NAILBA Perspectives Perspectives Fall 2018 - Page 17

years on most inherited 401(k) and IRA amounts over $450,000. A variety of other RESA rules, in- cluding new discrimination rule safe harbors, are also excluded from H.R.6757. And, the bill does not include a provision authorizing provision of required plan partic- ipant notices and disclosures by electronic means.  This bill also includes provisions creating the new Universal Sav- ings Account (USA) plan. These rules would permit individuals to contribute up to $2,500/year, af- ter tax, into a USA. USA earnings would not be subject to tax. With- drawals from a USA could be made tax-free for any reason at any time. •  The American Innovation Act (H.R.6756) passed the House on September 27 by a 260 to 156 vote. H.R.6756 changes the rules for start-up businesses to make it easier for them to raise capital and for their investors to qualify for more tax benefits. H.R.6756, H.R.6757 and H.R.6760 together make up what House GOP tax writers are calling “Tax Reform 2.0.” The bills are expensive—ac- cording to official government reve- nue estimates, the bills—which are not offset—would reduce federal rev- enues (add to the federal deficit) by $623.4 billion over 10 years. The bulk of the lost revenue comes from the permanence bill ($597 billion). The savings bill would lose $21 billion over 10 years, the Joint Committee on Tax (JCT) estimated, while the small business innovation bill would cost $5.4 billion over 10 years. Prospects: Generally, it is widely expected that the Senate will sim- ply ignore this legislation—it would take 60 votes to pass any of these bills, and those votes do not appear to be there. While there are varying substantive concerns with the legis- lation, much of the opposition to it is due to its impact on the federal deficit. Most Senators (in both par- ties) do not see any value in voting later this year on another round of tax reform/cuts, especially in light of its budget-busting cost. However, there may be some po- tential for a compromise retirement savings bill during the November-De- cember lame duck session. There is considerable bipartisan support for most of RESA, and there is some thought that a compromise between RESA and the Family Savings Act could move, along with tax technical corrections and extenders, prior to year-end. NAIFA, in collaboration with other retirement savings industry partners, will continue to lobby for enactment of as much of RESA as possible—in- cluding the LIDA (lifetime income disclosure act) provisions. Whether that effort will succeed is unclear. Certainly, the outcome of the Novem- ber 6 elections will impact lawmak- ers’ decisions on the effort, and it is simply too early to tell what that outcome, or its impact, will be. JCT Releases New Tax Expenditures On October 6, the Joint Committee on Tax (JCT) released its latest tax expenditure report—a list of federal tax rules that result in tax not be- ing levied on specific transactions/ programs. The list includes many items of clear importance to agents, advisors, and their clients that total almost $4 trillion over five years in foregone tax revenue. The tax expenditure report typical- ly offers tax writers a rich source of possibilities when they look for off- setting revenue proposals. Offsetting revenue proposals will be coming in the near future—the Congressio- nal Budget Office (CBO) reported on October 7 that the federal deficit in 2018 is $782 billion—up 17 percent from last year—hitting 3.9 percent (up from 2.4 percent last year) of gross domestic product (GDP). Following is a list of some of the tax expenditures that impact agents, advisors, and their clients, and their value (the amount of tax revenue not collected) over the five-year period between 2018 and 2022. The total is just shy of $4 trillion over only five years (and revenue raisers are generally calculated as 10-year estimates). All of these tax rules are entirely appropriate—NAI- FA can and will defend them. But the sheer volume of them, and the fore- gone tax revenue they represent, makes clear the challenge the industry will face when (not if) Congress turns its attention to addressing the ballooning federal deficit. Type of Tax Expenditure Estimated Value between 2018 and 2022 Death benefits $120.3 billion: ($8.7 to corporations; $111.6 to individuals) Employer-provided health insurance $869.5 billion (includes long-term care insurance) Self-employed health insurance $40.6 billion (includes long-term care insurance) Health Savings Accounts: $29.5 billion Defined contribution plans $648.0 billion Keogh plans $81.1 billion Traditional IRAs $96.5 billion Roth IRAs $42.9 billion Cafeteria plans $221.1 billion Life insurance company reserves $10.3 billion Group term life insurance $18.5 billion Accident and disability income insurance $22.5 billion Capital gains $655.7 billion Exclusion of capital gains at death $204.4 billion (step-up in basis) Section 179 expensing $67.8 billion Pass-through business income deduction $259.0 billion Section 213 health expense deduction $43.4 billion ESOPs $10.5 billion VEBAs $7.5 billion Total $3967.7 billion Prospects: For the moment—at least until the end of 2018—there is little risk from this list. But the time is coming when Congress will have to confront the exploding federal deficit and at that point this list will become—as it has frequently done in the past—a place to look for new revenue. Agents and advisors will be well-served by staying alert, ready to defend the tax rules that are so important to the long-term security of policyholders. GovTalk is a monthly legislative and regulatory affairs update provided exclusively to NAILBA members by our partners at NAIFA, the National Association of Insurance and Financial Advisors. www.nailba.org 17