GOP, Dems not eye to eye on retirement, tax issues

Like the candidates themselves, the political platforms adopted at the Republican and Democratic conventions have little in common when it comes to retirement security and tax reform — two issues that could wind up having a big impact on how Americans save for retirement.

Social Security has received most of the attention from candidates Donald Trump and Hillary Clinton. Pressed by AARP on behalf of its nearly 38 million members, Mr. Trump and Ms. Clinton took sharply divergent approaches to strengthening a system that is expected to be insolvent by 2034. It has to be a priority for presidential and congressional candidates, said Nancy LeaMond, AARP executive vice president and chief advocacy and engagement officer, “or future generations could stand to lose up to $10,000 per year in earned benefits.”

For the Clinton campaign, “there is no way to accomplish that goal without asking the highest-income Americans to pay more,” including raising the taxable income cap and taxing other income, campaign officials told AARP. They also promised to fight “any attempts to gamble seniors' retirement security on the stock market through privatization,” and other ideas such as raising the retirement age or reducing cost-of-living increases.

Democrats also want to expand Social Security for widows or people who took time out of the workforce to care for family members.

The GOP platform said Social Security “is long overdue for major change. ... To restore public trust in the system, Republicans are committed to setting it on a sound fiscal basis that will give workers control over, and a sound return on, their investments.”

Mr. Trump told AARP that “the key to preserving Social Security ... is to have an economy that is robust and growing,” and the first step to achieve that is passing comprehensive tax reform that includes fewer brackets and lower tax rates for corporations and investors.

The mention of tax reform has retirement plan advocates worried about the potential impact on the current tax incentives to offer and participate in retirement plans at work.

For smaller employers in particular, “when their top rate goes down, their incentive goes down for having the plans,” said Judy Miller, director of retirement policy for the American Retirement Association, Arlington, Va. The real concern is how to pay for tax-rate cuts. When it comes down to raising more revenue to pay for the tax cuts, retirement savings incentives always seem to be in the crosshairs, she said.

Should Ms. Clinton take the White House, proposals to limit the tax advantages for higher-income people to save for retirement, espoused by President Barack Obama and others, could stay on the table.

In Mr. Obama's proposed budget for fiscal 2017 and previous years, he called for limiting tax-deferred contributions to defined contribution or individual retirement accounts producing an annual benefit of no more than $210,000.

With Republican leaders determined to take up tax reform, a plan espoused in 2014 by the then-chairman of the House Ways and Means Committee Dave Camp, R-Mich., that also trimmed the tax advantages of retirement savings for higher-income workers, could resurface.

Additionally, the GOP platform calls for a presidential panel to review the “demographic and ethical” problems of private pension plans that are underfunded because of “unrealistic” assumed rates of return and the risk that poses to the Pension Benefit Guaranty Corp. It also notes the problems faced by public-sector pension plans caused by “overly generous” benefits and other problems.

The Democratic platform touches on other retirement security issues without going into details. On defined benefit plans, Democrats promise to “defend the right of workers to collect their defined benefit pensions and make sure workers get priority and protection when pension plans are in distress,” and to fight to protect benefits earned in multiemployer pension plans.

Despite the Republican and Democratic divide over existing retirement plans, “there's a lot of enthusiasm on both sides of the aisle” for expanding access to retirement plans and putting more focus on lifetime income, said Shai Akabas, director of fiscal policy for the Bipartisan Policy Center in Washington. “There's an opportunity here for an issue that's not all controversial.”

Democrats also pledged to “fight against any attempt by Republicans in Congress or on Wall Street to roll back” the Department of Labor's new fiduciary rule. The Republican platform, which calls the GOP the “party of government reform,” does not address the fiduciary rule, but does promise to repeal the Dodd-Frank Wall Street Reform and Consumer Protection Act, whose “excessive regulation and burdensome requirements have helped contribute to the slow economy we all endure today.”

Other ideas for stimulating the economy could come up later in the election season.

“Both candidates are going to be pushing some type of fiscal stimulus, the monetary levers to try to spur economic growth in the U.S.,” said Mark Heppenstall, chief investment officer of Penn Mutual Asset Management, Horsham, Pa., which has $20 billion under management. “I think both candidates are going to be running on their ability to deploy capital efficiently. To me, there's going to be some sort of cooperation on both sides of the aisle.”

Some economic stimulus could come in the form of infrastructure spending, one of the few areas of agreement between the candidates.

Ms. Clinton has a five-year, $275 billion infrastructure plan centered on creating a national infrastructure bank, and she has promised to come up with an infrastructure spending proposal in her first 100 days in office.

The GOP platform calls for a federal-state-private partnership for infrastructure investing, and Mr. Trump has publicly called for spending much more than the Clinton plan.

“We'll make a phenomenal deal with a low interest rate,” Mr. Trump said during a recent television interview. “And we're going to have to rebuild our infrastructure. We have no choice.”

Regardless of who becomes the next president, “I get the sense that there will be some agreement on both sides of the aisle, and I think there will be an initial period of some things getting accomplished,” said Mr. Heppenstall. “The real question to me is whether or not the mindset of gridlock continues after the election.”