New Plan Would Let Many With Pensions Retain Deductible IRAs

Senate negotiators considered a new tax-overhaul proposal Wednesday night that would allow many workers covered by company pensions to retain deductible individual retirement accounts.

The plan, proposed by Sen. Bob Packwood (R-Ore.), chairman of the Finance Committee, would also allow deduction of medical expenses exceeding 7.5% of gross income, remove the tax exemption now enjoyed by Blue Cross-Blue Shield health insurance plans and raise taxes on corporations by $118.5 billion over five years to finance tax cuts for individuals.

Packwood proposed that all workers who are not covered by company pensions be allowed to contribute up to $2,000 a year, fully deductible, to an IRA, as under present law. In addition, work1701999392contributions.

Non-deductible IRA contributions of up to $2,000 a year would be permitted for those who don’t qualify for a deductible IRA. That would allow their IRAs to continue to earn tax-deferred interest until withdrawn.

Another provision would suspend “indexing,” the automatic annual tax cuts to offset inflation, for one year, in 1989. That saving would allow most of the planned individual tax-rate reduction to take effect on Jan. 1, at the same time that several deductions would be reduced or eliminated. The result would be to prevent a temporary tax increase for millions of taxpayers.

Packwood and other members of the Senate delegation refused to discuss the proposal in detail. They were expected to vote on it today.

The proposal was offered by Packwood in an effort to reach a compromise with House negotiators on the broad overhaul plan.