A Boost for Savings

WHEN United States senators as politically diverse as Ted Kennedy, Lloyd Bentsen, Jesse Helms, and Alfonse D'Amato all come down on the same side of an issue, it's worth taking notice. Those four, along with 68 or so other members of the Senate support legislation to restore full income-tax deductibility for contributions to Individual Retirement Accounts (IRAs). The senators are on target. The purpose of IRAs - popularized in the early 1980s by scores of banks, thrift associations, mutual funds, and other financial institutions - was to encourage workers to salt away long-term savings and help boost America's sagging savings rate. The IRA allowed taxpayers not only to defer taxes on the interest earnings in their accounts until the money was withdrawn, but to take a tax deduction for each contribution. Total IRA assets grew from $26 billion in 1981 to around $3 00 billion in 1986.

IRAs, however, had powerful critics, particularly at the US Treasury, where officials lamented lost tax revenues. Congress imposed stiff limitations on IRA tax deductibility in the Tax Reform Act of 1986.

A bill proposed by Senator Bentsen, a Democrat, and Sen. William Roth, a Republican, would give IRAs the status they had before tax reform. It would also let taxpayers make penalty-free IRA withdrawals to buy a first home, pay college costs, or meet a catastrophic medical expense. The White House isn't happy about the bill, nor is Rep. Dan Rostenkowski, House Ways and Means Comittee chairman and an architect of tax reform.

The Bentsen-Roth bill would boost the US savings rate, encourage long-term thrift, and provide investment capital to help finance new plants and equipment. A somewhat similar measure introduced by the White House, the so-called family savings plan, falls short, since it lacks the generous tax-deductibility provisions of the IRA plan. Additionally, the IRA approach would benefit far more working-class Americans than would White House plans to reduce the tax on capital gains.