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37 IRET Congressional Advisory 1 (1995)

handle is hein.taxfoundation/iretcgadv0035 and id is 1 raw text is: January 25, 1995 No. 37 ENDING THE TAX BIAS AGAINST SAVING: AN URGENT NECESSITY The merits of reducing the income tax bias against saving have become more urgent in light of the work of The Bipartisan Commission on Entitlement and Tax Reform. The Commission projects that unless current policies are changed exploding entitlement spending to pay for the retirement and health care of the baby boom and subsequent generations will produce budget deficits that will preempt all projected private saving early in the next century with devastating economic consequences. Increasing ...prvidingfo private saving now is an urgent the baby boo necessity to avoid this Xers will oi outcome. pivate savi4 substaniallye Legislation based on a proposal by the Savers & Investors League would permit unlimited tax deductible contributions to individual investment accounts (IIAs) by all taxpayers. Identical bills embodying this proposal, called the Individual Investment Account Act, have been reintroduced in the Senate and the House in the 104th Congress by members of both parties: by Senator John Breaux (D-LA) as S. 159, and by Representative Jim McCrery (R-LA) as H.R. 328. The Nunn-Domenici tax reform proposal, the Armey flat tax bill, and the American Dream Savings Accounts in the GOP House Contract With r- the dy b ~nd so America would also reduce the bias against saving to various degrees. The Nunn-Domenici and Armey reforms are likely to require extended debate before any chance of passage. The American Dream Savings Accounts would eliminate some of the existing penalties on saving, but only for limited uses. The Individual Investment Account 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 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 r'etirement of savings deduction legislation izd generation introduced in the 102nd e possible if Congress by Representatives is incr-eased Dick Schulze (R-PA) and Ed Jenkins (D-GA), continues the campaign for one of the boldest, most imaginative, and most constructive pro-growth tax initiatives in many years. The bill would permit taxpayers to defer taxes on saving without restric- tions as to the amount of saving or time of withdrawal. The bill would all but eliminate the individual income tax bias against personal 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. 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 informing 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.iret.org

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