Bring Back IRAs

INDIVIDUAL Retirement Accounts, IRAs, were extremely popular when Congress first set them up in the mid-1970s. People rushed to take advantage of the tax deferral; they also ended up with significant savings through money that had increased in value. Congress closed off IRA deferrals during the 1986 tax reform. One reason given was that IRAs were a break for the rich. A more potent reason was that Congress wanted the $12 billion a year lost to the Treasury by all those $2,000 deferrals.

But now there's a move afoot in the White House to restore IRAs, though in a different form. The new IRAs would be tax-free on the ``back end.'' Contributors would pay full tax on the money they put in, but not be taxed when removing the funds, including all the accumulated interest. That's an especially good deal if the IRAs, say, triple in value.

In fact, restoring IRAs may be a good deal overall. The main reason is the boost it would give to the savings rate in the United States, which hit an all time low of 3.2 percent in 1987 and is still skittering along at a low average.

Federal Reserve chief Alan Greenspan says savings may be ``the crucial issue for the long-term economic outlook of the country.''

It seems counterintuitive, but savings promote growth. They make it less expensive to borrow money. They create capital through investment, which helps productivity - making the economy more competitive, and less reliant on foreign capital.

As a recent Forbes article points out, a high savings rate is one reason the Japanese are able to rely on themselves for investment capital, rather than spend money financing a national deficit.

Further, by offering ``back end'' deferments, the US government does not miss out on immediate revenues needed to get through the deficit crisis.

(What's not been fully accounted for yet is the new tax money that will be coming into the Treasury from recent retirees paying on the IRAs they began buying in the mid-'70s).

Of course, IRA savings may be a good idea simply because they help individuals become more financially self-reliant and responsible. Saving is a conservative discipline. A new form of IRAs may offer a healthy alternative to the yuppie ethic of having it all now.

A more pragmatic argument for IRAs is the uncertain future of social security. Wisdom combined with demographics may dictate that today's working cohort not necessarily assume their later years to be financially protected by the federal government.

Restoring IRAs won't be an instant cure for economic problems. But it would help.

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