Tax Bill’s Nods to Baby Boomers May Outlast Veto

The House-Senate compromise tax bill detailed Wednesday contains provisions that would boost the amount of money workers could put in retirement savings accounts, expand education accounts aimed at helping meet college expenses and create a tax break for people who care for elderly relatives at home.

Versions of these provisions, aimed largely at helping the baby boom generation as it nears retirement, have attracted backing from Democrats and Republicans alike.

And, even if President Clinton makes good on his threat to veto the GOP-sponsored measure, these elements would be likely components of a compromise tax plan, should one be negotiated later this year by the White House and Congress.

All the proposals speak to the baby boomers, many of whom married later in life than their parents. Now they are scrambling to save enough for retirement while educating their children and worrying about their aging and often frail parents.

“People are stretched in many ways--they want a secure retirement and they have to provide care not only for their children but for elderly and infirm members of their families--and Congress is trying to respond to that concern,” said Bill Pierron, a spokesman for the Employee Benefit Research Institute, a nonpartisan organization.

The plan agreed to by conferees Tuesday night and detailed Wednesday would:

* Expand the maximum contribution for individual retirement accounts, now $2,000 a year, to $5,000. This would apply to the tax-deductible IRA and the newer Roth IRA, which uses after-tax dollars. The increases would be phased in by 2006.

“We want to improve the pension system so more Americans can get a pension plan and enjoy retirement security,” said Rep. Bill Archer (R-Texas), chairman of the House Ways and Means Committee.

* Boost tax-exempt contribution limits to education IRAs, now capped at $500 a year for later use in paying college expenses, to $2,000 a year. Although Democrats might be amenable to this increase, they staunchly oppose an additional proposal to allow the money to be used for paying private school costs from kindergarten through high school.

Archer asserted Wednesday that this provision would give parents “more choices as they design the best education for their children.” But Democrats countered that it would undermine public school systems.

* Increase the maximum tax-exempt contribution by workers to the popular salary set-aside plans known as 401(k) accounts. The cap, now $10,000 a year, would be raised to $15,000. And workers 50 and older would be permitted to add 10% more a year to the accounts for five years.

* Provide a new source of financial help for people who care for an elderly relative--parent, grandparent, aunt or uncle--at home. These taxpayers could claim an additional personal exemption, worth $2,750 in today’s dollars, on their tax returns.

Democrats said that they too want to deal with the economic pressures on the 76 million baby boomers, the Americans born in 1946 through 1964. “There are a lot of ideas in the Democratic caucus that would help baby boomers,” said Dan Maffei, a spokesman for the Democrats on the House Ways and Means Committee.

Republicans and Democrats already agree that people without health insurance at work and the self-employed who pay for their own coverage should get more help. Currently, they can deduct 40% of health insurance premiums. The deduction had been scheduled to increase over several years. But both parties want to make the insurance premium 100% deductible immediately, a provision in the GOP bill.

The legislation, which could come up for votes in the House and Senate as soon as today, calls for an overall tax cut of $792 billion over the next 10 years.

Final debate on the bill likely will focus on its big-ticket items, which include phasing out inheritance taxes, cutting the capital gains tax rate for transactions by individuals and shaving one percentage point off tax rates in every income bracket.

The measure restores funds to “those who created the wealth in the first place,” said Sen. William V. Roth Jr. (R-Del.), chairman of the Senate Finance Committee, on Wednesday.

Democrats, however, argued that the bill is overloaded with help for the affluent.

Robert Greenstein, executive director of the Center on Budget and Policy Priorities, a liberal think tank, acknowledged Wednesday that some of the bill’s goals are popular, such as “expanding pension coverage and health insurance to more working families that lack it.”

But he added that the bill “provides the bulk of the benefits to those who already have pension coverage and health insurance.”

Clinton has made the same argument, and Wednesday he reiterated his pledge to veto the measure as now written, calling it “risky and plainly wrong for America.”