One of the more memorable of the old roadside Burma-Shave signs warned motorists that a school was just around the bend, suggested slowing down, and concluded with the line: ''Let the little shavers grow.''
President Reagan and his White House sonnet writers ought to be working on a similar jingle for United States employers, one ending with the lines:
Start an IRA payroll plan,
Let our little savers grow.m
The little savers of America - the big lower-income group - have in general been left out of the individual retirement account (IRA) revolution. That tax-shielded pension program has grown beyond expectation ($35 billion in the past 18 months). But it has grown mainly through funds from the middle- to higher-income sector of society. And those IRA accounts belonging to the relatively wealthy are being fed largely by money already saved - it is simply shifted from investments yielding taxable income to those accumulating nontaxable retirement income. (With a $10 billion to $11 billion loss to the Treasury.)
So IRAs are doing little so far to increase the US private savings rate. As many people already know, that rate is the lowest of any Western industrial country. According to a study done for the Federal Reserve Bank of Boston the US savings rate averaged 7.8 percent in the 1970s. By comparison, Luxembourg's rate was 33 percent, Japan's 25.1 percent, Switzerland's 20.1 percent, and West Germany's 15.5 percent. During recent years of economic turbulence, Germany's rate shrank to 13.5 percent, Japan's to 19.3 percent, the US's to about 6 percent. And, in the second quarter of 1983, the US rate dropped to its lowest point since the late 1940s: 3.9 percent.
Unless the savings rate increases, accumulation of new investment capital will continue to decline. Available capital for modernizing US industries already faces a squeeze from projected federal superdeficits for the mid-'80s. Higher Treasury interest rates lure capital away from investment in the private sector to unconscious investment in federal programs the government has not paid for through higher taxes.
As a result, US industries could run short of capital to modernize and to produce better, cheaper products for export and to compete with Japanese and European imports to this country. Lack of modernization slows the rise in worker productivity: One worker with a lathe produces far less than one worker tending a group of robot-operated lathes.
It's against Reagan administration principles for the federal government to tell private business what to do. But a strong case can be made for Mr. Reagan to depart from his credo and give an added boost to private savings. IRAs and three years of tax cuts were suppposed to do the trick for the savings rate. But they haven't so far.
One way to spread IRA saving further is through more widespread use of weekly paycheck withholding. It would cost the President little effort to jawbone business leaders on the virtues of starting IRA payroll savings plans (or the more flexible 401(K) savings plans). The results would not only help remedy the impending investment capital shortage. They could also set a generation of Americans onto the path of systematic saving.
Fortunately, most Americans are willing to help their country (their neighbors and themselves included) if their leaders point the way.
Many Americans earning low wages haven't started IRAs because they simply don't feel they can afford to. Some mistakenly believe they have to put the maximum amount ($2,000 per person) into the tax-sheltered plan each year.Others, who understand they can set aside smaller amounts, still find that come Jan. 1 (or April 15) they haven't accumulated whatever sum they would like to stash away.
That's where payroll deduction makes sense. The amount withheld from an employee's paycheck could be as small as a few dollars. With tax-deductible status, that would mean only a very small dent in take-home pay. And the accumulated dollars - plus compounded, untaxed interest or dividends - usually make the slight dip in take-home pay seem worthwhile. In industries where such withholding already exists, workers have been known to brag about the speed with which the IRA nest egg is growing. (For workers who tell their employer they worry about their money being untouchable till age 591/2, the better company answer may be a 401(K), which allows bigger contributions and more lenient withdrawal rules.)
The problem is that not enough companies have taken the step. In May 1982, Institutional Investor magazine surveyed 224 companies and found 34.7 percent said they would offer payroll IRA withholding to employees. That leaves about two-thirds of employers not participating. But when the magazine resurveyed the same companies this spring it found that only 24.3 percent had gone ahead with plans to offer the IRA savings option.
The arguments the President could use in favor of IRA withholding are several. And they are persuasive.
First, there is the matter of people's capitalism. Most businessmen say it has been good for American society to have the number of small stockholders increase. More than 3 million Americans own American Telephone & Telegraph, for instance, and even fractional ownership teaches something about how capitalism works. A similar logic applies to IRAs. This self-pension system should not be simply a perk for the rich. It should include as many citizens as possible.
Second, there is the vital matter of investment capital, productivity, and their impact on trade competition mentioned above. Also, IRA savers in lower tax brackets lose the Treasury less revenue per dollar added to the total savings pool.
Third, there is the matter of changing the habits of a generation of Americans from borrowing to saving. With the post-World War II baby boom heading toward retirement at the beginning of the next century, it's not too soon to start this conversion.
The President's 1979 budget message contained a prophetic - though flawed - discussion of the passage of the baby boomers through American history. In broad sweep, it concluded that the baby boom had upset American education and led to protests in the 1960s. In the 1970s the addition of millions of novice workers starting households had accelerated inflation because (1) younger workers usually reduce productivity and (2) their purchases of furniture and appliances add more dollars chasing fewer goods. In the 1980s, the message went on, a maturing group of boomers would increase job productivity and, their major purchases behind them, increase savings. That, in turn, would help protect the economy when the boomers reached retirement age and strained the social security system once again.
A neat and fascinating theory. But so far, boomer productivity and saving have not arrived. A push to extend IRAs would help fulfill the forecast. And it would certainly help all generations concerned when the Baby Boomers reach retirement age in the next century. Mankind has the intelligence to plan ahead. Leadership from Washington could provide the stimulus.