The retirement- and investment-related tax proposals in President Barak Obama's fiscal 2014 budget are bargaining chips in the administration's battle with Republicans, Washington insiders say.
As a result, they can't be discounted as dead on arrival, even though they are drawing criticism from the industries they target.
Perhaps the most striking proposal is a limit on tax-favored accumulation of all private retirement assets, including defined benefit and defined contribution plans. The budget would allow an annual benefit of $205,000 at age 62, resulting in a cap of $3.4 million at current interest rates.
While there were few additional details, the Office of Management and Budget estimates that the account cap would raise $9.3 billion over 10 years.
Derek B. Dorn, a partner in the Washington law firm of Davis & Harman who represents plan sponsors and service providers, cautioned against taking the ideas too lightly, since Mr. Obama gave up some ground on other fiscal issues such as growth in entitlement spending.
“The president stakes out some compromise positions, so we should take this proposal more seriously than past versions, which were often deemed dead on arrival,” said Mr. Dorn.
Mr. Obama's top economic adviser, Gene Sperling, agreed, saying in a press briefing that the budget package hits “a fiscal sweet spot” that shows the country is serious about dealing with its fiscal problems.
The president's proposed budget repeats many revenue-raising ideas familiar to professionals in the retirement and investment industries.
Still, the package unveiled April 10 followed through on the theme of limiting tax advantages for more affluent taxpayers. That was behind the call to reduce the value of tax deductions, including retirement contributions, to 28% of income.