Sounds like a totally discretionary tax to me. Going to get shafted with a high contribution tax rate? Simple, don't contribute. In other words, if the tax impact is about the same then screw contributing to a 401K with all the limitations and restrictions you get with one. Just take the money in salary (after tax) and invest as you wish.
Then who's footing the bill?
Good point, but those in higher brackets still would benefit from contributing to a 401k, just not as much as they do under the current tax law. Under current law, it’s a deduction, which means no tax paid on any contributions. Assume a 35% marginal rate and a $10,000 contribution for example. Under current law, the taxpayer saves $3,500 in taxes because of the $10,000 deduction. Under the new law, the same taxpayer would lose the deduction, increasing his tax bill by $3,500, but would receive a credit of 26% or $2,600. The final tax bill would be $900 higher than under current law. However, if he did as you suggested and invested in his own, his tax liability would still include the $3,500 tax owed on the $10,000 he invests, but there would be no tax credit. Therefore, he’d pay $3,500 more in taxes than current law allows, rather than $900 more if he invested in a 401k.
Unless there are other tax breaks or incentives he could take advantage of, it’s hard to see why even a high-income tax payer would pass up a 26% credit on his investment. I would think most would contribute the legal maximum to the 401K.