The Administration’s Savings Proposals: Preliminary Analysis

Leonard E. Burman,
Leonard E. Burman Institute Fellow - The Urban Institute, Co-founder - Urban-Brookings Tax Policy Center
Peter R. Orszag, and
Peter R. Orszag Vice Chairman of Investment Banking, Managing Director, and Global Co-Head of Healthcare - Lazard
William G. Gale
William G. Gale The Arjay and Frances Fearing Miller Chair in Federal Economic Policy, Senior Fellow - Economic Studies, Co-Director - Urban-Brookings Tax Policy Center

March 3, 2003


In its fiscal year 2004 budget, the Bush administration
proposes to create a new set of tax-preferred
accounts that would expand opportunities and consolidate
rules for tax-advantaged saving. The initial
reaction to the proposal was not particularly positive.
Less than a week after the budget was released, congressional
Republicans dismissed the plan. The White
House reportedly reacted by blaming the idea on
recently departed Treasury Secretary Paul O’Neill
(Vanderhei 2003). Congressional leaders, however,
later softened their initial remarks and indicated that
some elements of the proposal might be included in
legislation aimed at expanding access to pensions
(Rojas 2003). Then White House officials were said to
abandon the idea (Andress 2003).

Despite its uncertain prospects, the proposal is
worth considering in detail because it would dramatically
alter the tax treatment of saving, via the creation
of Lifetime Saving Accounts (LSAs), individual Retirement
Saving Accounts (RSAs), and Employer Retirement
Saving Accounts (ERSAs). Some elements of the
proposal—in particular, some of the simplifications—might form the basis of a useful pension reform
package. Other elements are troubling because they
would be regressive, could reduce saving among the
most vulnerable populations, and would exacerbate
the already bleak long-term budget outlook.