Administration Hints at Better IRA Incentives

The Bush Administration, seeking ways to boost the U.S. savings rate to cure a variety of economic ills, seems to be inching closer to recommending increased tax incentives for thrifty Americans.

U.S. Trade Representative Carla Anderson Hills added her support to the idea Tuesday, saying that expanding Individual Retirement Accounts would make her job of reducing America’s huge trade deficits easier.

Millions of American savers could benefit through expanded IRAs, which enjoyed great popularity earlier in the decade, but it could cost the U.S. Treasury billions of dollars in lost tax revenue.

Hills, in an interview with reporters, stressed that she was not signaling an imminent Administration announcement on IRAs. However, other officials said a proposed increase in tax incentives for IRAs is high on the list of options being studied by the Administration.

40-Year Low in 1987

Americans’ personal savings rate--savings as a percentage of after-tax income--fell to a 40-year low of 3.2% in 1987 and increased only slightly to 4.2% last year.

By contrast, Japan, the country with the world’s largest trade surplus, had a savings rate of 16.5% in 1987.

Administration officials said they are planning a fall campaign, to be led by Treasury Secretary Nicholas F. Brady, focusing on the country’s chronic low savings rate and proposing ways to correct the problem.

The huge cost of IRAs was one reason they were greatly scaled back by the 1986 Tax Reform Act. As a result, the number of tax returns claiming IRA deductions fell from 15.5 million in 1987 to 7.4 million last year.