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.
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