If Congress passes tax reform that includes cuts to 401(k) deductions in the code, President Trumpwill consider vetoing the bill, according to Mick Mulvaney,director of the Office of Management and Budget.

Speaking at a symposium at Georgetown University on Wednesday,Mulvaney reiterated that President Trump and the White House havetwo requirements of any tax bill: that it cut the corporate taxrate, and cut taxes on the middle class.

Removing or lowering the deductibility of 401(k) contributions would amount to a “huge”tax increase on the middle class, and “would violate one of our twoprinciples,” Mulvaney (photo, right) said.

"I can't imagine that the House and Senate would actually dosomething that would dramatically increase taxes on the middleclass but if they did we would certainly give serious thought tovetoing it," added Mulvaney.

Tax writers in the House are reportedly considering capping thedeductions on traditional 401(k) plans at $2,400, according tomedia reports last week. Contributions above that threshold wouldbe made on a Roth, or after-tax basis.

That idea provoked a stern rebuke from President Trump ontwitter: “There will be NO change to your 401(k). This has alwaysbeen a great and popular middle class tax break that works, and itstays!”

Mulvaney said he did not know how lawmakers on the House Waysand Means Committee arrived at the $2,400 figure.

But despite the President’s pledge, Rep. Kevin Brady, R-TX,chair of the Ways and Means Committee, publically confirmed afterthe tweet that the deductibility of 401(k) contributions was stillon the table.

“We want Americans to save more, and save earlier in their life,and earlier in their incomes,” Brady said at a conference hosted bythe Securities Industry and Financial Markets Association.

“At the end of the day, we are taking a fresh look at savingsplans and savings vehicles,” he added.

Brady confirmed to BenefitsPRO that the creation of new Universal Savings Accounts is alsobeing considered. Those accounts would allow all Americans toinvest after-tax money up to an annual limit that could growtax-free. Deductions could be made anytime, for any purpose,without a penalty.

Brady would not say whether those accounts would be used tojustify lower caps on 401(k) deferrals.

Mulvaney said that any bill passed by Congress will have tosatisfy two basic “pillars” established by President Trump: lowercorporate rates, and lower and simpler taxes for the middleclass.

“At the end of the process we will look at the final productthrough that prism,” said the OMB director. “If that’s the case wewill support it.”

Reducing the amount of pre-tax dollars invested in 401(k)s,which hold more than $5 trillion in assets, would allow lawmakersto bring revenue the government expects to collect when the assetsare withdrawn and taxed in retirement into the 10-year budgetwindow.

That would help offset revenue losses from lower corporate andindividual tax rates. The White House wants the corporate ratelowered from 35 percent to 20 percent, and individual rates loweredto zero, 12 percent, 25 percent, and 35 percent.

But critics of the plan argue that using 401(k)s to pay for taxcuts amounts to a budget gimmick that would end up deterringworkers from saving for retirement at a time when the country isoften characterized as suffering a retirement crisis.

It has met vast pushback from the financial services industry,employers, and consumer advocates. Lawmakers in both parties and inboth chambers of Congress have also voiced significantresistance.

Indeed, supporters of the idea are hard to find. Some economistshave argued over the years that 401(k)s benefit wealthier Americansthat don’t need tax incentives to save for retirement. Those voiceshave been largely silent on the eve of tax reform.

But one prominent Democrat has expressed support for limiting401(k) deductions.

“How many working Americans can afford to put $18,000 in their401(k) accts per year?” wrote David Axelrod, President Obama’sformer chief of staff, on twitter.

“Seems like very few. Why NOT cap it at a lower number?” headded.

New studies from the Employment Benefits Research Institute andthe Bipartisan Policy Center exploring the impact of limiting401(k) deductions, or 'Rothifying' the country’s retirement system,are expected in the coming weeks. EBRI’s study will examine thepotential impact on workers’ saving habits, and BPC’s study willexamine the long-term impact on the federal budget.

According to EBRI, even lower income workers stand to beimpacted by a $2,400 cap on contributions to traditional401(k)s. Nearly 40 percent of workers who save in a 401(k)plan and make between $10,000 and $25,000 contribute above the$2,400 threshold, according to EBRI’s data.

House Republicans are expected to release the first version ofthe tax bill on November 1. The Ways and Means Committee will begindebating the bill the week of November 6.