[{"data":1,"prerenderedAt":-1},["ShallowReactive",2],{"doc-seo-326130-105":3,"detail-sidebar-cat-0-en-105":81,"doc-detail-326130-en":131},{"code":4,"msg":5,"data":6},0,"ok",{"site_id":7,"language":8,"slug":9,"title":10,"keywords":11,"description":12,"schema_data":13,"social_meta":74,"head_meta":76,"extra_data":78,"updated_unix":80},105,"en","increasing-national-saving-are-iras-the-answer","Increasing National Saving: Are IRAs the Answer?","","Economic Commentary analyzing whether reinstating or expanding IRA tax deductions can effectively raise national saving. The text links falling U.S. saving rates to debates in Congress during 1991, reviewing prior ERTA and TRA86 changes and growth in IRA contributions. It argues that even if IRAs increase personal saving, lost revenues can worsen federal deficits and may encourage additional household borrowing and consumption, reducing future domestic investment and capital formation.",{"@graph":14,"@context":73},[15,34,56],{"@type":16,"itemListElement":17},"BreadcrumbList",[18,23,27,31],{"item":19,"name":20,"@type":21,"position":22},"https://docshare.wps.com","Home","ListItem",1,{"item":24,"name":25,"@type":21,"position":26},"https://docshare.wps.com/document/","Document",2,{"item":28,"name":29,"@type":21,"position":30},"https://docshare.wps.com/document/research-report/","Research & 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1991?","Question",{"text":63,"@type":64},"Congress was considering legislation that would again expand federal tax deductions for IRA contributions in response to falling U.S. saving rates.","Answer",{"name":66,"@type":61,"acceptedAnswer":67},"Why might IRA tax subsidies fail to increase national saving?",{"text":68,"@type":64},"The text argues that IRA deductions reduce federal revenues, potentially increasing the federal deficit, and that subsidy windfalls may also raise consumption rather than only private saving.",{"name":70,"@type":61,"acceptedAnswer":71},"How could IRA subsidies affect household debt and consumption?",{"text":72,"@type":64},"Allowing tax deductions for IRA contributions can create incentives for increased household borrowing, and the subsidy may contribute directly to higher consumption if not offset by reduced government spending or higher 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\nSaving,s advised th provetial antto the spendthrift grasshopper,allows anindividual to “prepare today for the wantsof tomorrow.”Likewise for an econ-omy,national saving provides resourcesfor capital accumulation,expanding theeconomy's future productive capacityand hence its future potential output.Theprecipitous decline in average savingrates during the 1980s,as measured bythe National Income and Product Ac-counts(NIPA),has convinced many thatwe have become a nation of grasshop-pers in need of policies that will tum usback into a nationof ants.²  \nAmong thecurrently popular policyoptions aimed at increasing nationalsaving are proposals that would estab-lish personal saving incentives by ex-panding federal tax deductions for con-tributions to individual retirementaccounts(IRAs).One version of thistype of policy was recently introducedby Senators Lloyd Bentsen(D-Texas)and William Roth(R-Delaware).  \nAt least some of the support for IRAtax subsidies is a result of recent U.S.experience.Preferential tax treatmentof IRAs,which had been available to alimited number of people since the mid-1970s,was made available to all wageearners by the Economic Recovery TaxAct of 1981(ERTA).These deductionswere substantially curtailed by the TaxReform Act of 1986(TRA86).³  \nContributions to IRAs grew dramaticallyin the period between ERTA and TRA86,accounting for nearly 25 percent of  \n# Increasing National Saving:Are IRAs the Answer?\n\npersonal saving by 1986.Although theirclaims are controversial,several formalstudies suggest that a considerable frac-tion of this growth represented net addi-tions to personal saving.  \nEven if this is true,evidence that IRAsubsidies are effective inincreasing per-sonal saving does not necessarily sup-port reinstatement of the subsidy provi-sions in place prior to TRA86.Onewell-known problem that policymakersmust consider involves the contributionof IRA tax breaks,which reduce federalrevenues,to growth of the federal defi-cit.Even if IRA subsidies do increasepersonal saving,it is far from clear thatthey have a positive effect on nationalsaving.In the current debate,this ten-sion between IRA policy and deficitreduction efforts is manifested inbudget rules requiring that all lostrevenues be replaced through expendi-ture reductions or alternative taxes.  \nA further,and less discussed,problem isthe potential link between proposed IRAsubsidies and household debt.Allowingtax deductions for IRA contributionscan —and will,we argue—create in-centives for increased household bor-rowing.At a time of growing concemabout the level of private-sector debt,itwould indeed be ironic ifpolicymakersadopted a tax policy that had the conse-quence,unintended as it might be,ofincreasing household leverage.  \nIn contrast to policies that subsidizeparticular forms of personal saving are  \nSeptember 1,1991  \nIn response to falling U.S.saving rates,Congress is considering legislation thatwould once again expand federal taxdeductions for IRA contributions.Butevidence shows that attempting tostimulate national saving by subsidiz-ing personal saving has serious draw-backs,such as incompatibility withrecent budget reforms and increasedincentives for household borrowing.The authors argue that curtailingdeductions for persona interest ex-pense would be a more effective strat-egy for increasing national saving.  \nthose that would eliminate subsidies toparticular types of personal borrowing.An example of the latter is legislationintroduced by Congressman FrankGuarini(D-New Jersey)that would re-strict interest deductions on certain pur-chases made from home-equity loans.  \nThe problems that mitigate the useful-ness of IRAsubsidy plans as policytools for increasing U.S.saving rates donot arise under the type of policy con-templated in the Guarini proposal.Ourprincipal message in this EconomicCommentary is that,given the goal ofincreasing national saving by inducinggreater personal saving,IRA subsidyschemes are ","cbCaiaUI00DOWdVD","https://ap.wps.com/l/cbCaiaUI00DOWdVD","pdf",1287925,"English","# Increasing National Saving: Are IRAs the Answer?\n## IRAs,Consumption, and the Federal Deficit","[{\"question\":\"What policy change was Congress considering regarding IRAs in 1991?\",\"answer\":\"Congress was considering legislation that would again expand federal tax deductions for IRA contributions in response to falling U.S. saving rates.\"},{\"question\":\"Why might IRA tax subsidies fail to increase national saving?\",\"answer\":\"The text argues that IRA deductions reduce federal revenues, potentially increasing the federal deficit, and that subsidy windfalls may also raise consumption rather than only private saving.\"},{\"question\":\"How could IRA subsidies affect household debt and consumption?\",\"answer\":\"Allowing tax deductions for IRA contributions can create incentives for increased household borrowing, and the subsidy may contribute directly to higher consumption if not offset by reduced government spending or higher taxes.\"}]","Increasing National Saving: Are IRAs the Answer? | PDF",1789972294]