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Jay Heflin

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Former Vice President Joe Biden’s presidential platform includes a tax proposal that could force some employers to abandon offering retirement options to workers, the industry is warning.

The plan would dramatically change the incentive to save for retirement by replacing the current deferral system with a tax credit.

Most retirement plans, such as 401(k) plans and IRAs, allow taxpayers to delay paying taxes on contributions to accounts until they are retired. By suspending this tax until retirement, workers have been able to grow their nest eggs beyond what they would have been if taxes were paid in the year that the money was received.

Biden would like to replace the current system with a tax credit. His campaign site does not lay out a rate for the credit, but it has been reported to be 26%.

Applying a 26% rate, the federal government would provide $26 for every $100 a worker invests in their retirement account. The impetus is to create a level playing field so all taxpayers receive the same tax benefit irrespective of their income or tax liability. For example, a $100 deposit would create a $26 tax credit independent of a taxpayer’s income or tax bracket.

The retirement advocacy group, AARP, recently proposed the policy as an option to promote retirement savings.

Under the Biden plan, that $100 would be taxed in the year it was earned. So, a taxpayer in the 32% tax bracket would pay $32 in taxes, meaning that $68 would be invested in the retirement account.

After adding the $26 from the federal government, the total amount invested would be $94. The money would be invested directly in the taxpayer’s retirement account to ensure it is used as intended.

Under the current system, $100 would have been invested in the retirement account.

Biden’s plan would be advantageous for lower-income workers. For example, a taxpayer in the 12% tax bracket investing $100 in a retirement account would receive $114 after paying taxes and receiving the credit.

Some retirement industry experts think Biden’s proposal could force some companies to abandon their retirement plans.

Brian Graff, chief executive officer at the American Retirement Association, cautioned that employers, who normally pay taxes in the upper brackets, could oppose Biden’s plan because they lose much of their tax benefit.

“What we’re worried about is if you are essentially reducing the tax benefit, it’s not going to be worth it for them to keep the plan going,” he said.

Employers who make contributions to a 401(k) must offer that same benefit to their employees. However, some of those bosses might not want to continue offering a 401(k) if their tax benefit is greatly reduced.

“If it’s not worth it to the owner, [why] bother with it anymore?” Graff said.

Richard Rausser, senior vice president of client services at Pentegra, said that such a fundamental change to retirement accounts could be a deterrent to offering a plan.

“To the extent that there’s a change in taxation of salary deferrals … that’s going to be a disincentive for plan sponsors to adopt a plan, or for some of them, quite honestly, to continue to maintain a plan. They may rethink it,” he said.

On the other hand, Paul Richman, the chief government and political affairs officer at the Insured Retirement Institute, said there is not enough detail about Biden’s plan to render a decision.

He said, however, that his organization backs the current system of delaying tax payments until retirement.

“We support tax deferral,” he said. “We do agree that tax deferral that’s in place now works.”

Author: Jay Heflin

Source: Washington Examiner: Biden’s dramatic change to retirement accounts could reduce their availability, industry warns

Accountants support reelecting President Trump by a wide margin, according to a survey conducted by Arizent, the publisher of Accounting Today.

The poll found that 55% of respondents back Trump, while 38% support former vice president Joe Biden.

Not only is the gap between support for Trump and Biden wide, but the anonymous comments from respondents also show that the division is quite polarized.

“I believe a Biden-Harris win would destroy the country,” said one respondent who supports Trump.

Another said, “I will close my business and retire if Harris/Biden is elected.”

Biden supporters were equally firm in their position.

“I believe if Trump is re-elected, it will be a disaster for the country, the environment, and the health and well-being of the nation,” said one unidentified respondent who backs Biden.

While support for their respective candidates is unfailing, respondents did agree that the upcoming election would be extremely consequential and compared it to the 1860 election, when President Abraham Lincoln’s win catapulted the country into the Civil War.

A clear majority of accountants, 63%, agreed that getting a vaccine for the coronavirus should the top goal for whoever wins the election. Coming in a close second was addressing the national debt, with 60%.

The survey tapped the opinions of over 400 accountants from across the country between Sept. 17 and Sept. 22.

Author: Jay Heflin

Source: Washington Examiner: ‘A Biden-Harris win would destroy the country’: New survey shows majority of accountants back Trump

Retail sales increased 7.5% in June, the U.S. Census Bureau reported on Thursday.

The increase comes on the heels of sales skyrocketing by 18% in May as states began to reopen their economies.

May’s increase came on the heels of retail sales contracting by a record 14.7% in April and 8.3% in March.

Economists projected that retail sales would increase 5.2% for June.

The Census Bureau report shows that retail and food services sales for June were $524.3 billion, which is not only a 7.5% increase over last month, but also a 1.1% increase in sales when compared to June 2019. Non-store retailers, such as Amazon, had sales that were up 23.5% from June 2019.

Still, total sales from April to June were down 8.1% from the same period a year ago.

One of the hardest-hit sectors in June were the clothing and clothing accessories stores with sales over 39% lower when compared to the same month in 2019. Department stores sales were off nearly 20% when compared to June from last year.

One bright spot in the report are grocery stores, which had a 13% increase in sales when compared to June 2019.

As reported above, Thursday’s Census Bureau report shows that sales have increased for two consecutive months since the pandemic forced states to shut down their economies in March. But recent spikes in coronavirus infections in several areas of the country could force the retail sector to shut down again.

The number of cases in the United States hit 3.5 million on Wednesday. The number of deaths from the disease has surpassed 130,000. Some states have paused or reversed reopening plans for their local economies. This could have a chilling effect on retail sales in the not too distant future.

Author: Jay Heflin, Business Editor

Source: Washington Examiner: Retail sales increased 7.5% in June, beating economists’ expectations

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