Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: TUESDAY, March 12, 1991 TAG: 9103120178
SECTION: NATIONAL/INTERNATIONAL PAGE: A-1 EDITION: STATE
SOURCE: By Fort Worth Star-Telegram
DATELINE: WASHINGTON LENGTH: Medium
The Texas Democrat, on the list of possible presidential hopefuls, will introduce legislation today to restore tax advantages on IRAs that were wiped out by tax reform four years ago.
Bentsen's bill in fact improves on the original incentives for investment in the accounts by easing restrictions on withdrawals before retirement. Money withdrawn for first homes, college tuition or catastrophic medical bills would not be penalized.
"I believe the IRA is a retirement plan that should never have been retired," Bentsen said in lobbying fellow senators for his bill.
The measure, as of late Monday, had attracted 70 Senate supporters, 43 Democrats and 27 Republicans. That is a comfortable margin for passage and is also sufficient to override a presidential veto if the high level of support holds up.
In the House, Rep. J.J. Pickle, D-Texas, a member of the House Ways and Means Committee, plans to introduce an identical bill later this week. Support in the more volatile lower chamber isn't yet clear.
Before tax reform, one thing was clear. IRAs were extremely popular with a Baby Boom generation of taxpayers looking for ways to shelter their retirement savings from Uncle Sam.
In 1985, the peak year for investment in the accounts, 16 million individuals and couples took tax write-offs on IRAs, 16 percent of all U.S. taxpayers. They had a total of $38 billion in savings in the accounts.
After the federal government removed most of the incentives in the 1986 Tax Reform Act, the number of participating taxpayers fell to 6 million, with $12.5 billion in savings, in 1988.
"They certainly are a plus for the taxpayer, who is encouraged to put a few thousand aside in a year," said Paul Merski of the Tax Foundation, a non-partisan research group.
Bentsen's bill would allow an individual to invest up to $2,000 a year in one of two kinds of IRAs.
The first would allow the taxpayer to take an immediate tax deduction on an annual contribution to an IRA savings plan. The second option would provide for no immediate tax benefit, but would allow a taxpayer to accumulate tax-free earnings on the savings provided the money remained in the account for at least five years. A 10-percent penalty would be imposed for withdrawals made before the five-year mark.
President Bush and other Republicans favor the latter "back-loaded" option, and a similar IRA plan was backed by the White House last year. By including it as an alternative to the more traditional IRA favored by Democrats, Bentsen boosted the legislation's popularity among Republicans.
The measure also removes income limits on the plans, a turnabout for Democrats who had just last year fought the White House on the issue of increasing tax benefits for wealthy Americans.
The major obstacle for the new IRA bill will be the budget plan forged by the Democrat-controlled Congress and the White House last year. It requires that any changes in the tax code that reduce revenue to the government must be made up in other, specific ways.
by CNB