IRA Deduction Cutoff Offered in House Plan

House tax reform negotiators presented a sweeping compromise offer today that would keep IRA deductions for some people but would end all IRA tax breaks for most single workers earning $30,000 and couples with incomes of $50,000.

The plan, crafted by Democrats, was outlined today to Republican members of the House tax reform bargaining team.

It would keep the low tax rates of 15% and 27% included in the Senate bill, but, in order to save some individual deductions, would raise corporate taxes $141.7 billion in five years--far beyond what the Senate wants.

Republican members of the Senate delegation have already attacked the plan for being anti-business, and some have said they would rather have no tax reform bill than have the latest idea floated by the House.

Completely New Plan

House members and aides have indicated that much of the new House proposal, which basically amounts to a completely new tax overhaul plan, would show senators that if they want to keep their low tax rates, they must swallow some very stiff business taxes.

The IRA provision in the new House plan would allow single people with adjusted gross incomes of up to $25,000 and married couples earning up to $40,000 to continue to receive annual deductions for contributions to individual retirement accounts.

Under current law, all workers can deduct up to $2,000 annually for contributions to IRAs. The money in the IRA is then allowed to accumulate tax-free, until people start to withdraw it when they retire.

Under the Senate plan, anyone covered by another pension plan would not be able to take the annual tax deduction. However, any contributions they made to the IRA would be allowed to accumulate tax-free interest until they start to withdraw the money at retirement.

Keep Current Law for Some

The House plan, like the Senate bill, would keep current law for all people not covered by another retirement plan.

But, under the House proposal, other single people earning between $25,000 and $30,000 would have their IRA deduction phased out, as would married couples earning between $40,000 and $50,000.