How Congress might help
CAN Congress help Americans save more money? Yes, says Sen. Lloyd Bentsen (D) of Texas, Senate Finance Committee chairman. He says increasing the savings rate will be one of his legislative priorities later this year. If the senator needs some ideas, economists and bankers suggest: Reduce the capital gains tax. The United States used to tax gains on long-term stock, bond, and housing profits at a lower rate. The 1986 tax reform act eliminated lower capital gains rates, and began taxing gains at an individual's income-tax rate instead. ``Reducing the rate could help savings over the long run,'' says Richard Rippe, of Dean Witter Reynolds in New York. George Bush endorses this proposal.
Restore incentives to save for retirement. The 1986 tax reform act also eliminated the tax deduction for Individual Retirement Accounts (IRAs). According to preliminary figures for 1986, the Internal Revenue Service says Americans paid more than $38 billion into IRA savings accounts.
Reward saving by lowering the tax on interest earnings. Economist John Makin of the American Enterprise Institute suggests taxing interest earned, minus inflation. Borrowers would deduct only interest expense, less the inflation rate. ``This is essentially what the Japanese have done,'' he says.
Impose a tax on consumption. This is a proposal likely to be considered in some form next year. Mr. Cooper says Congress could drop taxes on the interest earned on the first $20,000 of savings.
Or if some economists are right, Congress can do nothing. Nothing, that is, except wait for Yuppies to age into savers.