'Universal Savings Accounts'

President Clinton has finally filled in many of the blanks in his State of the Union proposal to create a new type of personal retirement account.

The president would grant eligible workers a $300-per-person annual tax credit to be invested in the "Universal Savings Accounts." The government would also match up to $700 per couple in money workers save on their own.

The key, of course, is the fine print. The $300 tax credit would begin to phase out for households earning $40,000 a year, with those earning $80,000 or more ineligible. The government matching funds would begin to phase out for households earning about $40,000 a year: By $80,000 a year the matching funds would dip to 50 cents on the dollar. Those households earning more than $100,000 per year would not be eligible for the program unless they had no retirement plan at work. Thus a large group of Americans who consider themselves more middle class than wealthy would only partially benefit.

The general idea of personal retirement accounts for middle-income people, however, is a good one. It would be a tax cut for those eligible. Anything that encourages people to save for retirement benefits the economy as well as the savers.

But care must be taken to limit distortions from a sudden surge of money into the market during the start-up. And yet another tax credit simply adds to the complexity of a tax code that is like the weather: Everyone complains, but no one does anything about it. In addition, Mr. Clinton would create the accounts out of the projected budget surplus: That would effectively create yet another entitlement program.

The country is already grappling with two entitlement programs that are in jeopardy: According to current estimates, Medicare goes bankrupt in 2015 and Social Security in about 2034.

It seems unwise to spend part of the non-Social Security surplus over the next 10 or 15 years on a new entitlement program (which would surely become a "right" over time) when some of that money may well be needed to move to reformed Social Security and Medicare programs.

A wiser approach, as we have noted before, would be to create personal retirement accounts using a percentage of workers' payroll taxes as part of comprehensive Social Security reform. That creates no new entitlement, yet would allow wage earners to save for retirement and obtain the higher returns that prudent investment in the stock market would bring. Within the context of Social Security, everyone could participate, not just those with lower incomes as in the Clinton plan.

There's plenty of room within the proposals on the table for Congress and the White House to agree on a plan. It's time to get cracking.