The Administration's Savings Proposals

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. 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.