Tax Legislation May Have Pension Bill Ripple Effect

May 8, 2006 – Negotiations over final provisions of a tax reconciliation bill continue, with some hope that a compromise will be reached this week.  This bill, H.R. 4297, is expected to contain a much-publicized provision that would temporarily lift the income restriction for taxpayers wanting to convert Traditional IRAs to Roth IRAs. It would also extend the expiring SAVER credit for certain low-income taxpayers who contribute to IRAs or 401(k) /403(b) plans.

One consequence of the negotiations may have an effect on H.R. 2830, the pension reform bill also in conference committee. This bill has seen little negotiating progress since late March. A package of tax provision extensions that have been stripped out of H.R. 4297 may be added to the pension reform bill. This could have positive or negative effect on a timely negotiation of these bills. On one hand, it could add pressure to come to agreement on pension reform, since such extensions as a research-and-development tax credit are considered important to businesses. On the other hand, any agreement on pension reform legislation could be jeopardized by an add-on tax provision that does not have bipartisan support. Bills without reconciliation protection can be easily blocked in the Senate if there are not 60 senators who agree to closing debate and bringing a bill to a vote.