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![handle is hein.taxfoundation/iretcgadv0051 and id is 1 raw text is: Cogessioa
April 11, 1996 No. 53
TIME TO TERMINATE TAX BIAS
AGAINST SAVING
Tax time has rolled around again, and the
income tax bias against saving continues to depress
economic growth, wages, and personal income. In
January, the National Commission on Economic
Growth and Tax Reform called
for elimination of the income
tax bias against saving. The ... a tax dedi
commission's report reviewed is a tx ed . ca
several generic approaches to avedmpetec,
providing neutral tax treatment a complete o
for saving and investment, tax [or] adopt
One approach is to allow a tax measure that
deduction for income that is lar'ge part oft
saved, deferring tax on that agenda, but 1
income until it is withdrawn at complications
a later date for consumption. rewriting of th
Such an approach can be
incorporated in a complete
overhaul of the income tax.
Alternatively, it can be adopted as a stand-alone
measure that would accomplish a large part of the
tax restructuring agenda, but without some of the
complications of a full-scale rewriting of the tax
code.
Such a stand-alone measure has already been
introduced in the Congress by Senator John Breaux
(D-LA) as S. 159, and by Representative Jim
McCrery (R-LA) as H.R. 328. Their bills, based on
a proposal by the Savers & Investors League, would
permit unlimited tax deductible contributions to
individual investment accounts (IIAs) by all
taxpayers.
The Nunn-Domenici tax reform proposal, the
Armey flat tax bill, and the American Dream
Savings Accounts in the GOP House Contract With
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
tion. fo income that
Sbe incorporated in
r-haul of the income
ed ais a stand-alone
would accomplish a
fie tax restruturing
4ithout some of the
of
~e tax
a full-scale
code.
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 savings deduction legislation introduced in
the 102nd Congress by Representatives Dick
Schulze (R-PA) and Ed Jenkins (D-GA), continues
the campaign for one of the boldest, most imagina-
tive, and most constructive pro-growth tax initiatives
in many years. The bill would permit taxpayers to
defer taxes on saving without restrictions as to the
amount of saving or time of withdrawal. The bill
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.
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