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26 IRET Congressional Advisory 1 (1994)

handle is hein.taxfoundation/iretcgadv0025 and id is 1 raw text is: January 24, 1994 No. 26 ENDING THE TAX BIAS AGAINST SAVING: CONSENSUS IN THE MAKING? The merits of reducing the income tax bias against saving seem to be gaining bipartisan attention in Washington. Legislation based on a proposal by the Savers & ... all saving c Investors League would permit formation, pr unlimited tax deductible tional income contributions to individual motive behinc investment accounts (IIAs) by economic all taxpayers. Identical bills embodying this proposal, genmt called the Individual Investment Account Act, have saing. been introduced in the Senate and the House by members of both parties: by Senator John Breaux (D-LA) as S. 929, and by Representative Jim McCrery (R- LA) as H.R. 3179. Deferral of tax on any income that is saved is also a key feature of the Nunn-Domenici tax reform proposal presented on Oct. 5. The Nunn- Domenici proposal contains additional, major changes in the income tax to reduce excessive taxation of saving and investment, but offsets the perceived static revenue loss with higher taxes on labor. The Nunn-Domenici reform is likely to require extended debate before any chance of passage. The Individual Investment Account )ntrib oduct r-eg Iit. 'easo to coura proposal, on the other hand, is a clean, stand-alone measure that would itself be a major income tax reform. Renewed interest in the Congress in reducing the tax bias against saving is all the more important since enactment of the Omnibus Budget Reconciliation Act of 1993 (OBRA93). OBRA93 greatly increased the tax bias against saving by raising individual and corporate marginal income tax rates, permanently extending phase-outs of itemized deductions and personal exemptions, tightening rules limiting contributions to private pension arrangements, and limiting capital gains treatment of several types of financial transactions. These provisions are bound to retard private sector saving, capital formation, and economic growth. The Breaux and McCrery bills, similar to the unlimited utes to capital savings deduction legislation hity, and na- introduced in the last Congress airdless of the by Representatives Dick There is no Schulze and Ed Jenkins, Sor the continues the campaign for discione of the boldest, most dimaginative, and most con- structive pro-growth tax initiatives in many years. The ..........._ _ : bill would permit taxpayers to defer taxes on saving without restrictions as to amount of saving or time of withdrawal. The bill would all but eliminate the income tax bias against individual saving. It would contribute to higher levels of saving, investment, productivity, and income than now exist. The IIAs would have the following features: * Unlimited tax deduction of amounts saved. * Tax-free investment growth until withdrawal. * No penalty tax on withdrawal at any age. * No forced distribution at any age. * No income tax at death. Heirs may maintain the IIA with the benefactor's cost basis. Institute for Research on the Economics of Taxation IRET is a non-profit, tax exempt 501(c)(3) economic policy research and educational organization devoted to inorming the public about policies that will promote economic growth and efficient operation of the free market economy. 1730 K Street, N., Suite 910, Washington, D.C. 20006 Voice 202-463-1400 * Fax 202-463-6199 0 Internet www. ret.org

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