

Mark Schoeff Jr. looks at what's really happening on Capitol Hill - and the upshot for advisers.

Fate of tax extenders will be clear only after long wait

No hope for broad reform this year

Jan 7, 2014 @ 11:20 am

By Mark Schoeff Jr.

tax, u.s. government, congress
+ Zoom

As Congress goes back to work this week, broad tax reform appears to be dead, and the fate of tax extenders may not be resolved until late in the year.

It is shaping up to be another wait-and-see exercise on tax policy, which will once again make tax planning a challenge for investment advisers and their clients.

Just before going on its holiday recess, Congress reached a bipartisan agreement on a budget framework for the next two years that set spending levels and prevents a government shutdown. But the accord avoided tax reform.

“It tells us that they haven't found any common ground on the direction of tax policy for the next year, or they would have addressed it,” said Timothy Steffen, senior vice president and director of financial planning at Robert W. Baird & Co. Inc.

The budget agreement didn't contain a road map for broad tax reform nor did it deal with the 57 so-called tax extenders, or tax breaks that have been renewed periodically but expired as of Jan. 1.

The extenders, which range from one that allows tax-free distributions from individual retirement accounts for charitable donations to another that allows the deduction of state and local taxes on federal returns, likely will be in limbo for the rest of the year.

“The best hope for [2014] is an extenders bill, and that may not happen until after the election,” Mr. Steffen said.

Investment advisers are hunkering down for a long wait.

Craig Richards, managing director and director of tax services at Fiduciary Trust, said that the IRA deduction is popular with his clients.

“We live year-to-year with a lot of these things,” he said.

“Our suggestion is that if you have charitable interests, don't take the required distribution right away. Let's hold off on it,” Mr. Richards said.

In the past, Congress has waited until the beginning of the next year to approve extenders retroactively for the previous tax year. That scenario could play out again.

Many of the extenders, especially the IRA deduction, are likely to survive, according to Pamela Villarreal, a senior fellow at the National Center for Policy Analysis.

“It may have some good odds,” she said. “Seniors are a big voting bloc.”

Although the outlook for extenders is fairly bright, the light for overall tax reform is almost snuffed out.

Congress faced a monumental task in moving a big tax bill during an election year and the prospects further diminished when Senate Finance Committee Chairman Max Baucus, D-Mont., was tapped as the next U.S. ambassador to China.

Observers are still wary of lawmakers' potentially turning to retirement-savings tax deferrals as a way to raise revenue for spending or to pay for other parts of tax reform, as they did with Roth conversions during last year's fiscal cliff bill.

“That's what the industry is more concerned about rather than overall tax reform,” said Robert Kaplan, national retirement consultant at ING.

The Investment Company Institute is staying “vigilant,” said ICI chief executive Paul Schott Stevens.

“Ideas that are on the table today could very well come back in a future bill,” he said.

But first, lawmakers have to come to the table with the resolve to tackle big issues.


What do you think?

View comments

Recommended for you

Featured video


State Street's Brie Williams: The story behind the 'Fearless Girl' statue

The idea started with the creation of a statue to coincide with International Women's Day, and the results surpassed expectations, according to Brie Williams, head of practice management at State Street Global Advisors.

Video Spotlight

Will It Last As Long As Your Clients Do?

Sponsored by Prudential

Video Spotlight

The Catalyst

Sponsored by Pershing

Latest news & opinion

Brian Block's $4 million bonus was tied to a key metric at ARCP

Prosecution rests case in fraud trial against CFO of American Realty Capital Properties.

Edward Jones is winning the Google search war

Brokerage firm's digital marketing investment helps land it at the top of local and overall search engine results, report finds.

Voya's win in 401(k) fee suit involving Financial Engines bodes well for other record keepers

Fidelity, Aon Hewitt and Xerox HR Solutions are currently defending against similar fiduciary-breach claims.

Collective investment trusts getting more attention from 401(k) advisers

The funds are catching on due largely to lower costs and more product availability, but come with some inherent drawbacks.

Vanguard rides robo-advice wave to $65B in assets

Personal Advisor Services, four times the size of its closest competitor, combines digital and human touch.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print