JCT Tax Proposal

[GBurns]

Does anyone know of any group that is starting or considering a public awareness or employer awareness campaign (or any other sort of campaign) to ensure that this proposal to eliminate the FICA excludibility of cafeteria plan salary reductions does not become law.

It would spell the death of cafeteria plans and have a major impact on employer provided health coverage. It would also have a major impact on the business of TPAs,

Here is the Proposal See page 71:

http://www.house.gov/jct/s-2-05.pdf

[Kirk Maldonado]

Have you checked with the American Benefits Council? They might be a good candidate.

[Guest fritzreb]

Yes, the Employer's Council on Flexible Compensation, ECFC.

Their website is http://www.ecfc.org

[Guest grafals]

I see the report in response to a 2/04 request for a laundry list of proposals with each Congress. However, has any actual bill been put forth? As far as I can tell, this is just a report of tax loopholes that COULD be closed to feed the government's appetite. I'm not sure I think the Congress is eager to take steps to abolish Cafeteria Plans, in the wake of the legislative push for universal healthcare from the left. Seems like political suicide to me.

I'll worry if/when a bill is proposed.

[Guest fritzreb]

No, a bill has not been put forth, but the Administration is seriously looking into ways to generate revenue to pay for MMA and other initiatives through increased medicare and social security contributions. Cafeteria plan elections "escaping" medicare and social security taxes when retirement contributions through 401(k), 403(b), etc. do not "escape" such taxation is conveniently viewed as inconsistent. There is no legislation pending yet, but unless employers and other advocates start lobbying now, it's a real possibility a bill may be introduced in the next couple of years. Don't wait until a bill is put forth, start worrying now and start lobbying now.

[GBurns]

grafals

We are not always told when a Bill is proposed and even then sometimes there is not even time for discussion especially if it is tacked on or hidden in at the last minute, to another more prominent bill.

Some politicians have already made comments. Here is a release from Senators Grassley, the Chairman of Committee on Finance and Baucus, the ranking member:

http://grassley.senate.gov/index.cfm?FuseA...Release_id=4872

[g8r]

I agree that this could pass w/out much advance notice.

I'm not sure what impact it would have on cafeteria plans. Clearly employers use the FICA savings to offset plan costs. Without that savings, employers might put more pressure on cafe providers to lower their fees. But, I think employees have become so used to cafe plans that I really don't see them being discontinued. Deferrals to a 401(k) plan don't escape FICA taxes. And, if you think about, why should you even need a cafe plan to get the income tax savings. It should be an above the line deduction that isn't contingent on whether an employer offers a cafeteria plan. But, that would increase the defecit...

The point is that there are a lot of inconsistencies in our tax laws that don't make much sense.

[mbozek]

Has anyone thought this proposal through? Why would congress want to tax Sal. reduction for Cafeteria plans only and not tax other employer contributions for health care and other welfare benefits which are exempt from FICA tax. Employee contributions to health ins could be avoided by making health plans non contributory and adjusting employee comp. Second, there is a fundimential difference between welfare and retirement benefits in that contributions to retirement benefits generate tax deferred assets which are not subject to FICA tax when paid but contributions to welfare benefits are consumed in the year contributed, e.g use it or lose it rule without any future benefit to the employee. Taxing welfare benefit contributions for FICA will increase SS benefits to employees with fica wages below 90k (about 95% of all workers). Imposing FICA taxes on employee contributions to welfare plans runs counter to the administration's position that it will not increase FICA taxes to save the SS system and will not generate a significant amount of revenue. The easiest way to gain revenue would be to increase the FICA wage base from 90 to 140k which would raise about 1/3 of the amount needed to eliminate the SS deficit.