WASHINGTON — It has become a familiar lament about the U.S. economy: Americans load up on consumer luxuries with the help of credit cards, second jobs, auto-lease deals, you name it. If they save anything for the future, it's generally as a mere afterthought.
Now, in an uncustomary show of agreement, the White House, a significant portion of Congress and many economists share a strategy they hope will help alter those habits.
Their idea: to enhance the tax benefits of individual retirement accounts and slash the restrictions on their use so that millions more Americans could profit from them. Then, according to this idea, many households would reform their spend-now, save-later ways and, in the process, give the nation's future prosperity a welcome boost.
"There is support for a better IRA in the Senate, in the House of Representatives and even in the White House," declared Sen. William V. Roth Jr. (R-Del.). "So it's clear that the IRA's time has come."
The House included an expanded IRA in the tax-cut legislation it passed last month, and Roth and Sen. John B. Breaux (D-La.) have introduced an IRA bill with broad bipartisan support in the Senate.
Some doubters continue to dismiss the proposals as yet another tax boondoggle for the affluent at a time when benefits may be tightened for those who can barely afford to save a penny. Moreover, the short-term fate of IRAs is bound up in delicate House-Senate negotiations on the budget.
Nevertheless, with the two parties tied in knots over most issues of budget policy, IRAs leap out as one of the few areas where the White House and Congress seem to be on a similar wavelength.
"Everybody wants that," a senior White House official said recently of a more generous, rejuvenated IRA. "It's in the [GOP] plank. There's no argument, or at least there shouldn't be."
IRAs now allow some taxpayers to set aside as much as $2,000 a year in tax-sheltered savings accounts. Neither annual IRA contributions nor income earned by the accounts is taxed until taxpayers make withdrawals upon retirement--a time when they are presumably in lower tax brackets than when they were working and contributing to their IRAs.
Currently, however, there are strict limits on who may benefit. Couples earning more than $50,000 or individuals earning more than $35,000 get no deduction at all. Beyond that, a 10% penalty awaits those who want their money back before reaching age 59.
New proposals circulating in Congress would allow households with higher incomes to contribute to tax-favored IRAs and to make penalty-free withdrawals before retirement. For savers who gave up the tax deduction for the annual IRA contribution, earnings would never be taxed.
All this would be a boon for savers, who would owe no taxes at all on their IRA withdrawals.
And on top of that, IRA advocates promise a benefit for all of society: As more households purchased IRAs, the rise in private savings would pay off in the form of rising living standards for all.
If this sounds too good to be true, some experts say it is. It is not clear, they say, whether IRAs actually add to national savings or merely encourage well-off taxpayers to shift money from one savings pot to another. Some also wonder how many working-class families would even know about IRAs--assuming they could scrape up the money to invest in them.
"Brokers are not going to go into the barrios and knock on people's doors," said William Gale, a senior fellow at the Brookings Institution. "They're going to advertise in places that their clients are going to see."
On this much, however, there is broad agreement: America has a savings problem, and the implications trouble many experts.
Last year, for instance, U.S. households saved 3.91% of their disposable income, according to an estimate by the Paris-based Organization for Economic Cooperation and Development. By comparison, Japanese households set aside 16% of their income, Germans 11.4% and Canadians 8.4%. Of 19 countries ranked by the OECD, only the Netherlands had a lower rate than the United States.
The dismal U.S. ranking is of more than academic interest, economists warn, because savings provides the capital for new factories, research centers, technology and other investments that lead to greater overall wealth. In this sense, paltry private savings, like the gigantic federal budget deficit, may be depriving the nation of future wealth.
"Everyone knows investment is the way to create more opportunity in the economy," said Brian S. Wesbury, chief economist at the congressional Joint Economic Committee. "It's what creates wealth over time."
Under one or another of the current proposals, savers could use their IRAs not only for their retirement but also for various other big-ticket expenses: purchase of a first home, college tuition, major medical bills and income during long periods of unemployment. Grandparents might even be able to use IRAs to benefit their grandchildren.