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Tax to Encourage Savings Holds Promise
By Jonathan Nicholson WASHINGTON (Reuters) - The looming political battle over how to reform the tangled U.S. income tax code could get ugly. But one option, a tax aimed at boosting savings, holds promise. The Unlimited Savings Allowance (USA) Tax, a form of consumption tax, has made little public splash so far. But in 1996, the height of the last big Washington lurch toward tax reform, it was considered a leading contender for adoption, along with the flat tax and a national sales tax. Now, with the United States facing record budget deficits and dependent on foreign capital flows because of the low domestic savings rate, the USA Tax may get another hearing. The Bush administration plans to name a bipartisan panel soon to suggest tax reforms. President Bush has said generally the code should be "simpler, fairer and more pro-growth" but has declined to be more detailed. 'NEW COVENANT' At its core is the idea that saving and investment are good and should be encouraged by the tax code. The USA tax would allow taxes to be deferred on income that is saved or invested until that money is spent. It would also allow some current popular deductions to be retained, including those for charitable giving and home
mortgage interest. Advocates say such a move would give individuals greater power over their tax bills, by deciding how much to spend or save. They also say it would be progressive, keeping the current tilt of the tax code for higher rates on the rich and lower ones for the poor. Laurence Seidman, an economics professor at the University of Delaware and author of "The USA Tax: A Progressive Consumption Tax," has proposed a twist on the original idea: keep current income tax rates and brackets the same, but apply a USA Tax to the wealthy in
place of the existing estate and alternative minimum taxes. Seidman calls his idea "a new covenant with the affluent," who are small in number yet pay a large part of overall taxes. Continued ...
Source: reuters.com