Tax Credit Plan to Encourage US Savings

August 1, 2005 ( - The House Ways and Means Committee is said to be considering a plan by tax lobbyist Richard Grafmeyer that would encourage individual savings by giving tax credits to institutions for matching those savings.

According to the Washington Post, the plan is for workers earning $50,000 or less who open a savings plan with their employer, a financial institution, or a tax preparer such as H&R Block.   The institutions would match the savings at 50 cents on the dollar up to a maximum contribution of $2,000 and receive a federal tax credit to cover the cost of the match.

US Representative Jim McCrery (R-Louisiana), chairman of the House Ways and Means subcommittee on Social Security said workers could also check a box on their tax returns to direct their earned income tax credits or tax refunds into these savings accounts, according to the Post.   He also said such policies could then be coupled with a significant boost to the maximum annual deposit limits in 401(k) plans and individual retirement accounts.

The new saver’s credit could also help employers offer another savings option to their highly compensated employees without breaking any antidiscrimination rules of traditional employer savings plans.