Stocks Slide On Report House Considering Capping 401(k) Plans Despite Trump Vow

After a NYT report last Friday that as part of Trump tax reform, 401(k) plan contributions could be capped at $2,400 annually, Trump was quick to deny tweeting on Monday that "There will be NO change to your 401(k). This has always been a great and popular middle class tax break that works, and it stays!"

That, however, appears not to be the case because as NBC and the WSJ report, Republicans are still weighing adjustments the 401(k) program, according to the chief of the House tax writing committee, contradicting Trump’s statement this week that it would be unchanged in the forthcoming tax overhaul proposal.

Speaking at a Christian Science Monitor breakfast with reporters, House Ways and Means Chairman Kevin Brady, R-Texas, declined to rule out changes when asked whether Trump's position had killed the idea. "We think in tax reform we can create incentives for Americans to save more and save sooner which can help," Brady said. "We are exploring a number of ideas in those areas." While he did not offer details, Brady said there were "continuing discussions with the president" on the topic.

That could be a signal that Republicans might pinch pretax savings for high-income households and use the money to beef up an underused tax break known as the saver’s credit, which acts like a government matching contribution to retirement accounts for low-and middle-income Americans.

The saver’s credit gives taxpayers an amount of up to 50% of their contributions and is limited to individuals with incomes below $31,000 and married couples with incomes below $62,000. It isn’t refundable, which means it can’t be used by households without income tax liability, and studies and surveys have shown many eligible people don’t claim it.

It would also be very market negative: considering that the roughly 86% reduction in 401(k) contributions would prove dire for stocks should the original proposal pass, it is easy to see why some have speculated that this is the catalyst for the recent market drop.

More from NBC:

While Brady said decision had yet to be made on that and several other key issues, he emphasized that a final bill was coming soon. If the House passes a budget this week, he plans to release legislation on taxes the next week. Brady predicted there would soon be an agreement among House Republicans on one of the most contested elements of tax reform so far: The state and local deduction.


Republicans from states like New York, California, and New Jersey with higher tax burdens have complained eliminating the deduction would raise overall taxes on many residents, but it's a crucial revenue raiser to help pay for the GOP plan.

Brady said he was close to a deal with these members that would limit the changes and suggested the key might be maintaining certain benefits for property taxes. "I do expect to reach an agreement with our high tax lawmakers because I think it's vitally important that we help Americans keep more of what they earn regardless of what they live," Brady said.

Brady was coy on many details of the tax legislation expected to be unveiled next week. He didn’t guarantee that every American’s rates would go down, but he said he could “guarantee that every American will be better off because of a simpler, fairer tax code.”

The GOP tax framework, released last month, would establish just three individual tax rates, with an optional fourth higher rate on the highest-income households. Brady said Wednesday no decision had been made yet on that highest rate.

For now, however, stocks are getting nervous that with tax reform once again up in the air after yesterday's Trump feuds and Senatorial scandals, a 401(k) cap is all the market needs to realize just how dislocated with reality it has become: US equities are fading fast ahead of the European close.

VIX topped 12 for the first time since September 8th (and is above its 200DMA).

As High yield bond prices plunge to crucial 50-/100-DMA support.