For years, this page has been urging Congress to restore the tax break for Individual Retirement Accounts that the lawmakers foolishly withdrew in 1987 after a much too brief experiment.
We have done so on the grounds that such a tax break could eventually encourage Americans to save more. More savings, in turn, would mean more investment, more economic growth, and ultimately more revenue for the government.So it's encouraging to see that Sens. Lloyd Bentsen, D-Texas, and William Roth, R-Del., are pushing new legislation that would restore the tax exemption on IRAs.
What's discouraging is that the measure faces much of the same short-sighted opposition that eliminated this sensible tax break.
From 1982 until Congress overhauled the tax laws in 1986, individuals could deposit up to $2,000 a year in an IRA and not have to pay any taxes on the deposit or earnings until the money was withdrawn.
Between 1982 and 1986, the number of taxpayers with IRA accounts grew from 3.4 million to more than 16 million, and the deposits added up to more than $38 billion.
When Congress eliminated this tax deduction, it did so on the grounds that the deduction benefited mostly the affluent and that the tax break merely prompted taxpayers to switch money from regular bank accounts into IRAs instead of adding to total savings.
Now the same accusations are being leveled against the Bentsen-Roth bill. The facts, however, belie those charges.
For example, studies by the Institute for Research Into the Economics of Taxation demonstrated that the bulk of IRA deductions from 1982 to 1986 went not to the wealthy but to taxpayers earning less than $50,000 a year.
Moreover, it's no accident that after Congress eliminated IRA deductions for taxpayers covered by private pension plans, Americans immediately started saving less. Savings as a percentage of after-tax income hit a 40-year low of 3.2 percent in 1987.
Since then, American have started saving a little more. But the recent savings rate of 5.5 percent lags far behind the Japanese savings rate of 16.5 percent and also compares unfavorably to the rates of Germany, Canada, Britain and France - all competitors against America in the global market place.
One other pertinent fact: If the personal tax exemption for Americans had kept up with inflation, it now would amount to $7,781. Instead, it has gone from just $600 in 1948 to only $2,050 today. The Bentsen-Roth bill would amount to only a small downpayment on what Washington ought to do by way of letting Americans keep more of their own money.
If Congress won't go along with the Bentsen-Roth bill, it should find some other way of encouraging Americans to save more. Incredibly, the United States is one of the few major industrial nations without a generally available tax incentive to induce its citizens to save their money.
If this country is ever to enjoy a sense of financial security, its people must get out of the habit of living on borrowed money. Washington could help by rewarding thrift.