Saving Face, Maybe

Vice President George Bush wants to see the tax rate on capital gains slashed from 28% to 15%, arguing that such a cut would encourage investment in risky new enterprises, increase America’s international competitiveness and produce a level of growth that ultimately would boost the Treasury’s tax take. The economics of Bush’s idea may or may not be sound, but his Democratic opponent in the presidential race, Gov. Michael S. Dukakis of Massachusetts, is convinced that its politics are flawed. He has been attacking Bush for, he says, pushing a tax break designed to help only the rich. It is perhaps in response to this charge of class favoritism that Bush has now unveiled a tax proposal for the less well off.

The Bush savings plan, as he calls it, was unveiled with great fanfare. Most people who have looked at it wonder why. Promoted as something that would help Americans “afford a home, pay for college or start a business,” the plan’s minuscule benefits in fact provide virtually no incentive to increase personal savings. Taxpayers earning less than $50,000 could put up to $1,000 a year in a special account. Savings would have to be locked up for at least five years. The interest earned wouldn’t be “tax-free,” as Bush said, but only tax-deferred , to be paid in full when the account was closed. Assuming a 10% interest rate, the actual tax savings at the end of that time would amount to under $15 a year.

Wow.

Bush’s exuberance aside, this is not the kind of savings program that would help anyone buy a home, go to college or launch a business. Some bankers say that it wouldn’t even increase the savings rate, but would simply induce people to transfer their existing savings into the new accounts. Meanwhile, the Treasury would see its tax revenues fall, according to the Bush campaign, by up to $550 million in 1993. Bush hasn’t said how that revenue loss would be replaced.

There is of course no question that the U.S. savings rate is much too low, and that it has to be increased. The Reagan Administration for years has claimed that the reduced tax rates that it has sponsored would lead to a huge expansion of savings and investment. In fact, net private savings, which through most of the 1960s and ‘70s averaged more than 8% of the gross national product, by last year had fallen to only about 4%. Instead of going into savings, more and more money has gone to consumption. That may have helped keep the recessionary wolf from the door, but it has also forced American businesses and the government to rely increasingly on foreign lenders and investors.

What George Bush’s so-called savings plan demonstrates is that he doesn’t have any real ideas--at least any that he cares to talk about--for encouraging the big boost in the personal savings rate that the country needs. All this might cheer the supporters of Michael Dukakis, until they remember that from all the evidence their man doesn’t seem to have any real ideas, either.