Prior to the election, the Biden administration released its tax plan for public scrutiny, and much of it was poured over by economists and analysts from various political camps. If you have some time on your hands, you can read some highlights below:
One of the less talked about proposed changes is an attempt to level the playing field with IRA tax deductions by replacing them with tax credits. The basic argument is this: tax deductions are worth more to higher wage earners because they are in a higher tax bracket so the deductions are not equivalent across the board.
Proponents argue this credit would encourage lower wage earners to save more, and argue that higher wage earners are going to save anyway. Opponents argue that it adds additional layers of complexity and may shift some savings from traditional to Roth options. In the end, it may be revenue neutral to the US, encourage more retirement savings, and be another component of the tax burden shift upwards.
A recent article in Financial Advisor explains that this would have a dramatic impact on the retirement planning landscape and “change the tax structure for all ERISA plans and IRAs.” Hopefully, the CBO will review the impact of the proposed changes and provide some guidance because adding additional layers of complexity is how the IRS tax code got to tens of thousands of pages.
The article also points out that “if Biden gets a $1.9 trillion package through, we could have north of 5% to 6% GDP growth. There’s a lot of forward momentum in the economy and so much depends on getting the virus under control to reopen those sectors of the economy that have been hit the hardest,” Busch said.
This is important to point out because the FA article reminds us that $10.4 trillion is already in play within the economy, and a large portion of that is still making its way through the system. It can be easy to lose sight of the economic forest for the trees when this much is happening simultaneously and it becomes extremely hard to predict the impact of certain programs.
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