The Administration's Savings Proposals: Preliminary Analysis

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The Administration's Savings Proposals

Preliminary Analysis

Leonard E. Burman, William G. Gale, Peter Orszag

Published: March 03, 2003 || Availability: Printer-Friendly Version

The nonpartisan Urban Institute publishes studies, reports, and books on timely topics worthy of public consideration. The views expressed are those of the authors and should not be attributed to the Urban Institute, its trustees, or its funders.

This report is available in its entirety in the Portable Document Format (PDF).

I. Introduction

In its fiscal year 2004 budget, the Bush administration proposes to create a new set of tax-preferred accounts that would expand opportunities and consolidate rules for tax-advantaged saving. The initial reaction to the proposal was not particularly positive. Less than a week after the budget was released, congressional Republicans dismissed the plan. The White House reportedly reacted by blaming the idea on recently departed Treasury Secretary Paul O'Neill (Vanderhei 2003). Congressional leaders, however, later softened their initial remarks and indicated that some elements of the proposal might be included in legislation aimed at expanding access to pensions (Rojas 2003). Then White House officials were said to abandon the idea (Andress 2003).

Despite its uncertain prospects, the proposal is worth considering in detail because it would dramatically alter the tax treatment of saving, via the creation of Lifetime Saving Accounts (LSAs), individual Retirement Saving Accounts (RSAs), and Employer Retirement Saving Accounts (ERSAs). Some elements of the proposal—in particular, some of the simplifications—might form the basis of a useful pension reform package. Other elements are troubling because they would be regressive, could reduce saving among the most vulnerable populations, and would exacerbate the already bleak long-term budget outlook. In this paper, we provide a preliminary analysis of selected aspects of the proposal, with the following principal conclusions:

This report is available in its entirety in the Portable Document Format (PDF).