Are Americans Saving Enough?

THE great debate over the United States personal savings rate has begun again. Politicians are scrambling to tout savings programs in order to garner the billions of investment dollars needed to finance industrial expansion, spur productivity, and offset costly dependence on overseas capital. The US savings rate continues to fall below historical averages, despite recent gains. In February, the personal savings rate was 5.3 percent. It jumped to 5.8 percent in March, up from the 3 to 4 percent annual levels of the 1980s and close to its long-term annual rate of around 6 percent. In Europe and Asia, personal savings rates come in at between 10 percent and 20 percent or more.

The recent hike in savings is probably explained more by Americans ``not buying a new car than by a conscious decision to save more,'' says Cynthia Latta, an economist with DRI-McGraw Hill, a consulting firm in Lexington, Mass. Current slow car sales are linked to consumer concerns about a possible recession.

Savings are increasingly trumpeted as a national virtue in Washington. In the past few months, the US Treasury has been urging Americans to save for their children's college education by buying Series EE savings bonds. Interest on bonds purchased after Dec. 31 of last year will be free of all federal income taxes if used for tuition for college or technical education.

Not bad, say Treasury officials, considering that savings bonds are already exempt from state and local taxes and can earn some 85 percent of the average yield on five-year US Treasury notes.

That's only the beginning in Washington's call for greater savings. President Bush continues to push for a reduction in the capital gains tax rate. Sen. Lloyd Bentsen (D) of Texas seeks to enlarge public participation in the Individual Retirement Account (IRA) program. That savings plan has fallen onto hard times since passage of the Tax Reform Act of 1986, when eligibility requirements for middle-income households were tightened.

Meantime, the White House promotes its ``family savings account'' plan, which would allow Americans to salt away tax-free dollars if held for a minimum period of time, such as seven years.

The renewed interest in savings has economists and policymakers debating several questions: Is the US savings rate really as bad as it appears to be? Should Americans be saving all that much more? If so, who should be doing the saving - the working poor, the middle class, or the rich?

As the population ages, the savings rate can be expected to increase naturally, says Kathryn Kobe, an economist with Joel Popkin & Co., an economic consulting firm in Washington. As people mature, they tend to salt away more. ``Baby boomers are such a large group that if they follow the traditional pattern, we'll see a higher savings rate over time,'' she predicts.

But what about a major increase in savings now? ``If consumers were to suddenly be big savers, even by an amount as small as 2 percent more, we'd probably throw the economy into a slump,'' says Ms. Latta of DRI-McGraw Hill. The reason? Expenditures by consumers account for 67 percent of the overall gross national product.

With economic growth crawling along between 1 and 2 percent, any significant drop in spending could have negative implications for such capital-intensive industries as housing and construction, (already in a downturn in many areas), as well as producers of big ticket items such as appliances.

Many economists believe that the US savings rate may not be as bad as reckoned by official federal statistics - the so-called ``personal savings rate'' compiled by the Commerce Department. The problem is that large elements in the national accounts that are categorized as spending in the US are counted as ``savings'' in other nations.

Alicia Munnell, chief economist at the Boston Federal Reserve Bank, noted in a recent New England Economic Review that spending on infrastructure (public capital) and education and training (social capital) contribute as much to national economic growth and prosperity as private investment. But public and social capital are not usually counted as ``savings'' in the US. Yet, in 1987 alone, public capital stock, according to Munnell, was $2.3 trillion, compared with $4 trillion in the private sector.

Another broad savings measurement would logically include pension and social insurance funds. Fred Block, chairman of the sociology department at the University of Pennsylvania, notes that ``savings rate'' statistics undermeasure contributions to pension and social insurance funds, which are counted in the national income and product accounts as personal income.

Dallas Salisbury, president of the Washington-based Employee Benefit Research Institute, sees only a ``patina'' of a national policy to deal with savings. Under this ``minimalist'' approach, Washington policymakers figure Americans should have enough savings to finance roughly an ``average'' standard of living after retirement. But the patchwork of laws that have arisen out of that philosophical framework causes grumbles from the opposite ends of the economic spectrum. The working poor and many people in the lower-middle class find it almost impossible to save, given family demands on their paycheck. And the upper-middle class finds tighter eligibility on IRAs, discouraging some savings.

While only about 14 percent of all tax filers can no longer get a full deduction for an individual retirement account, they represent the very segment of the population most able to save.

Salisbury puts the likelihood for a new national savings plan this year at less than 50 percent. And if something is enacted, it probably won't be a comprehensive policy.