Bensten Cites New Study In Backing IRA Tax Break

THE United States savings rate fell sharply after Congress slashed tax deductions for most individual retirement accounts (IRAs), according to a congressional study released Saturday by Sen. Lloyd Bentsen (D) of Texas. Mr. Bentsen, chairman of the Senate Finance Committee, has called for restoring partial tax deductions on contributions to IRAs instead of cutting the capital-gains tax. He said the new study shows their effectiveness in promoting savings.

The study said the personal savings rate averaged 5.3 percent of disposable income from 1982 to 1986, when tax deductions on IRAs were cut back. Since then it has averaged 3.7 percent. The rate fell to 3.2 percent in 1987-88, the lowest in 40 years, the study said.

Savers contributed $38 billion to IRAs in 1986, but the amount fell to almost half that the following year, according to the study by an economist for the Joint Economic Committee of Congress.

Bentsen has proposed a deduction of at least 50 percent for all IRA accounts. His plan would allow the withdrawal of IRA funds without penalty at the time of retirement, for a down payment on the purchase of a first home, or to finance college costs.

Bentsen contends his plan would have a much broader base of support than a cut in capital gains. The House Ways and Means Committee, over the objections of the House Democratic leadership, voted Thursday for reducing capital-gains tax.