BACK • 
MIXED NEWS FOR SAVERS AND INVESTORS
Chances of repealing the so-called Death Tax, i.e., the Federal estate tax, went down the drain for this year when the House recently failed to override the veto from the guy who, at least this time, didn't "feel the pain" of small business people and family farmers. Yes, I know it affects only 2% to 3% of the population, but if that's the case, how come 60% of the American people, in pole after pole, seem to be in favor of repealing the estate tax? I think that people think it is just inherently unfair. In the meantime, the administration continues to use the "we can't afford it argument," yet, last year estate taxes accounted for only 1.2% of total Federal revenue.
Continuing with the guy who says he "feels everyone pain," but doesn't extend those feelings to savers and investors, next up is the Republican plan for expanding savings and retirement accounts. The Republicans would like to permit more contributions to IRAs, 401(k)s and 403(b)s. Again, the administration playing the song "we can't afford it," but this time, chances are looking better. Recently, the Senate Finance Committee unanimously gave its approval to a proposal to expand savings accounts, and the House passed a bill in July designed to do the same thing by a seemingly veto-proof 401-25 vote.
The Republican proposal would increase from $2,000 to $5,000 the annual limits on before-tax IRA contributions. The IRA, originally started in the '70s at $1,500 a year, had the cap raised to $2,000 in the early '80s. But since that time there's been no increase. On an inflation adjusted basis, the then $2,000 contribution would be about $5,000 now, so this is merely an inflation catch-up. And by the way, in this most recent Republican proposal, there is a built-in inflation escalator allowing increased contributions based on increases in inflation. The move from $2,000 to $5,000 would be on a stair-step basis, increasing by $1,000 a year, and in one version of the bill, people over 50 would be able to immediately increase their contribution to $5,000 starting next year. Another version moving its way through Congress would allow people 50 and older to contribute up to $7,500 a year to their IRAs.
As for the 401(k) contributions, those limits would rise from the current $10,500 per year to $15,000 per year. The votes in both houses of Congress have been so favorable on the IRA and 401(k) proposals, maybe we can get past the White House on this one. By the way, the vote to override on estate taxes failed by just 14 votes, and it's a pretty fair assumption that if Mr. Bush wins the White House, there will be no Presidential veto waiting for a bill to eliminate death taxes-- isn't that an interesting thought for next year?
Of course, all this goes back to the administration that keeps crying almost weekly about the poor savings rate that we have in this country. But the answer is very simple-all we have to do is change the laws to get people to save more. But they don't want to change the laws because of the class wars they continue to try to fight, wherein the people who can take best advantage of expanded savings laws would, of course, be the people that have more money. It's a vicious circle that could be ended in November (there I go again).
And of course, the final thought on all of this is that we'd better to do something to expand people's ability to save because of the Social Security time bomb. Yes, the current surpluses will put the money back in the Social Security trust fund where it belongs, but the demographics of this country tell you that within a dozen years or so, all the people who think they're going to get benefits are not going to be able to. I believe the answer is to allow people to save more money, to take financial control of their own destiny. If they did that, then the people who really need Social Security could be helped by the government. It's a simple plan, but this administration can't understand that first you have to help the people who can help themselves, then help the people who can't help themselves. If this isn't changed somewhere down the road, then you run the risk of a white-collar revolution in this country, which would be a real danger to our freedoms and democracies as we know them today.
(Tom Butenhoff is a First Vice President with J. E.
Liss & Company in Milwaukee. The views are his and not necessarily
those of Liss Financial Services or the Job Connection/Hiring
Network.)