EDITORIAL: Don’t throttle retirement plans

Oct. 25--After two abortive and widely unpopular attempts to repeal or remake Obamacare, Republicans in Congress have run out of feet to shoot. Now they appear to be aiming at more vital organs.

GOP lawmakers reportedly are considering putting the squeeze on 401(k) plans, the tax-deferred personal savings accounts tens of millions of Americans rely on for retirement, in order to "pay" for some $1 trillion in tax cuts. Currently, workers can put up to $18,000 each year in a 401(k) and not pay taxes on that money (or $24,000 if they're over age 50). Under one Republican idea, the annual amount workers could set aside tax-free would become as low as $2,400.

Exposing more income to taxation would generate more dollars for Washington, partially offsetting the amount of revenue lost to reductions in income tax rates and corporate taxes. (Eliminating the tax break for 401(k)s entirely in 2018 would generate $115 billion.)

Doing so, however, would make it much harder for Americans to save for their retirement. Indeed, it would be a gut punch to workers who have suffered years of stagnant wages and struggled to balance paying their current bills with setting aside enough for their futures.

It also would violate an implicit deal between employers, employees and the government. Since the 1980s, defined-contribution 401(k)s have largely replaced traditional defined-benefit pensions in the private sector. Businesses increasingly preferred to avoid the long-term financial liability of a pension by matching their employees' regular contributions to a 401(k) -- in effect, "free money" for their retirement. In exchange, the government refrained from taxing those savings until they were withdrawn years later at retirement.

That arrangement largely has been beneficial to companies, which aren't saddled by legacy costs of pensions far into the future; to workers, who own their retirement accounts and can control how much they put it in, and how to grow it; and to the economy, which grows from having all those tax-deferred dollars in managed plans invested into markets. That in itself creates taxable wealth.

If Republicans severely limit annual contributions, they will cause massive disruption -- for no good reason. It's not as if 401(k)s are broken, and that the GOP is proposing a better alternative. Rather, Republicans are cynically seeking to rob Peter to pay Paul.

If Democrats unveiled a similar proposal to pay for their social programs, Republicans would be climbing over themselves to accuse their opponents of "raiding your retirement" and "denying you your future" -- and rightly so. Messing around with 401(k)s is a true peasants-with-pitchforks issue.

If the GOP needs to offset revenue losses from other tax cuts, the best solution is to cut spending. Of course, it takes political courage to defund social welfare and military programs that have strong constituencies -- a trait that is to Washington what rainfall is to the Sahara. But given the mounting national debt, spending restraint is imperative if the nation is to avoid going off the fiscal rails, tax cuts or no tax cuts.

President Donald Trump's Twitter account often is a scattershot of unbridled retorts to perceived personal sleights leavened with occasional half-baked policy ideas. Monday morning, though, he took clear aim at Congress when he tweeted: "There will be NO change to your 401(k). This has always been a great and popular middle class tax break that works, and it stays!"

Hopefully that's one principle that is non-negotiable. If public opinion doesn't dissuade Republicans, then the president should veto any tax package that crosses his desk that throttles retirement accounts and discourages savings.

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