Administration opposition to the tax-cut package passed by Congress this month is part political, part fiscal and part ideological.
Democratic opponents say the legislation would give unfair tax breaks to the rich. Republican backers of the plan say upper-income people pay most of the nation's taxes and deserve proportional breaks. Each side says a defeat of its position would hurt the economy. The fate of motherhood also hangs in the balance.
Where you stand on the $792 billion tax-cut package may depend in large part on how much you make and how happy you are with the way your contributions to the Internal Revenue Service are being spent. But many upper-level civil servants--who don't necessarily fall into the fat-cat category--would lose an attractive potential perk if President Clinton, as promised, vetoes the giant GOP tax package.
The tax bill includes a provision that would gradually raise the amount of money individuals can contribute each year to employer-sponsored 401(k) plans. That limit--spelled out by law and adjusted annually by the IRS--is currently $10,000 a year.
Under the tax bill, the dollar amount an individual could contribute to a 401(k) plan--such as the federal thrift savings plan--would increase in steps over five years to $15,000. That would allow people to sock away lots more money, on a tax-deferred basis, for retirement.
Currently, federal civil servants, who have $85 billion in the thrift savings plan, are subject, as are all other 401(k) plan contributors, to two limitations:
* The first limit is on the amount of money as a percentage of pay that a person is allowed to contribute to a 401(k) plan. Private-sector plans, which have stiffer requirements than the federal 401(k) plan, generally limit employees to investing 4 percent to 6 percent. In the federal government, the maximum contribution is 5 percent of salary for workers under the older Civil Service Retirement System. The majority of workers, who are under the newer Federal Employees Retirement System, have a 10 percent limit. FERS employees also get tax-deferred matching government contributions of up to 5 percent.
* The second limit is on the annual dollar amount of individual contributions. Congress sets the formula, which is enforced by the IRS. This year the maximum individual contribution--for private-sector and government workers--is $10,000.
Increasing the limit on tax-deferred contributions, as the GOP plan would do, would cost the government revenue, especially in the short run. That is one of many reasons the White House opposes the overall package.
$10,000 for All Meanwhile, legislation sponsored by Rep. Constance A. Morella (R-Md.) that would allow any federal or postal worker--regardless of income or retirement plan--to contribute up to $10,000 a year to the thrift savings plan is stalled in the House.
Opponents say the bill, like the GOP tax plan, benefits primarily upper-income workers. Backers say many lower-income federal workers, especially those with a working spouse, would find ways to come up with the maximum $10,000 contribution. That would give them a lot more spending money in retirement and permit many to retire earlier.
The Morella bill has two attractive features that may make it through Congress this year even if the bill doesn't. Both are contained in a separate bill--also sponsored by Morella--that has passed the House. One would allow people to transfer money from an existing 401(k) plan into the federal thrift savings plan after they go to work for Uncle Sam. The other would allow workers to join the savings plan as soon as they are hired. Now employees must wait six months to a year before they can sign up for the savings plan.
The administration opposes the Morella bill with the limit of $10,000 for all workers and says it would cost the Treasury about $1 billion over five years. Put another way, federal workers would pay $1 billion less in taxes over five years while putting away more money for their retirement.
But the White House doesn't object to Morella's second bill (without the $10,000 feature). It may provide the only investment break feds get this year.
Executive Pay Raises Pay raises for members of the Senior Executive Service cannot exceed the amounts paid to certain executive-level political appointees. Also, annual raises, which are automatic for rank-and-file civil servants, must be authorized, via special executive order, by the president.
Because Congress is due a raise next year, odds are the 6,000-plus SES members will get raises of about 3.6 percent, even as rank-and-file feds are getting either 4.4 percent or 4.8 percent.
Mike Causey's e-mail address is email@example.com
Wednesday, Aug. 18, 1999