SO LONG CD; LIFETIME SAVINGS ACCOUNTS ARE IN

The Bush Administration's support for “the ownership society” during the Republic National Convention has opened the door to eagerly awaiting Republicans in Congress. With Bush's support, House member Sam Johnson (R-Tex.) recently introduced a bill before Congress to jumpstart the Republican initiative. Johnson's Lifetime Savings Accounts Act of 2004 would establish Lifetime Savings and Retirement Savings Accounts (LSA and RSA) to begin the transformation.

The bill is designed to let Americans save income privately and without the assistance of a government bureaucracy. Specifically, a LSA allows workers to place up to $5,000 dollars a year into the two different kinds of savings accounts but without the disadvantages of current financial accounts. Depositors are able to save for any purpose, including their children's education, home purchasing, health care needs, or to start their own business, and withdraw that money at any time without penalty. These accounts promise to eliminate “double taxation,” namely the combination of the income tax on the earnings side and the taxing of stock dividends and capital gains when assets are sold on the other. Dan Clifton, executive director of the American Shareholder's Association in Washington , DC , explained why Bush's reforms will lead to new savings online at www.heartland.org. “Younger and lower-income workers are less focused on saving for retirement than saving for a house, their children's education, or catastrophic expenses,” Clifton said. With the new laws “…individuals will have the ability to save for expenses they cannot currently consider without a double tax or withdrawal penalty… for near-term expenses.” LSAs and RSAs allow these Americans to bank more money and give them the freedom to independently determine their earning's usage and potential inside a tax-friendly savings system.

Clifton also believes simplification of the tax code, a prerequisite for implementation of the new accounts, will encourage more people to save by eliminating the confusion of the current financial market. These proposals are not without controversy, however. Already critics are asking how these reforms help wage workers without large amounts of overhead. Additionally, the costs of these reforms are expected to add to an already hefty price tag associated with privatization. According to a Washington Post article on September 14, 2004 , the “ownership society” could run the government upwards of $3 trillion over the next decade, with $30 billion to $50 billion of that cost coming from LSAs and RSAs. The reason for the high cost in the long run is that taxes will be collected when money is deposited and not when it is withdrawn, decreasing governmental revenue down the road, rather than immediately. Tax reform is an important issue for the Bush campaign in the closing months of the campaign year. His ability to sell the “ownership society,” with all the vital components will play a large role in the election and, if reelected, his presidency.

Clifton is interviewed at http://www.heartland.org/Article.cfm?artId=15630

Washington Post article: Mike Allen, $3 Trillion Price Tag Left Out As Bush Details His Agenda, The Washington Post (14 Sep 2004), A01.