Bush's Plan for Pensions Is Now Given Low Priority

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Bush's Plan for Pensions Is Now Given Low Priority

By EDMUND L. ANDREWS, NY Times

February 26, 2003

Doug Mills/The New York Times

President Bush at a White House economic meeting with Labor Secretary Elaine L. Chao and Treasury Secretary John W. Snow. Administration officials now discuss the proposals for pension contribution changes sparingly, when asked.

WASHINGTON, Feb. 25 — Less than a month after President Bush proposed a radical overhaul and expansion of individual retirement and savings accounts, the White House has abandoned the idea as a legislative priority.

Administration officials say they still support the idea, which would allow nearly all Americans to avoid taxes on virtually their entire income from investments, but the officials no longer even mention it unless asked about it first.

In a spate of recent speeches and private meetings to promote Mr. Bush's $674 billion "economic growth package," which is focused on eliminating taxes on most dividends and accelerating the tax cuts Congress approved in 2001, Treasury Secretary John W. Snow has studiously avoided the pension and savings proposals.

"For us, the jobs and growth package is the No. 1 priority," said Rob Nichols, a spokesman for Mr. Snow. "Everything else is secondary."

Today, for example, Mr. Snow spent much of the day in closed-door meetings on Capitol Hill with top Republican lawmakers. But administration officials say he did not discuss the proposals for a new class of retirement plans.

It was clear from the beginning that the savings proposals were not likely to make much headway in Congress quickly. In large part, the backpedaling reflects hostile reactions from Republicans who were not consulted in advance and were taken aback by the sweep of the Bush administration's proposals.

Administration officials, speaking on condition of anonymity, say they will not even begin to push for their pension proposals until this fall, and some say the plan could easily be dropped in the heat of negotiations about other issues.

That is a significant retreat. When the administration announced the proposals on Jan. 31, officials called them a daring way to increase savings and expand retirement opportunities.

President Bush created something of a storm when he included the retirement proposals in his budget plan early this month.

Pam Olson, assistant secretary of the Treasury in charge of tax policy, said on the day the plan was announced, "These bold new accounts will give more hard-working Americans the chance to save so they can enrich their lives and strengthen their retirement security."

The proposals call for replacing today's individual retirement accounts with a new class of tax-advantaged savings accounts. One proposal, for so-called Lifetime Savings Accounts, would allow a married couple to set aside up to $15,000 a year and permanently shield from taxes all investment income produced by that money.

In contrast to today's retirement accounts, people would be able to withdraw money any time they liked and use it for anything they wanted. On top of the lifetime accounts, taxpayers, regardless of income and any other pensions they might have, would also be able to deposit $7,500 each in new Retirement Savings Accounts that would also shield all investment gains from taxation.

House Republican leaders have been working on a much more modest plan to expand individual retirement accounts and have been laboring mightily to build bipartisan support.

Democratic opponents argue that the proposals would lead to an enormous drain on future tax revenue, because almost all investment income to individuals would eventually be shielded from taxes.

They have also been taken aback by parts of the plan that would essentially eliminate ordinary retirement accounts, which allow people to receive a tax deduction of up to $3,000 a year upfront, when putting money into the accounts. These remain popular with many middle-income taxpayers.

Democratic lawmakers also object to provisions relaxing rules aimed at preventing companies from offering their top executives far more generous retirement benefits than ordinary workers.

Administration officials say their proposals still make sense. While suggesting that they could emerge in the future as part of a broad tax overhaul, they now stress that the proposals are not an immediate priority. They point out that Mr. Bush did not even mention them in his State of the Union address on Jan. 28.

R. Glenn Hubbard, chairman of the White House Council of Economic Advisers, said today that he was spending nearly all his time promoting the president's tax plan and that a second priority was working on proposals to overhaul Medicare.

"The important thing from the administration's perspective is to get the jobs and growth bill passed," Mr. Hubbard said today. "The savings incentives are really about long-term policy."

Republican leaders in Congress, meanwhile, want little to do with the proposals. Representative Rob Portman of Ohio, the House Republicans' liaison with the White House, is planning to introduce a much more modest plan to expand tax-advantaged retirement accounts.

Mr. Portman's plan, which is being drafted in collaboration with Representative Benjamin L. Cardin, Democrat of Maryland, is expected to have bipartisan support but be far less sweeping than the administration had suggested.

Among other things the plan would increase the amount of money people can contribute to individual retirement accounts and 401(k) plans.

"I think that's going to be the top priority as far as we are concerned," a senior Republican official in the House said. If White House officials do not push hard, he added, the Bush retirement proposal will have no chance whatsoever.

If Mr. Bush decides not to push his idea this year, that does not mean it is dead. Many analysts say the retirement proposals mesh with what appears to be Mr. Bush's long-term goal of removing most taxes on investment income and toward a system that essentially taxes only consumption.

Representative Earl Pomeroy, Democrat of North Dakota and a staunch opponent of the Bush retirement proposals, said the battles were far from over.

"They don't even want this under debate right now," Mr. Pomeroy said. "But they're signaling where they want to go."