Creation of new savings accounts as proposed by President Bush in his last few budgets would cost the Treasury Department far more in revenues annually over time than the government currently is estimating, a Congressional Budget Office staffer says in a new working paper.
The bulk of the cost would be through the creation of Lifetime Savings Accounts, which the insurance industry opposes, the report says.
The report is likely to add fuel to the fire over the cost and advantages of the new savings vehicles, which include LSAs and Retirement Savings Accounts, or RSAs.
The projections in the report are different from the near-term budget estimates that have looked at the cost of setting up LSAs and RSAs in the next few years.
“This report provides further evidence of problems that would result from adoption of these proposals,” said Jack Dolan, a spokesman for the American Council of Life Insurers.
Spokesmen for the National Association of Insurance and Financial Advisors also said the report buttressed their long-standing opposition to creation of both instruments.
“Since LSAs first were proposed, NAIFA vehemently has opposed thembecause they undermine, rather than promote, long-term savings,” said Jim Edwards of NAIFA.
He added that the CBO report “now gives us another reason to questionwhether these savings vehicles are a good idea.” He explained that the CBO study “underscores the point that little new savings will be created over 25 years. Rather, people who are now currently saving will tend to move currently taxed savings into non-taxable LSAs.”
Edwards said the CBO paper notes that doing so will produce a significant downturn of federal revenues in the future. “We are left with a proposal that discourages long-term savings and decreases federal revenue over time,” he said. “NAIFA then asks: for what purpose?”