Pension change backers hopeful


WASHINGTON - Sponsors of a bill that would sharply boost the tax benefits of IRAs, 401(k) plans and other private pension plans say they believe the huge vote of support it received in the House on Wednesday will help propel the measure through the Senate, where a similar bill died last year.

The chief sponsors, Reps. Benjamin L. Cardin, a Baltimore Democrat, and Rob Portman, an Ohio Republican, said the bipartisan backing for the pension measure - and solid support from business and labor - might win its inclusion in the $1.35 trillion tax-cut package the Senate hopes to pass before July 4.

If the pension bill is included in that package, it will be protected from filibusters by opponents.

"I think we're in great shape," said Cardin, who was particularly heartened by the attention he said the measure has received around the country since he and Portman introduced it last year.

Portman said he thought the 407-24 vote Wednesday in the House - a slightly bigger margin than last year's - "gives us a tremendous boost in the Senate. It's sort of like we shot a torpedo over there, and they are going to have to deal with it."

Under the bill, the limits on tax-deductible contributions to retirement savings plans would increase for the first time in two decades.

The maximum annual contribution to IRAs would rise to $5,000, from $2,000, over three years. For those 50 or older, the higher limit would take effect right away.

The annual limit on contributions to 401(k) plans would rise to $15,000 from $10,500 over five years.

Sen. Charles E. Grassley, an Iowa Republican who is chairman of the Finance Committee and is sponsoring a similar bill in the Senate, said it would be difficult to include the pension bill, which would cost about $52 billion over 10 years, in the tax-cut package.

But Grassley said that even if the pension measure is not included in the tax-cut package, it could be coupled later in the year with other business tax measures and a boost in the minimum wage.

Bush eager to sign bill

The political climate has grown more favorable for the bill since last year, when Senate Republican leaders chose not to include the measure in an end-of-session tax measure because they did not want President Bill Clinton to be able to take credit for signing it into law.

President Bush is eager to sign the bill, which provides tax cuts and complements his proposal for overhauling the Social Security system.

The measure is intended to encourage workers to put more money aside for their retirements and to make it easier for employers to offer company retirement plans.

Altering retirement system

As a result, sponsors say, the measure could lessen the dependence of the huge generation of baby boomers on Social Security revenue, which is projected to run short over the next two decades.

"This is the first building block" of restructuring the nation's retirement system, Cardin said.

The only objections to the bill were raised by Democrats who said it would not provide much help for low-income workers who can't afford to put money aside for retirement, with or without tax benefits. But most of these critics prefer to add benefits for lower-income workers, not defeat the measure, which passed with a large majority of Democratic votes.

"That speaks volumes," Cardin said.

Under the measure, contribution limits would continue to rise with inflation.

The increases would apply to regular IRAs and to Roth IRAs, though contributions to Roth IRAs are not tax-deductible.

The legislation would not raise the income limits that have made many middle- and upper-income taxpayers ineligible for IRAs.

Small businesses would be encouraged to offer pensions through provisions that would simplify the current system and raise the limits on tax deductions that companies could claim for contributing to employee retirement plans.

Spending exceeds saving

A major argument offered for the measure was that most Americans aren't saving enough to support themselves adequately in retirement.

Over the past decade of booming economic growth, the savings rate has declined from an average of 9 percent of earnings to less than zero. It is the lowest savings rate in 67 years.

"We have actually spent more as a nation than we earn," Cardin told the House this week. "We need to do something about increasing savings."

The tax benefits are geared toward making saving easier.

According to Portman, a typical family of four with two working parents, earning a total of $50,000 annually, would receive a tax cut of nearly 9 percent next year by increasing IRA contributions to $3,000 per worker, from $2,000.

Some Democrats protest that the pension bill, like other tax-cut measures being promoted by the Republican-led Congress, would provide the greatest benefits to the most affluent Americans.

For example, 70 percent of the benefits that result from raising the IRA contribution limits would go to the wealthiest 20 percent of the population, while the bottom 60 percent would receive only 5.5 percent of the tax subsidies, according to the liberal Center on Budget and Policy Priorities.

'Better than nothing'

But Cardin and Portman maintain that, even so, the provision to encourage employers to offer pension plans would provide a direct benefit for lower-income workers.

Among those who earn less than $20,000 a year, more than two-thirds participate when their employer offers any type of retirement plan, Portman said, quoting a study by the Congressional Research Service.

The participation rate rises to 85 percent among those who earn $20,000 to $39,000, he said.

"They may only be able to put away $1,000 or $2,000 or $3,000 a year," Cardin said. "But that's better than nothing."

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