NEW TAX-DEFERRED SAVINGS LIMITS MAKE SENSE

Americans have come a long way since our New England forefathers taught Yankee thrift. In the intervening years, Americans have become the most prosperous people in the world. But when it comes to savings, they manage to come in dead last among fully developed and industrialized nations.

As a matter of fact, it is startling to learn that Americans have a savings rate, based on how much after-tax income they set aside, of zero. Sure, lots of us sock away money in IRAs, 401(k) plans, certificates of deposit and passbook savings accounts. But there are so many others who don't that the overall rate doesn't even register.

Consider this: It could be worse.

Until tax-deferment plans like IRAs, which put off paying taxes on interest earnings, and 401(k) plans, which put off paying taxes on invested dollars as well as earnings came along, the savings habits of Americans were even more dismal. Those plans have sparked savings, but the rate of savings remains at Depression-era levels.

If Americans are hoping Social Security will pay the bills in retirement years, they ought to look at the facts. Most financial planners get hoarse from preaching the need to save in addition to any Social Security taxes withheld from your annual income. And while the future of Social Security may be politically secure, there is no guarantee that benefits won't be cut in order to keep the program afloat even more reason to save on your own.

By an overwhelming vote, the U.S. House of Representatives recently approved a plan that would increase contribution limits for both IRAs and 401(k) plans to $5,000 (from $2,000) and $15,000 (from $10,500) respectively. Congressional estimates show that phasing these increased limits in over 10 years would reduce federal revenue by more than $52 billion.

With a surprisingly large number of House Democrats favoring the plan (182 Democrats joined Republicans in voting for the bill), President Clinton hasn't issued his standard "I'm going to veto it" speech, but he has complained that the plan doesn't do enough for low-income Americans.

Another part of the plan would create even higher savings limits for Americans over the age of 50 who, for the most part, haven't practiced good savings habits and need to sock away even more money just to catch up.

All of the proposed increases in tax-deferred savings make good sense. The U.S. Senate has promised to take action on the bill in September. The sooner the better.