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Sunday, January 25, 2004 - Page updated at 12:00 A.M.
Bush retirement-savings plans will resurface in February budget
By Greg Robb
WASHINGTON President Bush left his plans to boost savings through new tax-free accounts out of the State of the Union address, but that doesn't mean they are dead, administration officials say.
The plans will be unveiled in the president's Feb. 2 budget, Treasury Department spokeswoman Tara Bradshaw said. "We are committed to advocating and advancing these proposals with Congress to get them passed this year," Bradshaw said.
Many observers thought the new plans Lifetime Savings Accounts, known as LSAs, and Retirement Savings Accounts, or RSAs would feature prominently in the State of the Union address.
But Bush didn't mention either of the plans. He did mention a long-standing proposal to allow younger workers to invest part of their Social Security taxes in private accounts managed by Wall Street firms.
"Younger workers should have the opportunity to build a nest egg by saving part of their Social Security taxes in a personal retirement account," Bush said.
But the new accounts would be much more ambitious. Under the latest version of the lifetime savings plan, a married couple would be allowed to put $10,000 after-tax money into a savings account, according to American Council of Life Insurers President Frank Keating. They wouldn't be taxed on gains generated by the investments and the money could be used without restrictions.
In essence, the LSA would eliminate capital-gains taxes to some degree on general savings and investing. Bush proposed LSAs last year at a far higher level $15,000 per individual and $30,000 per couple but dropped the idea after it came under attack as a back-door attempt to eliminate capital-gains levies.
The savings plan, which would restrict withdrawals until retirement age, is meant to consolidate the hodgepodge of tax-advantaged retirement accounts, from traditional IRAs and Roth IRAs to SEPs and Keogh plans.
Despite the administration's reduction in the LSA contribution limit, the proposal is certain to be controversial.
The Urban Institute-Brookings Tax Policy Center said revenue loss from the plans would reach $50 billion annually because the government would be precluded from collecting taxes on so many investments.
Democrats have opposed the proposals as primarily benefiting only the wealthiest Americans.
Insurance firms worry the plan might harm the annuity and 401(k) businesses.
In a speech at the National Press Club on Monday, Keating argued that the lifetime-savings plans would be used for consumption, not savings. He urged the administration to establish a commission to examine ways to increase national savings.
Said Keating: "The lifetime-savings account effectively is a consumption account and I think all of us know we consume enough, thank you."
Charles Gabriel, an analyst at Prudential Equity Research Group, said he didn't think Congress would take up the new savings plans during the election year.
There are serious doubts tax cutters in the Republican Party will be able to pass a tax bill this year with the federal budget deficit approaching $500 billion, he said.
"The Bush administration likes the theology behind these accounts," Gabriel said. "But these things were ill-fated the way they were handled initially."
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