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120 IRET Byline 1 (1993)

handle is hein.taxfoundation/iretbyln0120 and id is 1 raw text is: December 6, 1993 No. 120
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 &
Investors League would permit
unlimited    tax  deductible     ...all saving
contributions  to  individual    capital forn
investment accounts (IIAs) by all  tivity, and n
taxpayers.     Identical  bills  regardless
embodying this proposal, called the  behind it.
Individual Investment Account Act,  economic i
have been introduced in the Senate
and the House by members of both  government
parties: by Senator John Breaux  against or
(D-LA) as S. 929, and      by    type of savi
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 proposal, on the other hand, is a clean, stand-
alone measure that would itself be a major income tax
reform.

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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 savings deduction legislation introduced in
the last Congress by Representatives Dick Schulze and
Ed Jenkins, continues the campaign
for one of the boldest, most
imaginative, and most constructive
ntributes to     pro-growth tax initiatives in many
on, produc-      years. The bill would permit tax-
nal income,     payers to defer taxes on saving
the motive      without restrictions as to amount of
here is no       saving or time of withdrawal. The
'on for the      bill would all but eliminate the
onifcrinthe     income tax bias against individual
saving.  It would contribute to
ourage any      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.
*  No estate tax -  IIA assets would be excluded
from the gross estate.
*  Rollover of up to $15,000 (indexed for inflation)
from an IIA into the first purchase of a principal

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.
1331 Pennsylvania Ave., N.W., Suite 515, Washington, D.C. 20004  Phone: (202) 347-9570

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