Lipstick, Light Beer, And Back-Loaded Savings Accounts‪.‬

I. INTRODUCTION In recent years the Bush Administration has repeatedly advanced proposals to expand opportunities for tax-preferred saving beyond the targeted subsidies allowed under current law. Specifically, the Administration envisions three new types of accounts--a Lifetime Savings Account (LSA), a Retirement Savings Account (RSA), and an Employer Retirement Savings Account (ERSA)--that would profoundly alter the treatment of tax-preferred savings. (2) Although these proposals are ostensibly intended to simplify the law by consolidating numerous existing categories of tax-preferred accounts, they also depart sharply from the traditional approach of targeted tax incentives aimed at encouraging saving for retirement or other specific purposes. In contrast to existing special-purpose savings vehicles, funds in an LSA could be withdrawn at any time without penalty and used for any purpose, including retirement, education, health care, or other personal needs. In addition, RSAs would increase contribution limits and lift restrictions on access to tax-preferred individual retirement savings for high-income earners who are already covered by a retirement plan. Similarly, ERSAs would significantly relax existing restrictions on employer-sponsored retirement plans. Taken together, the new accounts would exempt increasing amounts of capital income from taxation and eventually shift a corresponding share of the tax burden onto labor income.