Newspaper article The Christian Science Monitor

Tax Proposals Aim to Expand Savings

Newspaper article The Christian Science Monitor

Tax Proposals Aim to Expand Savings

Article excerpt

MARTIN FELDSTEIN offers an economist's version of having your cake and eating it too. The former top economist for the Reagan administration holds that Congress could give savers a tax break through a type of Individual Retirement Account (IRA) and yet not lose government revenues overall and not enlarge the federal deficit.

This thesis should please Senate Finance Committee chairman Lloyd Bentsen. The Texas Democrat has given priority in a massive tax bill moving through Congress to an expansion of the tax benefits for IRAs. That bill was being considered on the Senate floor before it adjourned Wednesday for the Republican convention and a summer break. Debate will continue when Congress returns after Labor Day.

As proposed by Senator Bentsen, fully deductible IRAs would be made available for all individuals, regardless of income or coverage by a pension plan. Effective Jan. 1, 1994, anyone could set aside $2,000 a year in an IRA and not pay taxes on that amount until it was withdrawn at retirement.

Also the Bentsen plan would create a new special IRA to which taxpayers could make nondeductible contributions, but the income would be tax sheltered and after five years withdrawals would be tax free.

The Joint Tax Committee says these two changes would cost $5.83 billion in revenue. Another provision, allowing penalty-free withdrawals for first-time homebuyers, the payment of catastrophic medical expenses, certain educational costs, and for the long-term unemployed, would cost $1.93 billion. This provision would take effect Jan. 1, 1993.

The tax bill passed by the House of Representatives in early July does not contain IRA provisions. So Bentsen, much concerned about the nation's low savings rate, will have to fight for his IRA expansion in a Senate-House conference.

Like much of the tax bill, the IRA provisions are controversial. Tuesday night the Senate rejected by a 72-25 vote an amendment by Sen. John Chafee (R) of Rhode Island to kill them altogether. An amendment by Sen. Howard Metzenbaum (D) of Ohio would have limited the availability of IRAs to couples with an annual adjusted gross income of $100,000 or less and single individuals with $75,000 or less. …

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