WASHINGTON - Tax incentives for saving and retirement form the core of tax programs in the president's proposed budget, which also asks lawmakers to make recently passed tax cuts permanent reductions.
The president's 2005 budget asks Congress to consolidate a myriad of retirement savings accounts into two types, one for individuals and one for employees.
Taxpayers would be permitted to put up to $5,000 each year into their individual retirement savings accounts and into a lifetime savings account, which could be tapped for any reason. Bush had previously proposed that individuals be allowed to put as much as $7,500 into each account.
Lower-income individuals would be encouraged to save with a dollar-for-dollar matching contribution up to $500.
The president also proposed new rules for companies that convert traditional pension plans into employee savings accounts, a change that sometimes harms older workers. For five years after the conversion, the accounts would have to be at least as valuable as the benefits an employee could have expected from the pension.
"The savings options proposed today will give all Americans the opportunity and flexibility they need to save for their retirement security and other needs," said Assistant Treasury Secretary Pam Olson.
The entire package of tax changes would cost $1.1 trillion from 2005 through 2014. Some of the envisioned tax cuts aim to encourage more health coverage, charitable giving, telecommuting and energy production. The cost of these programs is partly reduced with proposals to discourage tax sheltering and improper deductions.
The cost of making tax cuts already passed into permanent law would cost $936 billion from 2005 through 2014. Expiring items range from a more generous child tax credit, to reduced taxes on capital gains and stock dividends, to a complete elimination of the estate tax. Making the reduction in income tax rates permanent would prove the most costly during the coming decade.
The changes appear to propose no long-term changes to the alternative minimum tax, which originally curbed tax sheltering among high-income taxpayers but increasingly affects middle-income families.
Bush also wants to expand a deduction for teachers who spend their own money on classroom supplies. An existing deduction for teachers expired at the end of 2003. Another change would allow employers to give computer equipment to telecommuters, without causing tax consequences for workers.