Clinton Details Savings Proposal

The Clinton Administration on Wednesday unveiled a plan to offer low- and moderate-income workers $300 tax credits, proposing a new retirement savings program aimed at the 73 million Americans who have no pension plans at work and no IRAs.

The proposed program, which would cost $38 billion a year and be financed from budget surpluses, will be one of the administration’s major weapons in its fight with congressional Republicans, who have called for a 10% across-the-board cut in tax rates.

The Clinton plan would cost less than the GOP tax cut and would provide more help to Americans who have the toughest time saving money, officials said.

The goal of the Universal Savings Account is to bring the benefits of retirement security to people who are not able to save now for their retirement, the White House says.

“I believe Americans who work hard their entire lives, and raise their children, should not have their retirements poised precariously on the edge of poverty,” President Clinton said at a Rose Garden ceremony held to promote the so-called USA accounts and to detail the program he first called for in his State of the Union address.

Clinton said the accounts would be “the kind of tax cut America needs.”

The Republican response was mixed. Sen. William V. Roth Jr. (R-Del.), chairman of the Finance Committee, who is developing his own plan for individual accounts funded by the budget surplus, said, “The president’s proposal is a good starting point for further discussions on personal retirement accounts, and I look forward to working with him.”

But House Ways and Means Committee Chairman Bill Archer (R-Texas) said Clinton’s “overall budget raises taxes on some Americans to give tax cuts to others, which isn’t fair.”

The plan, if approved by Congress, would give a married couple with annual earnings of more than $5,000 and less than $80,000 a tax credit of $300 for each spouse. Individuals with incomes up to $40,000 could get the credit, as could those with incomes up to $50,000 who file as head of household. People 18 to 70 years old would be eligible.

An estimated 98 million working Americans would be eligible for the credit, whether or not they actually pay taxes. The money would be automatically deposited in an account, with investments regulated and controlled by the government. Because the credit would go to people regardless of whether they earned enough money to pay taxes, it would, in effect, be a grant of money by the federal government to be used solely for retirement. None of the money could be withdrawn before age 65.

In addition, if the taxpayer contributed his or her own money to the special account, the government would provide a matching credit, up to a maximum of $700 for a married couple. The maximum match would be on a dollar-for-dollar basis. The match would drop to 50% as income rises, with eligibility ending altogether at incomes of $100,000 for couples who already have pension coverage, $50,000 for individuals and $75,000 for heads of household. There would be no income restrictions on the matching grant for people not covered by a workplace pension program.

The maximum government contribution would be $1,300 for a couple. If each spouse received the $300 credit and each contributed $350 of his or her own money, the government would match that with $700 more.

The family’s account of $2,000 a year--$700 of their money and $1,300 from the government--could yield a total savings of $253,000 over 40 years, according to one estimate. The estimate assumes the money is invested and would produce a “real” rate of return, after adjustment for inflation, of 5% annually, according to the National Economic Council.

Spouses of workers would be able to receive the credit “even if they do not work,” recognizing that women are more likely to take time off from the labor force than men, the White House said.

The administration wants Congress to act first on the president’s proposal to buttress the Social Security and Medicare trust funds, using the bulk of the projected surplus to provide additional support for those programs, and then act on the creation of the USA accounts, officials emphasized Wednesday.

Archer said the GOP, too, wants to concentrate on “saving Social Security first” but that the GOP puts a premium on “broad-based tax relief.”

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Times staff writer Edwin Chen contributed to this report.