President Donald Trump on Monday dismissed the possibility of curbing a popular tax-deferred U.S. retirement savings program to help pay for his sweepingtax cuts, and voiced doubts about adding another top bracket targeting the wealthiest Americans.
The potential scaling back of 401(k) plans, which for four decades have helped millions of workers save for retirement, is one of several important details yet to be ironed out in a major tax overhaul that Trump promised as a candidate and wants his fellow Republicans who control Congress to pass by year’s end.
The White House and its congressional allies have floated the idea of paring certain tax deductions to make up for revenue that would be lost because of their proposed tax cuts, the centerpiece of which is a sharp reduction in the corporate income tax rate.
The Wall Street Journal and the New York Times reported on Friday that Republicans were considering an annual cap of about $2,400 on pre-tax contributions to 401(k) plans, roughly 13% of what workers under age 50 currently can contribute on a tax-deferred basis. That would slash the amount of money that workers can save for retirement in 401(k) plans, which typically are invested in a portfolio of mutual funds.
“There will be NO change to your 401(k),” Trump wrote on Twitter. “This has always been a great and popular middle class tax break that works, and it stays!”
Tampering with 401(k) plans, which have largely replaced defined benefit pensions in the United States, would risk alienating tens of millions of workers as well as Wall Street, which generates fees from managing the plans. Many companies match a percentage of their employees’ 401(k) contributions.
It also would provide ammunition to Democrats, who have painted Trump‘s plan, with its $6 trillion in tax cuts, as a gift to the rich and corporate America that would balloon the federal deficit.
Senator Ron Wyden, the top Democrat on the tax-code writing Senate Finance Committee, criticized Republicans for not making decisions on issues related to middle-class taxpayers, while having already decided to cut taxes for corporations.
“I am really struck with how the Republicans are handling this question of retirement accounts, which are a real lifeline for working families and as of this moment, it is still not clear whether they are going to include a really bad idea that would make it harder for working families to prepare forretirement,” Wyden said.
More than 94 million Americans are covered by defined contribution plans like a 401(k), according to a recent study by asset manager Vanguard. Total assets in such plans exceed $7 trillion.
For more on Trump’s plans for tax code reform, watch Fortune’s video:
New tax bracket?
Securing congressional passage of his tax plan is critically important to Trump, who has yet to get major legislation through Congress since taking office in January, including a healthcare overhaul he promised as a candidate last year.
The White House argues that tax cuts are needed to boost economic growth and create jobs, but has shown sensitivity in recent weeks to arguments that it is endangering America’s long-term fiscal health.
Based on the outline of the plan that was unveiled last month, independent experts have concluded that corporations and the highest earners would benefit the most, and many upper middle-income people would face higher taxes.
There are signs Republicans may add a fourth income tax bracket for high earners to the taxblueprint, which envisions reducing the number of brackets to three from the current seven.
The idea of an additional top tax bracket was floated by Republican House of Representatives Speaker Paul Ryan.
In an interview broadcast on Fox Business Network on Monday, Trump appeared to pour cold water on the idea.
“It may not happen,” Trump said. “The only reason I would have (it) … is if for any reason I feel the middle class is not being properly taken care of.”
There is also pressure from investors to pass the tax overhaul. The expectation of deep tax cuts has helped fuel a stock market rally during Trump‘s first year as president, with the broad S&P 500 index up more than 13%.
The index hit record highs every day last week, although it retreated on Monday.
“The question becomes what happens if tax reform doesn’t happen in 2017, does the market sell off into the year-end?” said Andrew Slimmon, portfolio manager at Morgan Stanley Investment Management in Chicago.
Trump is expected to participate on Tuesday in Senate Republicans’ weekly policy lunch. He said he would press the lawmakers to act on taxes and that he thinks there are enough votes to pass the plan. While its broad parameters have been made public, the detailed legislation has not yet been unveiled.
Democrats have urged Trump to include them in the development of the legislation. The Republican blueprint was devised without Democratic input. The last major tax restructuring, Republican former President Ronald Reagan’s 1986 overhaul, received significant input and support from Democrats.