Two leaders of a group of senators trying to convert last year's presidential deficit commission recommendations into legislation plan to take a hard look at eliminating tax breaks which cost a total of $1.1 trillion annually.
Two leaders of a group of senators trying to convert last year's presidential deficit commission recommendations into legislation plan to take a hard look at eliminating tax breaks that are the equivalent of government spending.
In an appearance before The Economic Club of Washington, D.C., on Wednesday, Sen. Saxby Chambliss, R-Ga., and Sen. Mark Warner, D-Va., said that the so-called Group of Six will continue its efforts despite the recent departure of one its key conservative members, Sen. Tom Coburn, R-Okla.
Mr. Warner stressed that the bipartisan team is embracing the deficit commission's idea of eliminating tax breaks and deductions known as “tax expenditures.” Favorable tax treatment of contributions to retirement savings plans are among the biggest tax exclusions, which cost a total of $1.1 trillion annually.
“Tax expenditures are government spending by another name,” Mr. Warner said. “'We have to cut back on the way we spend through the tax code.”
Doing so would allow for lower tax rates across the board and could “generate revenue” to pay down the burgeoning federal deficit and debt, according to Mr. Warner.
The sense of urgency about restoring fiscal balance is consuming Washington as Vice President Joe Biden and Capitol Hill Republicans try to negotiate an agreement to raise the $14.23 trillion debt ceiling by Aug. 2 to avoid a default.
Mr. Warner and Mr. Chambliss did not indicate when their group might introduce its deficit reduction plan. Just as the presidential deficit commission's recommendation did, it is likely to include major tax reform proposals.
But Mr. Warner said that he and his colleagues won't get down to the fine details of which tax expenditures to excise. He said the important thing is to inculcate the idea that if an expenditure is added back into the tax code, it must be paid for.
“What we would be doing is providing some guidance, but there will be other steps in the process,” Mr. Warner told reporters after his presentation. “As long as we count these in terms of costs, that makes it a more honest process.”
The debate over tax expenditures will continue long after the Chambliss-Warner group offers its bill. Mr. Chambliss said that it will not dictate tax overhaul details to the Senate Finance Committee.
“It's their jurisdiction to write tax reform,” Mr. Chambliss told reporters.
In its proposal, the deficit commission gave some breathing room to retirement savings deferrals, capping them at $20,000 annually. Currently, individuals can contribute up to $16,500 on a tax-deferred basis to a 401(k) plan and $5,000 into an individual retirement account annually. Companies augment the 401(k) contribution to a total of $49,000.
Bradford Campbell, an attorney at Schiff Hardin LLP, expects that retirement savings tax expenditures will take a hit after the dust settles on deficit reduction.
“We probably will see a reduction in the amount of deductions you can take,” Mr. Campbell, former assistant secretary of labor for employee benefits, told a Wednesday conference in Washington sponsored by The Hartford Financial Services Group Inc. “It's unlikely they'll be eliminated. There will be substantial tax benefits, but they won't be as good as they have been.”
