Political battle over ‘tax and spend’ unfolds in ways that help, hurt advisers

The two U.S. legislative branch chambers are supposed to be equal. The House, however, has been holding sway against the Senate in ways that are both good and bad for investment advisers.
The most recent example occurred Thursday, when the Senate Finance Committee dropped a provision from its highway funding bill that would have required the distribution of inherited individual retirement accounts within five years of the death of the account holder.
Senate Finance Committee Chairman Ron Wyden, D-Ore., had originally included it to help raise revenue to pay for road projects over the next 10 years that may be halted if the Highway Trust Fund runs out of money later this summer.
(See also: Limits to stretch IRAs floated to pay for highway repairs)
In a statement in late June, Mr. Wyden said he had “bent over backward to come up with the most benign, agreeable offsets possible” and that the bill included measures to “boost tax compliance” rather than “raise taxes.”
In the end, Republican members of his committee didn’t see it that way.
They rejected the so-called stretch-IRA proposal because it effectively raised taxes (accelerated their payment) and knew their House colleagues wouldn’t support it either, according to a Republican aide on the Senate Finance Committee. He asked not to be identified because he wasn’t authorized to speak on the record about the bill negotiations.
Indeed, House Ways & Means Committee Chairman Dave Camp, R-Mich., warned the Senate to stay away from taxes.
“I do not support, and the House will not support, billions of dollars in higher taxes to pay for more spending,” Mr. Camp said in a statement after his panel approved its version of a highway spending bill on Thursday.
When I was a Senate aide at the beginning of my career, I used to refer to the House as the “lower chamber,” even when I was talking to friends who worked on the House side. I wasn’t trying to be snarky. It just came out naturally.
Now I’m often seeing that the Senate more than meets its match with the House.
With the Senate’s capitulation in the highway bill, both chambers’ versions now rely on extending customs user fees, pension smoothing and transferring gas taxes from elsewhere into the Highway Trust Fund.
But the Senate bill also includes other provisions that close tax loopholes, Mr. Wyden said. He touted the Senate version as “a bipartisan bridge” to a long-term highway bill. He criticized the House version as “partisan.”
For now, stretch IRAs are off the table.
“The fact that the Senate blinked first on this tells me their hearts weren’t really in it,” said Tim Steffen, director of financial planning at Robert W. Baird & Co. “As soon as you start putting tax provisions into this bill, it starts to raise its profile a little bit. Maybe [tax reform] is something they’d rather wait to address until after the election.”
Many investment advisers believe stretch IRAs are good for estate planning. But putting the kibosh on reforming them is another example of the Republican-majority House flexing its muscles and the Senate acquiescing.
While that may be good for investment advisers who prefer the Republican approach to tax reform, it’s not good for advisers who want to see the Securities and Exchange Commission receive more funding.
Earlier this year, Congress approved a budget bill that followed the outlines of the House version and stiffed the SEC on funding, even though the Senate had provided the agency’s full request in its budget bill. That same process has played out ever since the GOP took over the House in 2011.