WASHINGTON -- Two economists associated with the Philadelphia Federal Reserve have proposed a new kind of bank account that they say would boost private savings at all income levels.

B. Douglas Bernheim and John Karl Scholz say a savings account that gives tax breaks only for a certain portion of savings, varying by income level, would induce people of all incomes to save more.

These "premium savings accounts" would be more effective, they argue, than two popular means of stimulating savings: pension funds and individual retirement accounts.

Variable Floors and Ceilings

"The most important feature of a PSA system is that floors and ceilings would vary" with adjusted gross income, the two economists wrote in the September-October issue of the Philadelphia Fed's Business Review.

"Eligibility windows could be positioned to maximize, within each income class, the number of households receiving tax breaks on the marginal dollar of saving."

Mr. Bernheim is an economics and business professor at Princeton University, and recently served as a visiting scholar at the Philadelphia Fed. Mr. Scholz is an assistant professor of economics at University of Wisconsin, Madison.

Concern over Low Savings

The nation's low -- and declining -- rate of private savings has concerned many economists and policymakers in recent years.

According to their report, Americans saved 6.4% of their disposable personal income between 1980 and 1991, compared with 9.8% among many European countries and 15.7% in Japan. And since the mid-1980s, the rate of U.S. household savings has dropped well below its historical average.

That problem is of particular concern, the authors argue, because younger, lower-income and less-educated Americans in particular are poorly prepared for retirement.

Among college-educated individuals, the economists' analysis suggests, pension funds merely displace other savings. Thus, the funds are only effective at increasing savings among the less educated, who have far less access to the funds than others.

An expanded IRA would not be very effective at increasing savings either, they say. Since contributions are capped, they provide little incentive for higher-income individuals to save more.

Critical of IRAs

And lower-income individuals are less responsive to the IRA tax breaks. IRAS could even reduce savings, they argue, by increasing total after-tax resources.

Under their proposal, tax breaks would be focused on a window of savings that varies by income. For example, a married couple with income of $30,000 could receive tax breaks on the first $4,000 it saves, making the eligibility window $0 to $4,000.

But a couple with an income of $120,000 would be eligible for the same tax breaks only after saving $16,000. For this family, the floor would be $16,000 of savings and the ceiling would be $20,000.

Tax Disclosure Plan Sparks Complaints

WASHINGTON -- Depository institutions are crying foul over a proposal that they comply with tax disclosure rules from which non-bank lenders would be exempt.

The Internal Revenue Service on Wednesday issued guidance on proposed rules that would require depository institutions to report cancellations of borrowers' indebtedness to the agency to help it know when to tax them on the forgiven amount.

"A borrower is going to say,... |Why are you finking on me to the IRS?'" said Brian P. Smith of Savings and Community Bankers of America.

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