Trump is right about 401(k) contribution limits

Jonathan S. Tobin
President Donald Trump in the Rose Garden of the White House in Washington, U.S., October 16, 2017.
Yuri Gripas | Reuters

Perhaps congressional Republicans would never have really decided to pay for upper-bracket tax cuts by lowering the amount Americans could put into their 401(k) retirement accounts. But the fact that Republican leaders chose not to comment on the possibility once it was reported that they were considering it last week, rather than immediately denying the story, gave reason for pause across the political spectrum.

And that's where things stood over the weekend, as Democrats began to open fire with charges that the GOP was planning to pay for tax cuts on businesses — something they rightly believe can help fuel economic growth — by making it harder for the harried middle and working classes to put money aside for retirement without paying taxes on their savings.

But any possibility that this might actually become part of the plan Republicans will eventually present to the country likely went out the window yesterday morning thanks to President Trump:

Republicans — as well as most of the rest of the country — have often complained about the president's use of Twitter and publicly wished that he would stop. As it happened, Monday morning provided another example of how Trump's inability to resist the temptation to reply to a critic leads to trouble, as he continued a feud with a Gold Star widow and a Florida congresswoman.

But Trump's tax tweet was as smart as it was very much to the point. If Republicans were even thinking of undermining the 401(k) provision in the law — and it's obvious that some of them were doing just that — the president just made that proposition a lot less attractive.

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In any effort to simplify the tax code, some constituencies that already benefit from loopholes or breaks are bound to be hurt. The current laws are a compendium of politically inspired deals that were produced by a toxic mixture of horse-trading, payoffs to supporters, and raw pandering to public opinion. Wholesale change is an imperative, and to accomplish any real reform, lawmakers will have to make enemies of those who benefit from the status quo.

But while it might be argued that the growth spurred by upper-bracket tax cuts is worth reducing the amount Americans can save in their 401(k) accounts, the optics of such a measure would be atrocious.

We already knew that Democrats would greet any attempt to reform the system or lower taxes so as to grow the economy with their usual class-warfare tactics. Contrary to the myths they spread about taxes, the wealthiest Americans already pay most of the income tax collected by the government.

But it's also true that in an economy plagued by the anemic growth that followed the 2008 recession, the middle class has found it increasingly difficult to save money for retirement. The 401(k) accounts allowed by law are a sensible way to encourage savings and increase investment in the economy. Though the government "loses" the revenue it might have collected had these savings been taxable, it gains from the surge of investment that 401(k) savings provide.

Trump's victory in the Republican primaries was a testament to the fact that a critical mass of GOP voters wanted the party to shift its emphasis from support for businesses to an appreciation of middle- and working-class voters.

It's not clear whether reducing the limits on how much Americans can deposit in their 401(k)s would have been a net plus for the Treasury, but we do know that it would have been a black eye for the Republican party, whose only formula for continued success involves keeping the working-class voters who put Trump in the White House on its side.

Trump's victory in the Republican primaries was a testament to the fact that a critical mass of GOP voters wanted the party to shift its emphasis from support for businesses to an appreciation of middle- and working-class voters. Trump understood that fact intuitively, and was able to appeal to such voters as a result. That congressional Republicans would even think of lowering limits on 401(k) contributions in order to cut business taxes is proof that they still haven't learned the right lessons from 2016.

Were Trump a more traditional president who knew how to work with Congress, he might not need to influence GOP tax planners by taking to Twitter. But Trump is not a traditional president; he's Trump. The process of writing and passing a simple bill, let alone of attempting a fundamental overhaul of the nation's tax code, is not something that he understands or is capable of managing. But he understands well enough that a simple message published on Twitter can stop just about anything in its tracks, and Republicans who would have suffered greatly next year from such a short-sighted policy change should be grateful today for his help.

Commentary by Jonathan S. Tobin, a contributor at National Review. Follow him on Twitter @jonathans_tobin.

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©2017 National Review. Used with permission.