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February 26, 2009 at 07:00 PM
The Obama administration wants to cut Medicare Advantage spending $175 billion over 10 years and to keep the estate tax at current, inflation-indexed levels.
The administration has included those goals in a 10-year budget blueprint released today.
The Obama administration also calls for increasing taxes on couples earning more than $250,000 per year and on individuals earning more than $200,000, and it would raise the tax on dividends for those earning above those amounts to 20%, from 15% today, starting in 2011.
Other tax changes for high-wage earners, such as reductions in the deductions for interest paid on home mortgages and on charitable contributions, also would be phased in.
Deferred compensation plans would be affected only if they were domiciled offshore.
Employees not covered by qualified retirement plans could save for retirement through automatic payroll deposit individual retirement accounts. Under the Auto IRA system, employees would be automatically enrolled in workplace pension plans–and would be allowed to opt out if they chose. Employers that do not currently offer a retirement plan would have to enroll employees in a direct-deposit IRA account that was compatible with existing direct-deposit payroll systems.
The authors of the budget blueprint also want to expand the “saver’s credit” provision, which is designed to help moderate-income and low-income families who contribute to 401(k) plans or IRAs.
The blueprint authors would modify the existing saver’s credit to provide a 50% match on the first $1,000 of retirement savings for families that earn less than $65,000. The credit would be fully refundable.
A copy of the budget blueprint is available here.
More details about the proposals should be available when the administration releases the full budget and an analysis of the budget this spring.
Cliff Wilson, president of the National Association of Insurance and Financial Advisors, Falls Church, Va., says the trade group’s members support the provisions regarding the estate tax as providing certainty, and also support the provision that would allow employees not covered by qualified retirement plans to save through Auto IRAs, as long as employees have an opt-out provision.
The changes “very well” may provide opportunities for agents to sell tax-advantaged products, but above all else, “taxpayers must be confident that the economy will grow in order to ensure there are incentives available for people to plan for their future and to save for retirement, as well as invest in their business,” Wilson says.
David Stertzer, chief executive of the Association for Advanced Life Underwriting, Falls Church, says the release of the budget proposal “should further activate what we expect will be a very busy legislative year.”
He welcomed the provision that would extend the estate tax at the 2009 level.
“Providing a decision with permanence during this time of economic unrest will enable families and business owners to plan their financial future with certainty,” Stertzer says.
