Critics take exception to 'all savers' aid for S&Ls

"The $4 Billion Bailout. House of cards. Giveaway. A truly wretched piece of legislation." Critics of the all-savers certificate don't mince words. The certificate is a tax-exempt savings vehicle designed to aid hard-pressed savings-and-loan associations. Tacked onto both pending congressional tax bills with little fanfare, the certificate is suddenly being bombarded by an army of lobbyists and editorial writers. The nicest thing critics say is that it is cunningly named.

The all-savers plan "would create a huge tax windfall to banks and savings-and-loan associations at the expense of 30 million Americans who own stocks, bonds, and mutual fund shares," said David Silver, president of the Investment Company Institute, a lobbying group for mutual funds.

The certificate is well intentioned. Hardpressed savings-and-loan associations have been watching their funds march out the door at a record pace, while their best customer -- the housing industry -- begs for more loans with lower interest.

The all-savers certificate would give the S&Ls (and, in the House version, any savings institution that offers mortgages) a source of cheap money to fill their coffers. For one year, thrifts would be allowed to offer savings certificates yielding 70 percent of the one- year Treasury bill rate. At today's T-bill rates of about 14 percent, the new certificate would pay around 9 .8 percent.

The House version would require the new funds to be spent on mortgages.

For savers buying the certificates, interest earned would be tax free -- up to $1,000 for individuals, and $2,000 for those filing a joint return.

The federal government would lose $5.07 billion in lost taxes through 1984, according to Treasury department figures.

The S&L industry lobbied hard to get the certificate tucked into the congressional tax bills. Eighty S&Ls have been merged out of existence this year, and the proposed All-Savers Act could increase the industry's liquidity and prevent Washington from having to revive failing S&Ls with direct cash transfusions.

"It might be cheaper for the federal government to do it this way," a congressional tax staff member said.

But many staffers involved with tax legislation call the All-Savers Act a boondoggle. And money-market mutual funds, which stand to lose some cash to the new certificates, are screaming like soccer players who've been fouled when the referee wasn't looking.

Critics make these objections:

* It won't encourage new saving. Eighty percent of the certificates will be purchased with money now in S&L passbook accounts, according to congressional estimates. The rest would be bought with cash from money funds or other sources.

"If you don't have a savings incentive at the margin, you're not going to get much new saving," a Treasury official says.

* The certificate doesn't help small savers. Though it's more attractive than keeping your cash in a passbook account that dribbles 5.5 percent interest, the certificate still could not match the money funds for most investors.

"The way it is designed, you have to be above the 30 percent tax bracket" for the new certificate to be attractive, says one staff member. Another claims any person of modest means "would have to be fairly silly" to buy one.

* It would force states and cities to raise rates on their tax-free municipal bonds.

* Some fear the one-year time limit will be extended, creating a tax loophole those in high brackets will merrily hop through.

The administration's attitude on the all- savers certificate has run the gamut from frigid to lukewarm.

John Chapoton, assistant secretary of the Treasury for tax policy, has been quoted as opposing the amendment, saying the question is whether Treasury can come up with "an imaginative enough argument" to dump it.

But White House spokesman Larry Speakes has said the certificate is "not something we feel strongly about." Those close to the bill say the administration does not want to endanger the entire tax package in a squabble over one amendment.

In a press conference last week, the Senate Finance Committee chairman, Bob Dole of Kansas, said about the certificate, "We're looking for better ideas between now" and when the tax bill reaches the Senate floor around July 15.

Those "better ideas" could include increasing the allowable deposits in individual retirement accounts, a larger dividend-and interest-tax exclusion, or tax-free status for a "net savings" measurement.

At present, an All-Savers Act is included in both the Senate Finance bill and the House version being marked up by the Ways and Means Committee.

How did something with such tepid political support get so far?

"That's a good question," says a congressional staff member. "It was an extremely well-orchestrated, well-timed lobbying campaign on the pa rt of the thrift industry."