This week Vice President Al Gore announced a proposal for a new plan that allows American workers to build up savings through new investment accounts. Called Retirement Savings Plus, the Gore plan would provide $ 200 billion in tax credits over 10 years to low- and middle-income workers who choose to participate. Gore offered his proposal as an alternative to a Social Security reform plan offered by Gov. George Bush. Bush's plan would let young workers put part of their payroll taxes into private investment accounts. "This (plan) is Social Security plus, not Social Security minus," said Gore. "It doesn't come at the expense of Social Security. It comes in addition to Social Security." Critics say Gore's plan has nothing to do with Social Security, but is rather an attempt to blunt the popularity of Bush's plan. Still, the plan could encourage more workers to save and invest - especially those workers who don't do much saving now. But at what cost, ask critics. They say Gore's savings plan would create a new entitlement that would further strain federal coffers, already facing big outflows when Social Security stops paying for itself in 2017. "Gore 's new plan has no effect on Social Security revenues or the future liabilities of the system," said Lawrence Kudlow, senior managing director of ING Barrings. Gore's retirement savings plan would offer tax credits for workers who make less than $ 100,000 a year. Those couples who make under $ 30,000 or individuals who make under $ 15,000 would get the biggest benefit: $ 3 for each dollar invested, up to $ 2,000 a year. These so-called matching funds are designed to spur more savings for retirement, home-buying, education and health care. "Gore's plan would protect Social Security as the bedrock of retirement, while adding a new option for people to save for their retirement tax free and even have their contributions matched by the government to build up their nest egg," said Gore spokesman Doug Hattoway. The plan's critics concede it would give those families who already save a big incentive to participate. But they note that the barrier to saving for low-income workers is discretionary income. In fact, only 2.4% of American households with incomes less than $ 30,000 now save through tax-favored individual retirement accounts, IRS figures show. One indication that it might not help the savings rate of low-income workers is that the fastest growing entitlement at the federal level is the earned income tax credit. That credit is refundable in much the same way as Gore's plan would be. "It is precisely at this low end - $ 17,000 to $ 25,000 in annual income - which has the worst savings rate," said Kudlow. "The saving rate in these households is actually negative. They already receive a refundable tax credit (EITC), and it is used primarily for consumption, not savings." The Gore plan's effects on savings rates is unclear. So is its claim on federal revenues. The Gore camp estimates the 10-year cost will come to $ 200 billion. Yet Gore adviser and former Federal Reserve Board member Alan Blinder had trouble explaining how they arrived at the figure. "Nobody should expect that this will hit 100% of the population, but it is the greatest incentive that has ever been offered. What we do not know is what would be the (participation) rate," said Blinder. Critics see the estimate, and the plan, as more political than economic. "They stuck a finger in the air and picked a number," said Marty Regalia, chief economist of the U.S. Chamber of Commerce. "Part of the reason that it came up at $ 200 billion is that that is what they figure the overage in the new numbers on the projected surpluses will be," he added. The government is expected to release higher surplus estimates starting next week. Kudlow agrees, noting that Bush's plan has struck a chord among some voters. "Gore is responding to the very favorable polling data concerning Bush's personal retirement accounts," he said. Gore is also banking on the political popularity of Social Security. He's charging that the Bush plan will undermine the system by removing revenues from it, to which Bush hasn't responded. Gore has sworn to protect Social Security, not necessarily reform it. Calls for reform have come from the likes of Sen. Daniel Patrick Moynihan, D-N.Y., and Rep. John Porter, R-Ill., because the system will start running a deficit in 2017. Gore has proposed a rescue plan that will tap general revenues when the system starts running in the red. First, he would use the Social Security surplus to pay down the national debt. He would then credit the payments to the system and use interest savings to shore it up. Gore says this would extend the life of the trust fund until 2050. But President Clinton's fiscal 2000 budget casts doubt on that approach. The budget report said, "(The trust funds) do not consist of real economic assets that can be drawn down in the future to fund benefits. Instead they are claims on the Treasury that, when redeemed, will have to be financed by raising taxes, borrowing from the public or reducing benefits or other expenditures." In order to pay off those IOUs, the government will have to hike income taxes by at least 16%, or it will have to borrow over $ 10 trillion to bail out the system between 2017 and 2037, notes the Citizens for a Sound Economy using government figures. "Gore's (Social
Security) plan, even if it were possible to protect the interest savings for Social Security, does nothing to address the solvency of the system," said Scott Hodge of Citizens for a Sound Economy. "The interest savings provided under his plan would only cover 12% of the unfunded liability." Hodge added, "By ignoring Social Security's impending financial collapse, Gore is implicitly raising taxes on tomorrow's workers or sticking them with a debt burden six times greater than today's national debt."