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Byline: Lisa Friedman Washington Bureau

WASHINGTON - Greg Amour is skeptical, at best, of President George W. Bush's proposal to consolidate individual retirement accounts. The general manager of a sales office in Whittier, Amour said the administration's previous tax cuts haven't put more money in his pocket, and he doubts the new proposal would help him save for retirement.

Doug Hammonds sees things differently. The self-employed Santa Clarita accountant said the lowering last year of the tax rate on business-equity investments enabled him to open a second office in Chatsworth. He said he is eager to explore the administration's new savings plans.

The men, both 53, consider themselves part of the middle class, a group that is not officially defined by the U.S. Census Bureau, but whose members, economists say, earn anywhere between $25,000 and $100,000 a year. As such, they are at the center of the national debate over America's ability to save for retirement.

Yet, as most policy makers focus on the swirling discussion over Social Security reform, economists are quietly debating whether a series of savings proposals in Bush's 2006 budget would boost the middle class or push its farther behind.

``It helps everyone save, period,'' said Robert Carroll, deputy assistant secretary for tax analysis at the U.S. Treasury Department.

He and supporters of the president's plan to consolidate the three types of current IRAs into one, as well as create a separate new savings account, say it would encourage savings overall. While it is not aimed at any single income group, advocates say it would help the middle class by helping the economy as a whole.

Critics, however, argue that the wealthiest Americans would reap the largest benefits. Economists worry that middle-income earners - who typically don't make use of current savings options - also won't use these. One expert likened it to a family that doesn't use any of its three televisions buying a fourth.

Others fear Bush's proposal would lead to the dissolution of employer retirement plans. They also say that, by failing to offer front-end incentives like deductible contributions, the proposals ignore the needs of financially crunched families.

``The middle class is not saving today, and the reason is because they don't have any money to save,'' said University of Southern California law professor Ed McCaffrey.

McCaffrey, whose book ``Fair Not Flat'' argues for a progressive tax code, said he didn't see any real help for the middle class in Bush's proposals.

``If you don't have discretionary funds to save, this doesn't really help you that much,'' he said.

Chris Edwards, director of tax policy at the Cato Institute, a conservative think tank in Washington, D.C., called the reforms part of a ``very broad pro-savings theme'' in the Bush administration. A supporter of the plan, he said middle-income earners might be more likely to save if they could withdraw money more easily for emergencies or other needs.

The plan may not be aimed directly at the middle class, he acknowledged, but it would help everyone by simplifying a complicated system and encouraging savings across all income levels.

``Any savings is good for the economy,'' Edwards said. ``The money is going into productive investment in the economy in general.''

To the contrary, others argue, precisely the ability to easily withdraw money carries serious risks.

Rick Meigs, president of the LLC, a Portland, Ore., group independent group that consults on 401(k) issues, said he worries people may shift money out of retirement plans and into their lifetime accounts. Because those pots can be raided without penalty at any time, he and others said it's unlikely the plan would increase the overall savings rate and may actually reduce it.

More worrisome, according to Joel Friedman, a senior fellow at the Center for Budget and Policy Priorities, is that the accounts would grow sharply in cost over time, costing billions in lost tax revenue each year.

Meanwhile, Friedman argued, removing income caps would primarily benefit those who earn more than $100,000 a year, since the current IRA maximum contributions already exceed what all but affluent Americans can afford to set aside each year.

Yet those who already save substantial amount would be able to shift more money into tax-free accounts under the Bush plan, he said.

``In general, high-income people save more,'' Friedman said. Removing income limits and raising the amount they can save, he said, ``doesn't have very much to offer the middle class.''

Amour agreed. Though he said he hadn't studied the president's proposals, he said seeing other people in his Whittier office working multiple jobs just to get by indicates to him that most middle-class earners won't be able to take full advantage of the new plans.

``To be able to benefit from savings, you have to have expendable income yourself,'' he said.

According to Meigs, only 5 percent of balances in IRAs are from direct contributions and 95 percent is from money that has been rolled over from other accounts. Meanwhile, 4 percent of those eligible to contribute to IRAs give the maximum amount.

``If you talk to the average, middle-class American out there, most are going to tell you they really don't have additional discretionary dollars to save,'' he said. ``That's why you really don't see IRAs being utilized more.''

Hammond, on the other hand, said he believes the Social Security system is broken and is trying to get enough money saved on his own. He is open to the president's proposals.

``It's very important to the middle class to have money to put away,'' he said.

Edwards, the Cato Institute tax expert, maintained that helping the wealthy save is not a bad thing.

``Savings at every income level is good for the economy,'' Edwards said. ``If they're spending it, it just goes to them personally. If they're saving it, it goes back to the economy.''

Lisa Friedman, (202) 662-8731



2 photos, box


(1 -- 2) Doug Hammonds, left, a self-employed accountant in his new Chatsworth office, says he is eager to explore the Bush administration's new savings plans, yet Greg Amour, left, general manager of a sales office in Whittier, remains skeptical.

Andy Holzman/Staff Photographer

Gene Blevins/Special to the Daily News


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Publication:Daily News (Los Angeles, CA)
Date:May 2, 2005

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